2018 (1) TMI 891 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - On this issue with the newly introduced Explanation-3 to Section 147 of the Act, with retrospective effect from 01.04.1989, where some courts held that the AO has to restrict the reassessment proceedings only to the issue in respect of which reasons have been recorded for reopening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded as contended by the ld. Counsel for the assessee and other courts held in opposite way. Hon ble Delhi High Court in the case of Ranbaxy Lab Ltd. (2011 (6) TMI 4 - DELHI HIGH COURT) held that there must be some nexus between reason to believe recorded and the assessment framed. In this case also, the AO had not made any addition on the basis of reasons recorded and try to reduce other valid claim of the assessee allowed during the assessment u/s 143(3) of the Act. It is well settled law that where two non-jurisdictional High Court s decisions are opposed to each other, the one in favour of the assessee is required to be followed by the Tribunal. The reference, if any, required, may be made to the decision of CIT Vs. Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court). - Decided in favour of assessee

Summary

Issues:
1. Validity of assuming jurisdiction u/s 147
2. Addition of ?1,150,353 under section 54F
3. Addition of ?86,432 on account of alleged FDR interest

Issue 1: Validity of assuming jurisdiction u/s 147

The appeal challenged the order of the Commissioner of Income Tax, (Appeals) for Assessment Year 2011-12 on the grounds of assuming jurisdiction under section 147. The Assessing Officer (AO) initiated reopening proceedings based on the non-disclosure of interest income by the assessee. The reasons recorded by the AO stated that the income of ?11,24,308 had escaped assessment. The assessee contended that the interest income was received due to encashed FDRs seized during a search operation. The ld. CIT(A) acknowledged that no addition could be made on the interest income as it belonged to different individuals/entities. The ld. Counsel argued that once the addition was deleted, the basis for assuming jurisdiction under section 147 ceased to exist. Divergent decisions existed on whether the AO could touch upon any other issue not recorded in the reasons for reopening, with reference to Explanation-3 to Section 147.

Issue 2: Addition of ?1,150,353 under section 54F

The appeal contested the addition of ?1,150,353 by the ld. CIT(A) under section 54F. The assessee argued that the ld. CIT(A) erred in confirming the addition without properly appreciating the facts. The ld. Counsel modified the grounds challenging the re-assessment order on the legal ground that the reason for assuming escapement of income no longer existed. The ld. CIT(A) accepted the submission that the addition was not justified as the interest income was paid to different individuals/entities and not solely to the assessee. Consequently, the addition was deleted.

Issue 3: Addition of ?86,432 on account of alleged FDR interest

The appeal disputed the addition of ?86,432 on account of alleged FDR interest. The ld. CIT(A) confirmed the addition without appreciating the facts properly. The assessee submitted that the interest income was distributed among different persons/entities and not solely received by the assessee. The ld. CIT(A) acknowledged the submission and deleted the addition as it would result in double taxation of the same income. The ld. Counsel relied on legal principles favoring the assessee and cited relevant case laws to support the contention. The Tribunal accepted the grievance of the assessee and canceled the assessment order, allowing the appeal.

In conclusion, the Tribunal's judgment addressed the issues of jurisdiction under section 147, addition under section 54F, and alleged FDR interest. The Tribunal ruled in favor of the assessee, emphasizing the importance of proper appreciation of facts and legal principles in tax assessments.