2021 (4) TMI 149 - AT - Income Tax

Reopening of assessment u/s 147 - penny stock purchases - Bogus LTCG - Eligibility of reasons to believe - HELD THAT - From the assessment order, we find that the Assess- ing Officer had made addition on account of long-term capital gain holding the long-term capital gain to be bogus. Nowhere in the assessment order the Assessing Officer made the addition on account of escapement of income for which he had recorded the reasons. The Income-tax Appellate Tribunal, Kolkata Bench, in the case of Sanju Jalan 2018 (1) TMI 1300 - ITAT KOLKATA under similar facts and circumstances, had allowed relief to the assessee. In the present case also we find that the Assessing Officer has not made addition on the alleged escapement of income recorded in the reasons. Therefore we allow ground of the appeal.

Summary

Issues:
Appeal against order of Commissioner of Income-tax (Appeals) - Reopening of assessment under section 148 - Addition made on different issue than the one alleged to have escaped assessment - Validity of reassessment proceedings under section 147.

Analysis:
The appeal was filed against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2013-14. The assessee argued that the issue was covered in favor of the assessee by a judgment of the Income-tax Appellate Tribunal, Kolkata Bench. The case involved the reopening of assessment under section 148, where the addition was made on a different issue than the one alleged to have escaped assessment. The reasons recorded for reopening the case indicated that the Assessing Officer believed that income of the assessee had escaped assessment due to financial transactions involving penny stocks. However, the addition was made on account of long-term capital gain, not the alleged escaped income. The Tribunal referred to a similar case where relief was granted to the assessee based on the principle that if no addition is made on the reason for reopening, no further addition can be made. This principle was supported by the Bombay High Court's decision in the case of CIT v. Jet Airways. The Tribunal held that the addition made by the Assessing Officer on long-term capital gain was beyond the scope of the reassessment proceedings under section 147 and deleted the addition, allowing the appeal.

The Tribunal emphasized that if the Assessing Officer does not assess income for the reason recorded under section 147, no further addition can be made in the reassessment proceedings. The Tribunal's decision was in line with the judgment of the Bombay High Court and the Delhi High Court, which held that additions beyond the scope of the reopening reason are not permissible. The Tribunal concluded that the addition on long-term capital gain was not sustainable as it was beyond the scope of the reassessment proceedings. Therefore, the Tribunal allowed the appeal based on the principle established in previous judgments.

The Tribunal found that the Assessing Officer did not make any addition on the alleged escapement of income as recorded in the reasons for reopening. Following the precedent set by the Kolkata Tribunal, the Tribunal allowed ground No. 2 of the appeal. As no arguments were presented on other grounds, they were not adjudicated upon. Consequently, the appeal of the assessee was partly allowed, and the order was pronounced on January 19, 2021.