2024 (7) TMI 571 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - assessee has failed to establish the genuineness and credit worthiness of the transactions - HELD THAT - AO has accepted the objections of the assessee, and has not assessed or reassessed the income, which was the basis of the notice. Therefore, in light of the judgment of JET AIRWAYS (I) LTD. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY it would not be open to the AO to assess income under some other issue independently. Similar view was taken in the case of Ranbaxy Laboratories 2011 (6) TMI 4 - DELHI HIGH COURT . We quash the assessment order framed u/s 147 r.w.s 143(3) - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Interpretation of Explanation 3 to Section 147 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The primary issue in this appeal was whether the CIT(A) erred in deleting the addition of Rs. 65,40,00,000/- under Section 68 of the Income Tax Act. The Assessing Officer (AO) had initially reopened the assessment based on information received from the DDIT [INV]/ Unit – 7(2), New Delhi, regarding credit entries worth Rs. 139.4 crores in the assessee's bank account. During the reassessment proceedings, the AO found a credit entry of Rs. 65.4 crores from Super Alliance Marketing Pvt Ltd and invoked Section 68, concluding that the assessee failed to establish the genuineness and creditworthiness of the transactions.

However, the assessee contended that the entire assessment was bad in law as no addition was made for the reasons for reopening the assessment. The CIT(A) agreed with the assessee, relying on the decision of the Hon'ble Bombay High Court in the cases of Jet Airways (331 ITR 236) and Ranbaxy Laboratories Limited (336 ITR 136 [Del]), and deleted the addition.

2. Interpretation of Explanation 3 to Section 147 of the Income Tax Act:
The Revenue argued that the CIT(A) did not appreciate Explanation 3 of Section 147, which allows the AO to assess or reassess income in respect of any issue that comes to his notice subsequently during the proceedings, even if it was not included in the reasons recorded under Section 148(2). The Tribunal examined the insertion and interpretation of Explanation 3 to Section 147, which was intended to clarify that the AO could assess or reassess any income that came to his notice during the proceedings, notwithstanding that the reasons were not included in the initial notice.

The Tribunal referred to the judgment of the Hon'ble High Court of Bombay in CIT Vs. Jet Airways [I] Ltd, which clarified that the AO must assess or reassess the income that formed the basis of the notice and also any other income that comes to his notice subsequently. If the AO does not assess or reassess the income that was the basis of the notice, it is not open to him to independently assess other income that comes to his notice subsequently.

Applying this judgment to the case at hand, the Tribunal found that the AO had accepted the objections of the assessee and did not assess or reassess the income that was the basis of the notice. Therefore, the AO could not independently assess the income related to the credit entry from Super Alliance Marketing Pvt Ltd. The Tribunal also noted that a similar view was taken by the Hon'ble Jurisdictional High Court of Delhi in the case of Ranbaxy Laboratories.

In conclusion, the Tribunal quashed the assessment order dated 28.06.2021 framed under Section 147 read with Section 143(3) of the Act, and as a result, dismissed the appeal of the Revenue. The order was pronounced in the open court on 22.01.2024.