BACKBONE CORPORATION LIMITED,MUMBAI vs. INCOME TAX OFFICER, 15(1)(3), MUMBAI, MUMBAI

This appeal filed by the assessee is directed against the order dated 25.01.2024 passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”] for A.Y. 2010-11 arising from the assessment order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961.

Brief facts of the case are that assessee-company had not filed its return of income for the year under consideration. The Assessing Officer observed from 26AS/AIR information that during the relevant

Aggrieved, assessee carried matter before the Ld. CIT(A). Before the Ld. CIT(A), assessee challenged validity of reopening as well as addition made u/s 2(22)(e) of the Act. It was submitted that amount received from M/s Backbone Construction Pvt. Ltd. was immediately remitted to M/s Backbone Enterprises Ltd., Canada for business purposes and therefore transaction was commercial transaction not covered by provisions of section 2(22)(e). Reliance was also placed on CBDT Circular No.19 of 2017 and judicial precedents. However, the Ld. CIT(A) was not convinced with submissions of assessee and held that assessee failed to establish commercial expediency or business necessity of transaction. The Ld. CIT(A) accordingly upheld action of Assessing Officer in treating amount of Rs.3 crore as deemed dividend u/s 2(22)(e) of the Act.

During the course of hearing before us, the Ld. Authorised Representative submitted that assessee has raised two additional grounds which are purely legal grounds arising from facts already available on record and therefore same deserve to be admitted in view of decision of Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. vs. CIT 229 ITR 383 (SC). The additional grounds raised by assessee read as under:- 2

The Ld. AR submitted that both the additional grounds involve pure questions of law and all material facts necessary for adjudication are already available on record. Reliance was placed on decision of Hon’ble Supreme Court in the case of NTPC Ltd. vs CIT 229 ITR 383 (SC) and Jute Corporation of India Ltd. vs CIT 187 ITR 688 (SC).

We have considered rival submissions and perused material available on record. We find that additional grounds raised by assessee are purely legal grounds arising from facts already available on assessment records and no further investigation of facts is required. The Hon’ble Supreme Court in the case of NTPC Ltd. vs CIT (supra) has held that Tribunal has powers to admit legal grounds if all necessary facts are already available on record. Since present additional grounds go to root of reassessment proceedings and all facts necessary for adjudication are available on record, respectfully following ratio laid down by Hon’ble Apex Court in the case of NTPC Ltd. (supra), we admit the additional grounds for adjudication.

The Ld. AR submitted that notice dated 31.03.2017 was never served upon assessee within limitation period prescribed under the Act and actual service was effected only through email on 11.08.2017. It was therefore contended that reassessment proceedings are barred by limitation.

Per contra, the Ld. Departmental Representative submitted report of Assessing Officer according to which notice u/s 148 dated 31.03.2017 was dispatched by speed post on last known address of assessee on 31.03.2017 itself and proof of dispatch by speed post was also furnished. It was further submitted that notice was thereafter served by affixture. The Ld. DR further submitted that assessee had participated in reassessment proceedings and filed return of income in response to notice u/s 148 and therefore in view of section 292BB, assessee cannot challenge validity of service of notice at this stage.

We have considered rival submissions. We find from assessment order that Assessing Officer has specifically recorded that notice u/s 148 dated 31.03.2017 was issued and sent by speed post on 31.03.2017 itself. It has further been recorded that notice was thereafter attempted to be served through affixture after same was returned unserved by postal authorities. Further, it is undisputed fact that assessee filed return of income in response to notice u/s 148 and participated in reassessment proceedings. In such circumstances, provisions of section 292BB become applicable and assessee is precluded from challenging service of notice at this stage. Accordingly, Additional Ground No.2 raised by assessee is dismissed.

The reasons recorded by Assessing Officer for reopening assessment are reproduced as under:-

The Ld. AR submitted that reopening was initiated solely on basis that assessee had remitted Rs.3 crore to non-resident entity. However, no addition whatsoever has been made in respect of such remittance. Instead, Assessing Officer made addition u/s 2(22)(e) in respect of receipt of funds from another group company. It was therefore submitted that once no addition was made on issue for which reopening was initiated, Assessing Officer could not have made addition on another issue in view of binding judgment of Hon’ble jurisdictional High Court in the case of CIT vs Jet Airways (I) Ltd. 331 ITR 236 (Bom).

On the other hand, the Ld. DR relied upon orders of lower authorities and submitted that Explanation 3 to section 147 empowers

We have considered rival submissions and perused material available on record. We find that reopening in present case was admittedly initiated on basis that assessee had made remittance of Rs.3 crore to non-resident entity and had not filed return of income. The reasons recorded reproduced hereinabove clearly demonstrate that formation of belief by Assessing Officer was with respect to alleged escapement relating to foreign remittance made by assessee.

However, during reassessment proceedings, Assessing Officer did not make any addition in respect of said foreign remittance. On contrary, addition came to be made u/s 2(22)(e) of the Act in respect of receipt of funds from M/s Backbone Construction Pvt. Ltd. Thus, admittedly no addition has been made on issue which formed very basis of reopening.

The Hon’ble jurisdictional Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. 331 ITR 236 has considered scope of Explanation 3 to section 147 and held that Assessing Officer has to first assess or reassess income which formed basis of reopening and only thereafter can assess any other income which comes to his notice during reassessment proceedings. The Hon’ble High Court further held that if Assessing Officer accepts that income for which he formed reason to believe had not escaped assessment, then it is not open to him to independently assess some other income.

The ratio laid down by Hon’ble jurisdictional High Court squarely applies to facts of present case. Here, Assessing Officer has not made any addition in respect of foreign remittance which formed basis of reopening. Once very foundation for assumption of jurisdiction ceased

We also find that Explanation 3 to section 147 does not dilute requirement contained in substantive provision of section 147 as interpreted by Hon’ble jurisdictional High Court in the case of Jet Airways (I) Ltd. (supra). Explanation 3 merely enables Assessing Officer to assess any other escaped income which comes to his notice during reassessment proceedings, provided addition is also made on issue forming basis of reopening.

Respectfully following binding judgment of Hon’ble Bombay High Court in the case of Jet Airways (I) Ltd. (supra), we hold that reassessment order passed by Assessing Officer cannot be sustained in law since no addition has been made on issue forming basis of reopening. Accordingly, Additional Ground No.1 raised by assessee is allowed and reassessment proceedings are quashed.

Since reassessment proceedings themselves have been quashed, other grounds raised by assessee become academic and therefore are not adjudicated.

In the result, the appeal of the assessee is allowed.