2018 (5) TMI 1171 - HC - Income Tax

Reopening of assessment - Whether no additions are made by the AO in the order of assessment, he cannot make additions on some other grounds which did not form part of the reasons recorded by him? - Reasons to believe - Held that - In the present case, the reason for reopening the assessment was described in the stock reported by the assessee in its books of account, as compared to the stock reported to the bank. Assessee s contention before the AO was that this discrepancy was on account of transit of stock. Contrary to what was canvassed before us, we do not find that the AO accepted such explanation of the assessee. He merely recorded it and thereafter, examined the materials on record. Two things emerge from such exercise; firstly, he did not accept the assessee s declared evaporational loss of raw materials and secondly, he noticed that the assessee was unable to produce the books of accounts on the ground that the Sales Tax Department had impounded them. He, therefore, proceeded to frame the best judgment assessment. He was of the opinion that the Gross Profit shown by the assessee was low. He made adjustments by citing reasons, which resulted into the additions being made. No where can we see that the Assessing Officer accepted the assessee s contention that the stock discrepancies stood explained. AO noted that in view of the Gross Profit addition, the evaporational loss has not been separately added. Gross Profit addition, being global in nature, would also include the stock discrepancy. No where do we find that the AO dropped his prime objection to the stock discrepancy cited as a reason for reopening the assessment. - No question of law arise.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal should have allowed additions on grounds not part of the reasons for reopening assessment?
2. Interpretation of the judgment in CIT v. Mohmed Juned Dadani regarding additions in reassessment proceedings.

Analysis:
1. The appellant, a Private Limited Company engaged in chemical manufacturing, filed a return for A.Y. 2003-04 showing a loss. The Assessing Officer reopened the assessment due to stock discrepancies between the company's books and bank statements. Despite the company explaining the discrepancy as stock in transit, the officer added undisclosed income and rejected the company's accounts. The officer adjusted the Gross Profit rate, making a significant addition. The Tribunal upheld the additions, stating that the officer didn't need to make separate additions based on the reasons for reopening. The appellant challenged this decision, citing CIT v. Mohmed Juned Dadani, where it was held that no additions can be made on other grounds if none were made on the reasons recorded for reopening.

2. The High Court reviewed the documents and rejected the appellant's contention based on the Mohmed Juned Dadani case. The Court noted that the Assessing Officer did not accept the company's explanation for the stock discrepancy and proceeded to make adjustments leading to the additions. The officer's actions indicated a rejection of the company's contentions, including the evaporational loss explanation and the inability to produce accounts due to Sales Tax Department actions. The global nature of the Gross Profit addition covered the stock discrepancy, and the officer did not drop the primary objection for reopening the assessment.

3. The Court found that the issues other than those discussed were to be sent back to the Assessing Officer, as no legal questions arose. Consequently, the Tax Appeal was dismissed, affirming the Tribunal's decision on the additions made during reassessment.