2017 (10) TMI 1149 - AT - Income Tax

Reopening of assessment - no existence of reasons to believe - Held that - There is no live nexus in the reasons recorded and same are done at behest of the order passed by Commissioner of income tax appeals. There is no independent application of mind. Only factor that certain disallowance has been made in earlier year cannot give carte blanche in favour of revenue to reopen the other years, unless in reasons appropriate nexus and correlation is established between the findings relied in the order of Commissioner of income tax appeals and facts prevalent in present case. It is surprising that although said order of Commissioner of income tax appeals is the main heart of the reasons but that heart has left the assessment order when assessing officer has made the final addition. It is surprising as to how when the final addition is made the basis of the reopening being order passed by Commissioner of income tax appeals can be abandoned and aborted like this . As rightly contended by ld. AR before me that there is no fresh tangible material having live nexus so as to support the instant reopening. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 148 of the Income Tax Act.
2. Timeliness of the assessee's cross objection.
3. Validity of reopening under Section 148.
4. Merits of the additions made by the Assessing Officer (AO) and deleted by the Commissioner of Income Tax Appeals (CIT(A)).

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 148 of the Income Tax Act:
The Revenue challenged the assumption of jurisdiction under Section 148, arguing that the reopening of the assessment was invalid. The assessee filed a cross objection to support the order of the CIT(A) on the ground of jurisdictional reopening.

2. Timeliness of the Assessee's Cross Objection:
The Revenue objected to the assessee's cross objection as being time-barred. However, the Tribunal found this objection non-meritorious, noting that the cross objection was filed within the prescribed 30 days after the assessee received the notice of appeal. The Tribunal accepted the affidavit filed by the assessee and treated the cross objection as valid.

3. Validity of Reopening under Section 148:
The Tribunal examined the reasons recorded for reopening the assessment and found them to be without independent application of mind. The reasons were based solely on an earlier order by the CIT(A) without correlating the facts of the current year. The Tribunal relied on various judicial precedents, including the Delhi Bench of ITAT in the case of Thandi Ram Jai Narain and the Supreme Court decision in Chhugamal Rajpal, to conclude that the reopening was invalid due to the lack of a live nexus and independent application of mind by the AO. Consequently, the Tribunal quashed the reopening.

4. Merits of the Additions Made by the AO and Deleted by the CIT(A):
- Addition of ?33,95,802 (Interest on Housing Loan and Other Expenses):
The AO disallowed the interest on housing loan and other expenses, arguing that there was no business activity. The CIT(A) deleted this addition, noting that the loan was not a home loan but a loan against property, and the assessee had invested the loan amount in FDRs and subsequently in business assets. The Tribunal upheld the CIT(A)'s decision, emphasizing that the quantum of receipts does not determine the allowability of expenses and that the AO's reasoning was erroneous.

- Addition of ?8 Lakhs (Unexplained Credit):
The AO made an addition of ?8 lakhs as unexplained credit. The Tribunal noted that under Section 147, the scope of reopening is confined to the reasons recorded. Since the issue of ?8 lakhs did not give rise to any income that escaped assessment and was apparent from the start, it could not be considered under the reopening proceedings. The Tribunal relied on the Delhi High Court decision in Ranbaxy to conclude that the addition was unlawful and non-meritorious.

- Addition of ?2,45,000 (Income from Undisclosed Sources):
Similar to the ?8 lakhs addition, the Tribunal held that since the reopening itself was invalid, any addition made on other issues without recorded reasons could not be sustained. The Tribunal again relied on the Delhi High Court decision in Ranbaxy to dismiss this addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection and application under Rule 27. The reopening under Section 148 was quashed, and the additions made by the AO were not sustained. The order was pronounced in the open court on 16.10.2017.