2018 (7) TMI 1898 - AT - Income Tax

Reopening of assessment - addition u/s 68 - assessee could not explain the opening capital as on 01/04/2004 relevant to the Assessment Year 2005-06 - grounds set out in the re-assessment notice are nonexistent- HELD THAT - If the AO fails to acquire a valid jurisdiction to make re- assessment on the basis of his reasons, then, he is also debarred from making additions for other incomes chargeable to tax which escaped assessment and come to his notice subsequently in the course of proceedings u/s 147. As test the facts of the instant case on the touchstone of the principle as discussed hereinabove, it turns out that the solitary reason taken note of by the AO before issuing notice u/s 148 is non-existent and, resultantly, there is no question of making any other addition. The reopening was made on the ground that the opening balance as on 01/04/2004, was not explained. While so, no addition was made on this count. The SMC Delhi Bench of the Tribunal in the case of M/s. Pragati Finsec Ltd. vs. ITO, 2018 (6) TMI 1574 - ITAT DELHI relying on the judgment of CIT vs. Chiel Communications Pvt. Ltd. 2013 (5) TMI 417 - DELHI HIGH COURT and the judgment of CIT vs. Jet Airways Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY - decided in favour of assessee

Summary

Issues:
Reopening of assessment based on unexplained opening capital for Assessment Year 2005-06.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) relating to Assessment Year 2004-05. The assessee, an individual running a small trading business, faced a reopening of assessment due to unexplained opening capital as of 01/04/2004 for the subsequent year. The Assessing Officer made an addition of ?15 lakhs based on the difference between the original and revised balance sheets. The assessee explained that the amount was borrowed for investing in mutual funds, which was not correctly reflected initially. Due to lack of time, supporting evidence was not submitted before the Assessing Officer. The assessee's plea to admit additional evidence was rejected by the Commissioner.

On the issue of reopening of assessment, the Tribunal referred to a Delhi Bench case where it was held that if no addition was made on the grounds for reopening, the assessment would be considered bad in law. The Tribunal emphasized that the Assessing Officer must have valid reasons for reassessment, failing which no further additions can be made. In this case, as no addition was made on the issues leading to the reopening, the Tribunal deemed the assessment as legally flawed and quashed it, thereby allowing the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the assessment based on unexplained opening capital was invalid as no additions were made on the grounds for reopening. The Tribunal emphasized the importance of valid reasons for reassessment and the necessity for any additions to be directly linked to the reasons for reopening. Consequently, the assessment was quashed, and the appeal of the assessee was allowed.