2012 (12) TMI 190 - AT - Income Tax

Validity of assessment passed u/s 147 when A.O. while completing re-opening assessment, did not make any addition on reasons recorded and made different addition - Held that - Assessment was reopened on ground that assessee has obtained accommodation entries in the form of share application money/capital gains/gifts etc, which escaped assessment but while making addition, A.O. made addition on different transaction that of sale of shares. Admittedly the reasons recorded and additions made are different transactions. A.O. had jurisdiction to reassess income other than income in respect of which proceedings u/s 147 were initiated but he has no jurisdiction in doing so when the very reason for initiation for those proceedings cease to survive. The legislature can not be presumed to have intended to give blanket powers to the A.O. that on assuming jurisdiction u/s 147 regarding assessment or reassessment of escaped income, he would go on making scrutiny enquiry and thereby including different items of income not connected or related with the reasons to believe on the basis of which he assumed jurisdiction. Therefore, jurisdiction acquired by the A.O. u/s 147 is not in accordance with law. Therefore, the order of the A.O. is liable to be quashed - Decided in favor of assessee.

Summary

Issues Involved:
1. Deletion of addition under section 68 of the Income Tax Act, 1961.
2. Legality of notice issued under section 147 for reopening of the assessment.
3. Validity of reassessment based on different grounds than those recorded for reopening.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:
The Revenue challenged the deletion of an addition of Rs. 10,29,566/- under section 68 of the Income Tax Act, 1961, which was made on account of unexplained income shown as sale consideration of shares. The Assessing Officer (A.O.) had added this amount on the ground that the assessee purchased 9000 shares for Rs. 90,000/- of G.L. Commercial Limited and sold them for Rs. 10,29,566/- to M/s. Deepak Securities. The A.O. held these transactions as bogus based on information from the Investigation Wing, Agra, and thus assessed the amount under the head "income from other sources".

2. Legality of Notice Issued under Section 147 for Reopening of the Assessment:
The assessee contended that the notice issued under section 147 for reopening the assessment was illegal and unjustified. The notice was issued after four years, and the reasons recorded for reopening were not specific, reliable, or directly related to the material facts available with the A.O. The reasons cited for reopening involved an amount of Rs. 70,000/- received from Ayushi Stock Broker, whereas the reassessment added Rs. 10,29,566/- related to transactions with Deepak Securities, indicating a discrepancy between the reasons recorded and the actual addition made.

3. Validity of Reassessment Based on Different Grounds than Those Recorded for Reopening:
The Tribunal examined whether the A.O.'s action was correct when the recorded reason for escapement of income was not the same as the addition made during reassessment. The A.O. initially recorded reasons for reopening based on an unexplained entry of Rs. 70,000/- from Ayushi Stock Brokers Pvt. Ltd. However, the reassessment resulted in an addition of Rs. 10,29,566/- related to different transactions involving the sale of shares through Deepak Securities. The Tribunal cited several judicial pronouncements to assert that the A.O. must have a reason to believe that income has escaped assessment, and this belief must be based on specific and reliable grounds. The reassessment must be confined to the reasons recorded initially, and any new issues arising during the reassessment proceedings require a fresh notice under section 148.

Judicial Pronouncements Referenced:
- Sheo Nath Singh vs. Appellate Asst. Commissioner of Income-tax: The belief must be of an honest and reasonable person based on reasonable grounds.
- CIT vs. Atul Jain & Smt. Vinita Jain: There must be specific reasons warranting the issuance of a notice of reassessment.
- CIT vs. Smt. Paramjit Kaur: The A.O. must act on "reasons to believe" and not on "reasons to suspect".
- Jamna Lal Kabra vs. ITO & Others: Recording of reasons before issuing a notice under section 148 is mandatory.
- Ranbaxy Laboratories Limited vs. CIT: The A.O. must assess the income which was the basis of the formation of belief and can also assess any other income which comes to notice during the proceedings.
- CIT vs. Jet Airways (I) Ltd: The A.O. must assess the income which escaped assessment and any other income that comes to notice during the proceedings.
- CIT vs. Shri Ram Singh: The A.O. loses jurisdiction to tax any other income if the initial reason for reopening ceases to survive.
- Addl. Commissioner of Income Tax vs. Kejriwal Iron Stores: Penalty cannot be levied on different grounds than those recorded initially.
- CIT vs. Atlas Cycle Industries: Reassessment notice must be based on existing grounds.

Conclusion:
The Tribunal concluded that the jurisdiction acquired by the A.O. under section 147 was not in accordance with the law, as the reasons recorded for reopening and the additions made were based on different transactions. Therefore, the order of the A.O. was quashed on legal grounds, and the appeal of the Revenue was dismissed while the Cross Objection of the assessee was allowed. The Tribunal did not express any opinion on the merits of the case since the order was quashed on legal grounds.