2016 (12) TMI 1898 - AT - Income Tax

Reassessment u/s. 148 - addition by estimating the income of the assessee @ 4% in place of 2.2% shown by the assessee - HELD THAT - As find from the reassessment order framed by the AO that no addition was made by him on the ground of the above reasons recorded but the addition was made by the AO by estimating the income of the assessee @ 4% in place of 2.2% shown by the assessee. Therefore, the decision in the case of Mohd Juned Dadani 2013 (2) TMI 292 - GUJARAT HIGH COURT case of jet Airways (I) Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY clearly apply to the facts of the assessee s case. Thus assuming jurisdiction to frame an assessment u/s. 147 of the Act, what is essential is a valid reopening of a previously closed assessment. If the very foundation of the reopening is knocked out, any further proceedings in respect to such assessment naturally would not survive. Decided in favour of assessee.

Summary

Issues involved:
Cross appeals by assessee and revenue against CIT(A) order for assessment year 2006-07.

Analysis:
1. Assessee's Appeal (ITA No.32/Ran/2016):
- Grounds of Appeal: Assessee challenges the validity of reassessment notice issued under section 148 of the Act and subsequent addition to income.
- Assessing Officer's Observations: Notice issued based on unexplained transactions found during a survey operation. Reassessment made by estimating income at 4% instead of 2.2% declared by assessee.
- Legal Arguments: Assessee contends that no additions were made on the grounds for which reassessment notice was issued, relying on precedents from Gujarat and Bombay High Courts.
- Decision: Tribunal finds no additions made based on reasons for reassessment notice. Cites Bombay High Court's interpretation of Explanation 3 to section 147, emphasizing that Assessing Officer must assess or reassess only income that formed the basis of belief for reopening. Cancels reassessment order, rendering other grounds of appeal academic.

2. Revenue's Appeal (ITA No. 46/Ran/2016):
- Outcome: Revenue's appeal deemed infructuous following cancellation of reassessment order in assessee's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal, dismissing the revenue's appeal as infructuous. The reassessment order was canceled as no additions were made on the grounds for which the reassessment notice was issued, in line with the interpretation of Explanation 3 to section 147 by the Bombay High Court. The decision highlights the importance of validly reopening a closed assessment to proceed with reassessment under the Income Tax Act.