2023 (1) TMI 924 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - addition on account of cash deposit in the bank account - as per AO since, the assessee neither filed his return of income nor furnished any evidence/documents/explanation in regard to such commodity transaction therefore reasons to believe that the transaction were made out of his undisclosed income and profit/loss on such transaction remained explained by the assessee - HELD THAT - AO has not made addition on the issue recorded in the reasons for reopening the case of the assessee but has made addition altogether on a different account by holding that the assessee could not explain the source of cash deposit in the bank account and in this regard as per provisions of section 147, the AO can assess or reassess any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had reason to believe to be so, then only, in addition, he can also put to tax the other income chargeable to tax, which has escaped assessment and which has come to his notice subsequently, in the course of proceedings under section 147 of the Act. Once the AO came to the conclusion, that the income, with respect to which he had entertained reason to believe to have escaped assessment, was found to have been explained, his jurisdiction came to a stop at that, and he did not continue to possess jurisdiction, to put to tax, any other income, which subsequently came to his notice, in the course of reassessment proceedings, which were found by him, to have escaped assessment. In the case of CIT vs. Dr. Devendra Gupta 2008 (8) TMI 125 - HIGH COURT RAJASTHAN held Reassessment-Scope-Addition in respect of items other than the one on which notice in given-Income alleged to have escaped assessment in reasons recorded not having been actually found to. Thus on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. Explanation-3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ( such income ) which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and validity of the assessment order under section 143(3) read with section 148.
2. Adequacy of opportunity provided to the assessee during the appeal process.
3. Legitimacy of the addition of Rs. 7,65,000 as undisclosed income.
4. Charging of interest under sections 234A, 234B, and 234C.
5. Assessee's right to amend or alter grounds of appeal.

Issue-Wise Detailed Analysis:

1. Jurisdiction and Validity of the Assessment Order:
The assessee challenged the jurisdiction and validity of the assessment order under section 143(3) read with section 148, arguing that the assessment was barred by limitation and lacked proper approval. The AO issued a notice under section 148 based on the belief that the assessee's income from commodity transactions had escaped assessment. However, the AO did not make any addition related to the reasons for reopening but instead added Rs. 7,65,000 as unexplained cash deposits. The Tribunal found that as per section 147, the AO can only assess or reassess income which was the basis for the belief that income had escaped assessment. Since no addition was made on the initial grounds, the Tribunal quashed the proceedings, citing judgments from CIT vs. Shri Ram Singh, CIT vs. Jet Airways (I) Ltd., and Ranbaxy Laboratories Ltd. vs. CIT, which held that if no addition is made on the recorded reasons, the AO cannot assess other income that comes to notice subsequently.

2. Adequacy of Opportunity Provided:
The assessee argued that the CIT(A) passed the order without providing adequate and reasonable opportunity of being heard, thus breaching the law. However, this issue was not deeply analyzed as the primary ground of jurisdiction was sufficient to quash the proceedings.

3. Legitimacy of Addition of Rs. 7,65,000:
The AO added Rs. 7,65,000 to the assessee's income as unexplained cash deposits. The CIT(A) upheld this addition, stating that section 147 authorizes the AO to make additions on any income escaping assessment, even if not included in the reasons recorded for reopening. However, the Tribunal disagreed, stating that the AO must first make an addition on the grounds for which the case was reopened. Since the AO did not do so, the addition of Rs. 7,65,000 was invalid.

4. Charging of Interest Under Sections 234A, 234B, and 234C:
The assessee contested the charging of interest under sections 234A, 234B, and 234C. Given that the primary proceedings were quashed, the issue of interest became moot and was not separately adjudicated.

5. Assessee's Right to Amend or Alter Grounds of Appeal:
The assessee reserved the right to add, amend, or alter grounds of appeal. However, since the primary ground of jurisdiction was upheld, this issue was not addressed further.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 147, holding that the AO did not have jurisdiction to make additions unrelated to the reasons for reopening the assessment. Consequently, the appeal was allowed in favor of the assessee.

← Previous Next →