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2017 (6) TMI 449 - AT - Income TaxReopening of assessment - foundational addition - Held that - the reasons which persuaded the AO to reopen the reassessment proceedings and on the basis of which additions were made were not found valid or justifiable as those additions were deleted by the Tribunal. Appeal of the Revenue was dismissed. In further appeal, the Hon ble High Court upheld the order of the tribunal by holding that Since the grounds for reopening the reassessment do not exist any longer and no additions were ultimately made on that account, the additions in respect of other items which were not part of reasons to believe cannot be made. On going through the ratio decidendi of the above judgment, it is vivid that if the foundational addition is finally deleted in appeal, then other addition also can t stand. The Assessing Officer initiated reassessment proceedings and made addition of ₹ 22.57 lac. When the ld. CIT(A) held that the addition of ₹ 22.57 lac was not sustainable, it meant that the jurisdiction of the Assessing Officer was lacking in initiating the reassessment proceedings. As a consequence of his deletion of the addition, not only the assessment order but all the proceedings flowing therefrom had the effect of becoming null and void. As such, he could not have gone ahead with any other issue and made enhancement of income. Making an enhancement in such circumstances would mean that though the jurisdiction of the Assessing Officer in initiating the reassessment was lacking, still, the assessment would be valid and ex consequenti, the addition would be sustainable. - Decided in favour of assessee.
Issues Involved:
1. Addition of ?2,36,875 by CIT(A) enhancing the income of the assessee. 2. Validity of reassessment proceedings initiated by the Assessing Officer (AO). 3. Powers of CIT(A) in making new additions during the appeal. Issue-wise Detailed Analysis: 1. Addition of ?2,36,875 by CIT(A) Enhancing the Income of the Assessee: The core issue in this appeal is the enhancement of income by ?2,36,875 by the CIT(A). The CIT(A) issued a notice of enhancement based on discrepancies in the quantitative details filed by the assessee. These discrepancies were translated into an addition after adding the necessary mark-up. The assessee contended against this enhancement. 2. Validity of Reassessment Proceedings Initiated by the Assessing Officer (AO): The AO initiated reassessment proceedings on the premise that the income of the assessee escaped assessment to the tune of ?22.57 lakh due to a discrepancy between the opening stock of the succeeding year and the closing stock of the current year. This was the sole reason for initiating the reassessment. However, the CIT(A) deleted this addition by noting that the Tribunal had already held that there was no discrepancy in the quantitative details for the assessment years 2006-07 and 2007-08. The deletion of this addition attained finality as no appeal was preferred against it. 3. Powers of CIT(A) in Making New Additions During the Appeal: The CIT(A) justified his enhancement by stating that his powers are coterminous with that of the AO, allowing him to make new additions. The Supreme Court in CIT vs. Kanpur Coal Syndicate and Jute Corporation of India vs. CIT reiterated this principle, affirming that the CIT(A) has plenary powers in disposing of an appeal. However, the CIT(A) cannot make an addition that the AO could not have made legally in the original assessment. The reassessment proceedings initiated by the AO were based on the belief that income chargeable to tax had escaped assessment. If the foundational addition is not made, any other additions cannot stand. This principle was upheld by the jurisdictional High Court in Ranbaxy Laboratories Ltd. vs. CIT and CIT vs. Jet Airways (I) Ltd., which stated that the AO cannot proceed with reassessment if the grounds mentioned in the re-assessment notice are non-existent. Conclusion: The Tribunal concluded that since the foundational addition of ?22.57 lakh was deleted and attained finality, the CIT(A) could not make the other addition of ?2.36 lakh. The reassessment proceedings initiated by the AO were invalidated as the primary reason for reassessment ceased to exist. Consequently, the enhancement made by the CIT(A) was also unsustainable. The appeal was allowed, and the addition of ?2.36 lakh made by the CIT(A) was deleted. Final Decision: The appeal was allowed, and the decision was pronounced in the open court on 07th June 2017.
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