2015 (5) TMI 899 - AT - Income Tax

Re-opening of assessment - Technical know-how fees - CIT(A) deleted the addition holding that because at the time of initiation of proceeding u/s 147 the AO had not recorded reason towards claim of incorrect technical knowhow fees, the addition made on this ground subsequently in the assessment order could not survive - Held that - The above issue for our consideration is no longer res integra, since in the case of Ranbaxy Laboratories Ltd. vs. CIT (2011 (6) TMI 4 - DELHI HIGH COURT) wherein held that when reasons are recorded for bringing to tax X income and no assessment is made on the X income, the AO does not possess the jurisdiction to tax any other income in the reassessment order. Thus the CIT (A) is justified in quashing the reassessment proceedings - Decided in favour of assesse.

Summary

Issues:
1. Validity of deletion of addition made on account of technical know-how fees.
2. Jurisdiction of Assessing Officer to assess other income in reassessment proceedings.
3. Interpretation of Third Proviso to Section 147 of the Income-tax Act.

Detailed Analysis:

Issue 1: The appeal was against the deletion of an addition made on account of technical know-how fees. The CIT (A) had deleted the addition, citing that the Assessing Officer (AO) lacked jurisdiction to reassess issues other than those for which proceedings were initiated. The AO had initiated proceedings under Section 147 for "provision for doubtful debts" but made no addition on this account. Instead, an addition was made for disallowance of technical know-how fees. The CIT (A) held that since no addition was made on the reasons recorded for the notice u/s 148, the AO had no jurisdiction to tax any other income. The CIT (A) relied on relevant judgments to support this decision.

Issue 2: The key question was whether the AO had the authority to assess other income in reassessment proceedings when the initial reasons for reassessment did not result in any addition. The High Court judgments cited emphasized that the AO must assess or reassess the income forming the basis of the belief that escaped assessment, along with any other income that comes to notice subsequently. Failure to assess the former income precludes the AO from independently assessing other income. The AO's jurisdiction is limited to the specific income that triggered the reassessment.

Issue 3: The discussion also revolved around the interpretation of the Third Proviso to Section 147, which was inserted by the Finance Act, 2008, and later amended in 2012. The contention was that the Third Proviso expanded the AO's authority to assess any income, regardless of the reason for reopening. However, the Tribunal dismissed this argument, stating that the Third Proviso only restricts assessing income involved in appeals, references, or revisions, and does not grant broader assessment powers to the AO.

In conclusion, the Tribunal upheld the CIT (A)'s decision to quash the reassessment proceedings, emphasizing the limited jurisdiction of the AO in reassessment cases. The interpretation of relevant legal provisions and precedents guided the decision-making process, ensuring adherence to the principles of tax law and jurisdictional boundaries.