2024 (11) TMI 557 - AT - Income Tax

Validity of reopening of assessment - primary reason to believe - additions of other items as escaped income without making any addition towards cash deposits which formed the substantial basis for reopening - Legality of additions made u/s 69 and 69A - absence of first ground/item i.e. Cash deposits - HELD THAT - Admittedly in the reassessment, the Ld. AO had made no addition in relation to first ground/item despite the fact that he had reason to believe that cash deposits had escaped assessment in the hands of the assessee which was sought to be taxed as per the reasons recorded. The second item interest per se was insufficient to give rise to escapement of income on solitary basis so as to trigger the invocation of reassessment jurisdiction u/s 148 r.w.s. 149(1)(b) r.w.s. 139(1)(b) of the Act. Hence, when the very basis of reasons recorded cash deposits by the Ld. AO was ultimately not added, then the primary reason to believe that income had escaped assessment fails and such reassessment cannot be treated as a valid order in the eyes of law. Hon'ble Jurisdictional High Court after sumptuous consideration of explanation 3 to section 147 of the Act, while adjudicating the issue in CIT Vs Jet Airways (I) Ltd. 2010 (4) TMI 431 - BOMBAY HIGH COURT held that when reasons are recorded for bringing to tax 'X' income and no assessment is made on the 'X' income, the AO does not possess the jurisdiction to tax any other income in the reassessment order. This ratio finds reiterated in SV Jadhav 2024 (5) TMI 106 - BOMBAY HIGH COURT and also followed in Ranbaxy Laboratories Ltd. 2011 (6) TMI 4 - DELHI HIGH COURT ACIT Vs MD Mehta 2011 (11) TMI 462 - CHATTISGARH HIGH COURT and Ganesh Housing Corp. Ltd. 2012 (4) TMI 419 - GUJARAT HIGH COURT . Thus, we are of the considered view that, if the income which he has initially formed a reason to believe that such income has escaped assessment, which in fact did not escape assessment owning to operation of provisions of clause (b) of s/s (1) of section 139 of the Act then notice falls out of that particular ground, additional grounds are not available to the Revenue for making additions of any other incomes which do not find place in the 148 notice issued to the assessee. Therefore respectfully following the former judicial precedents we hold that the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but was not so justified when the reasons for the initiation of those proceedings ceased to survive. Thus once re-assessment framed is held as unsustainable in the eyes of law then same cannot be continued, hence quashed. Assessee appeal allowed.

Summary

Issues Involved:

1. Validity of reassessment proceedings initiated under section 147/148 of the Income-tax Act, 1961.
2. Legality of additions made under sections 69 and 69A of the Income-tax Act, 1961.
3. Admission of a new legal ground at the appellate stage.
4. Applicability of the 'CIT Vs Jet Airways (I) Ltd.' precedent.

Detailed Analysis:

1. Validity of Reassessment Proceedings:

The core issue in this appeal was whether the reassessment proceedings initiated under section 147/148 were valid. The appellant argued that the reassessment was invalid as no addition was made concerning the primary reason for reopening, which was the cash deposits. The Tribunal observed that the Assessing Officer (AO) had initially reopened the assessment based on two items: cash deposits of Rs. 44.75 Lakhs and interest income of Rs. 1.625 Lakhs. However, the AO did not make any addition for the cash deposits, which was the primary reason for reopening. The Tribunal referred to the precedent set by the 'CIT Vs Jet Airways (I) Ltd.' case, which states that if no addition is made for the income that formed the basis for reopening, the AO lacks jurisdiction to make additions for other items. Consequently, the Tribunal held that the reassessment proceedings were invalid as the primary reason for reopening did not result in any addition.

2. Legality of Additions under Sections 69 and 69A:

The AO had made additions under sections 69 and 69A due to discrepancies in loan ledger accounts and unexplained investments. However, since the reassessment itself was deemed invalid, these additions were rendered unsustainable. The Tribunal emphasized that when the primary reason for reopening fails, any additional grounds for making other additions do not hold legal ground. Thus, the additions under sections 69 and 69A were quashed.

3. Admission of a New Legal Ground:

The appellant raised a new legal ground at the appellate stage, challenging the reassessment's validity. The Tribunal considered whether such a ground could be admitted, given it was not raised before the first appellate authority. The Tribunal decided to admit the new legal ground, citing precedents that allow for the admission of a legal ground if it goes to the root of the matter and does not require new facts to be investigated. The Tribunal referenced the 'National Thermal Power Co. Ltd. Vs CIT' case, which supports the admission of new legal grounds if they are fundamental to the case's outcome.

4. Applicability of the 'CIT Vs Jet Airways (I) Ltd.' Precedent:

The Tribunal extensively discussed the applicability of the 'CIT Vs Jet Airways (I) Ltd.' precedent. It reiterated that if the reasons for reopening an assessment do not result in an addition, the AO cannot assess other incomes. This precedent was crucial in deciding the case, as the Tribunal found that the AO's failure to add the cash deposits invalidated the reassessment, thereby making any additional assessments outside the scope of the original notice impermissible.

Conclusion:

The Tribunal allowed the appeal, quashing the reassessment proceedings and the additions made therein. It emphasized the importance of adhering to the legal principles established in prior judgments, particularly concerning the jurisdictional limits of reassessment under section 147/148. The decision underscores the necessity for tax authorities to make additions strictly based on the grounds that justified the reopening of an assessment.