2025 (1) TMI 500 - AT - Income Tax

Reopening of assessment u/s 147 - addition on account of Interest income u/s 56 and addition on account of proposed disallowance u/s 80P - addition of cash deposit in the bank account - HELD THAT - The issue of cash deposit was examined by the AO during assessment proceedings and in the assessment order AO states that no variation is proposed on the issue of cash deposit by the assessee society in its bank account and finally he has not made any addition on this score. He has disallowed the claim of the assessee u/s 80P claimed on interest from Bank and the surplus appearing in Profit and Loss Account. It is apparent that no addition has been made by the ld. AO on the issue on which reassessment was undertaken by him. In various case laws relied upon by the ld. AR the Hon ble Courts including the jurisdictional High Court of Rajasthan 2008 (5) TMI 200 - RAJASTHAN HIGH COURT have held that if the AO finds that the issue on which reassessment proceedings were initiated does not subsist then the ld. AO looses jurisdiction to assess other issues of concealment that comes to his knowledge. AO was required to stop at the point when he found that the issue of cash deposit into bank account was out of genuine sources and was required to pass a NIL order. Once it is found that none of the reasons recorded by the AO for initiating proceedings under section 147 was germane to initiation of such proceedings, then it has to be held that the AO had no reason to believe that any income had escaped assessment and, therefore, any further proceeding would be without jurisdiction. But still he moved further without having jurisdiction and made other additions in the assessment which is illegal as the AO has exhausted his jurisdiction as soon as he was satisfied that the cash deposit in the bank account of the assessee, for which the case of the assessee was reopened under the provisions of section 147 read with section 148 of the IT Act, was satisfactorily explained - we are of the view that the other disallowances/additions made by the AO in the assessment order are illegal - Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment involves the following core issues:

a) Whether the Assessing Officer (AO) erred in making disturbances in the Income Tax Return (ITR) filed by the appellant, despite being satisfied with the reasons for initiating proceedings under sections 147/148 of the Income Tax Act, 1961.

b) Whether the CIT (Appeals) was correct in confirming the AO's action of disallowing the appellant's claim under section 80P(2) of the Income Tax Act, 1961, on the grounds of non-compliance with section 80A(5).

c) Whether the appeal filed by the assessee, delayed by 26 days, should be condoned based on the reasons provided.

2. ISSUE-WISE DETAILED ANALYSIS

a) Issue of Disturbance in ITR and Validity of Reassessment Proceedings

Relevant Legal Framework and Precedents: The legal framework involves sections 147 and 148 of the Income Tax Act, which deal with the reassessment of income that has escaped assessment. The precedents cited include decisions from various High Courts, such as CIT vs. Jet Airways and Ranbaxy Laboratories Ltd. vs. CIT, which establish that if the AO does not make an addition on the issue that led to the reassessment, they cannot assess other issues.

Court's Interpretation and Reasoning: The court interpreted that the AO, having found the cash deposit of Rs. 63,33,000/- satisfactorily explained, should have ceased further assessment. The AO's jurisdiction was limited to the issue for which the reassessment was initiated.

Key Evidence and Findings: The AO issued a notice under section 148 based on cash deposits flagged by the Risk Management Strategy. However, no addition was made on this issue, as the AO was satisfied with the explanation provided.

Application of Law to Facts: The court applied the principles from cited precedents, concluding that the AO's jurisdiction ended once the initial reason for reassessment was resolved without any addition.

Treatment of Competing Arguments: The appellant argued that the AO's actions were beyond jurisdiction once the initial issue was resolved. The Revenue supported the AO's actions, but the court found the appellant's argument more compelling.

Conclusions: The court concluded that the AO's additional assessments were illegal, as they were beyond the jurisdiction once the original issue was resolved.

b) Disallowance of Claim under Section 80P(2)

Relevant Legal Framework and Precedents: Sections 80P(2) and 80A(5) of the Income Tax Act are relevant here, dealing with deductions available to cooperative societies and the conditions for such deductions.

Court's Interpretation and Reasoning: The court did not delve into the merits of this issue, as it became academic after resolving the jurisdictional issue.

Key Evidence and Findings: The AO disallowed the claim based on non-compliance with section 80A(5), but the court focused on the jurisdictional issue.

Application of Law to Facts: The court did not apply the law to the facts of this issue, as it was rendered moot by the resolution of the jurisdictional issue.

Treatment of Competing Arguments: The court did not address competing arguments on this issue due to its academic nature.

Conclusions: The court did not provide a conclusion on this issue, as it was not considered necessary after the jurisdictional decision.

c) Condonation of Delay

Relevant Legal Framework and Precedents: The principles for condoning delays in filing appeals are guided by the need to show sufficient cause, as established in the case of Collector, Land Acquisition vs. Mst. Katiji.

Court's Interpretation and Reasoning: The court found the reasons for delay, including the hospitalization of the appellant's counsel, to constitute sufficient cause for condonation.

Key Evidence and Findings: The affidavit provided by the appellant outlined the reasons for the delay, which the court found credible.

Application of Law to Facts: The court applied the principle of sufficient cause to the facts, condoning the delay.

Treatment of Competing Arguments: There was no significant opposition to the condonation of delay, and the court's decision was straightforward.

Conclusions: The court condoned the 26-day delay in filing the appeal.

3. SIGNIFICANT HOLDINGS

Core Principles Established:

"Once the AO finds that the issue on which reassessment proceedings were initiated does not subsist, the AO loses jurisdiction to assess other issues of concealment that come to his knowledge."

Final Determinations on Each Issue:

a) The court quashed the additional assessments made by the AO, as they were beyond jurisdiction once the initial issue was resolved.

b) The court did not address the merits of the disallowance under section 80P(2), as it became academic.

c) The court condoned the delay in filing the appeal, allowing the case to be heard on its merits.