2025 (1) TMI 808 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - Case of the assessee was reopened after expiry of four years, but before six years from the end of the assessment year - unexplained investment - Whether no addition was made on the issue that formed the basis for reopening the assessment? HELD THAT - No Additions has been made in reassessment proceedings by the AO with respect to the alleged sources of investment made by the assessee in shares, as was claimed by the Revenue in the reasons recorded for reopening of the concluded assessment by invoking provision of Section 147 which formed the belief for reopening of the concluded assessment. The assessee s contention that no investment was made in the share purchase, and rather transactions in F O in shares were carried out, and contracts were squared/settled without any investment/purchase of shares. Assessee has raised specific ground No. 2 before ITAT wherein the assessee has challenged on legal ground the sustainability of re-assessment order u/s. 147 when no addition has been made on the issue with respect to which the case of the assessee was reopened at the time of initiation of reassessment proceedings u/s 147. Once no addition has been made with respect to the reasons recorded for reopening of the concluded assessment which formed the belief of the AO that income has escaped assessment, re-assessment order cannot be upheld/sustained if the additions are made on the other issues while no additions have been made on the issue on the basis of which the concluded assessment were reopened u/s 147 and which formed the belief of the Revenue that income has escaped assessment. See Jet Airways (I) Ltd 2010 (4) TMI 431 - BOMBAY HIGH COURT , Sunlight Tour Travels Pvt Ltd. 2024 (11) TMI 1384 - DELHI HIGH COURT No additions have been made on the grounds/issues on the basis of which assessment was reopened u/s. 147 and which formed the belief that the income has escaped assessment, then AO cannot make addition on other grounds/issues. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the Appellate Tribunal ITAT Agra primarily revolves around the following core legal questions:

1. Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid when no addition was made on the issue that formed the basis for reopening the assessment.

2. Whether the disallowance of expenses amounting to Rs. 12,15,413/- and the disallowance of loss of Rs. 56,407/- were justified and sustainable.

3. Whether the Assessing Officer had the jurisdiction to pass the reassessment order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings under Section 147

Relevant Legal Framework and Precedents:

The reassessment proceedings were initiated under Section 147 of the Income Tax Act, which allows for reopening an assessment if the Assessing Officer has reason to believe that income has escaped assessment. The legal precedents considered include the judgments from the Bombay High Court in CIT v. Jet Airways (I) Ltd., Delhi High Court in Pr. CIT v. Sunlight Tour & Travels Pvt Ltd, and various ITAT decisions.

Court's Interpretation and Reasoning:

The Tribunal examined whether the reassessment could be sustained when no addition was made on the issue that led to the reopening of the assessment. The Tribunal noted that the Assessing Officer did not make any addition regarding the alleged unexplained investment in shares amounting to Rs. 1,37,45,896/-, which was the basis for reopening the assessment.

Key Evidence and Findings:

The Tribunal found that the assessee had adequately explained the transactions related to Futures and Options (F&O) and that no actual investment in shares was made. The Assessing Officer accepted this explanation and did not make any addition on this ground.

Application of Law to Facts:

The Tribunal applied the principle that if no addition is made on the issue that formed the basis for reopening, the reassessment cannot be sustained. This principle is supported by the cited judgments.

Treatment of Competing Arguments:

The Revenue argued for the validity of the reassessment, while the assessee contended that the reassessment was invalid due to the absence of additions on the primary issue. The Tribunal sided with the assessee's argument.

Conclusions:

The Tribunal concluded that the reassessment proceedings were invalid since no addition was made on the issue that led to the reopening of the assessment.

Issue 2: Disallowance of Expenses and Loss

Relevant Legal Framework and Precedents:

The disallowances were made under Section 57(iii) and related provisions concerning speculation loss. The Tribunal did not delve into the merits of these disallowances due to the decision on the reassessment's validity.

Court's Interpretation and Reasoning:

Since the reassessment was quashed, the Tribunal did not need to address the merits of the disallowances.

Key Evidence and Findings:

The evidence related to these disallowances was not considered due to the quashing of the reassessment.

Application of Law to Facts:

The Tribunal did not apply the law to the facts concerning the disallowances because the reassessment itself was deemed invalid.

Treatment of Competing Arguments:

Arguments regarding the disallowances were rendered moot by the decision on the reassessment's validity.

Conclusions:

The Tribunal did not make any determination on the disallowances due to the quashing of the reassessment.

Issue 3: Jurisdiction of the Assessing Officer

Relevant Legal Framework and Precedents:

The issue of jurisdiction was raised but not specifically addressed due to the decision on the reassessment's validity.

Court's Interpretation and Reasoning:

The Tribunal did not provide a detailed analysis of jurisdiction due to the overriding decision on the reassessment's validity.

Conclusions:

The Tribunal did not make a specific ruling on jurisdiction due to the quashing of the reassessment.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"Respectfully following the aforesaid decisions relied upon by the assessee, I quash the reassessment order passed by the Assessing Officer and as sustained by the ld. CIT(Appeals)."

Core Principles Established:

The core principle established is that a reassessment under Section 147 cannot be sustained if no addition is made on the issue that formed the basis for reopening the assessment.

Final Determinations on Each Issue:

The reassessment proceedings were quashed due to the lack of additions on the primary issue. The Tribunal did not address the merits of the disallowances or the jurisdictional issue due to this decision.