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2025 (4) TMI 1444 - AT - Income TaxValidity of the assessment framed u/s 147 - Disallowance of assessee s claim of deduction of its income u/s 80P - HELD THAT - AO while framing order under Section 147 of the Act in the present case did not make any addition on the income which he believed had escaped assessment which in the present case was the cash withdrawals of Rs. 1.13 crores from its bank account the source of which was found to be unexplained the AO hold could not have made addition or disallowance on any other account in the present case being disallowance of deduction claimed u/s 80P of the Act since Courts have time and again reiterated that the moment the AO finds no escapement of income of the assessee on the basis of which he had assumed jurisdiction u/s 147 of the Act he loses jurisdiction to proceed further and make any other addition or disallowance to the income of the assessee. Disallowance of deduction u/s 80P of the Act made in the present case by the AO is not sustainable being not in accordance with law beyond the jurisdiction of the AO and accordingly direct deletion of the same. Appeal of the assessee is allowed
The core legal questions considered by the Tribunal in this appeal are as follows:
1. Whether the Assessing Officer (AO) had valid jurisdiction to reopen the assessment under Section 147 read with Section 144B of the Income Tax Act, 1961 (the Act), given that the basis of belief regarding escapement of income did not survive and no addition was made on that basis. 2. Whether the notice under Section 148 of the Act was validly issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO), in light of the amended provisions and scheme of the Act. 3. Whether the AO was legally justified in disallowing the claim of deduction under Section 80P of the Act when no addition was made on the basis of the alleged escapement of income related to cash withdrawals. Issue-wise Detailed Analysis Issue 1: Jurisdiction of AO to Reopen Assessment and Make Disallowance Relevant Legal Framework and Precedents: The reopening of assessment under Section 147 of the Act requires that the AO has a "reason to believe" that income chargeable to tax has escaped assessment. Section 148 mandates issuance of notice for such reopening. The principle established by various judicial precedents is that if the AO, after considering the explanations, concludes that no income has escaped assessment on the basis of the original reason to believe, the jurisdiction to proceed further and make any addition or disallowance on other grounds ceases. Key precedents cited include:
Court's Interpretation and Reasoning: The AO initiated reassessment proceedings based on information regarding cash withdrawals amounting to Rs. 1.13 crores from the assessee's bank account and the fact that the assessee was a non-filer of returns. The AO issued notice under Section 148 after satisfying himself that income had escaped assessment. However, upon framing the reassessment, the AO accepted the explanation that the cash withdrawals related to cooperative society activities involving payments to milk producers and did not constitute undisclosed income. Consequently, no addition was made on this basis. Despite this, the AO disallowed the deduction claimed under Section 80P on the ground that the return of income was not filed within the prescribed due date as mandated by Section 80AC, which conditions the claim of deduction under Section 80P. The Tribunal noted that since the original basis for reopening (escapement of income relating to cash withdrawals) did not survive, the AO lost jurisdiction to make any other additions or disallowances unrelated to that basis. Key Evidence and Findings: The notices under Sections 148A(b) and 148A(d) show the AO's initial satisfaction regarding escapement based on cash withdrawals and non-filing of returns. The AO's final order under Section 147 confirms acceptance of the explanation for the withdrawals but disallows deduction under Section 80P due to late filing of return. Application of Law to Facts: The Tribunal applied the principle from CIT vs Shri Ram Singh that once the AO finds the original escapement of income is explained, jurisdiction to make any other additions or disallowances ceases. Since no addition was made on the basis of the original reason to believe, the AO could not validly disallow the deduction under Section 80P. Treatment of Competing Arguments: The Revenue's representative could not dispute the factual position that no addition was made on the original basis of escapement. Nor could the Revenue distinguish the precedents relied upon by the assessee. The Tribunal found the assessee's arguments well-founded and the Revenue's opposition unpersuasive. Conclusion: The disallowance of deduction under Section 80P by the AO was beyond jurisdiction and not sustainable. The Tribunal allowed the grounds challenging the validity of the reassessment and disallowance on this basis. Issue 2: Validity of Notice under Section 148 Issued by Jurisdictional AO Instead of Faceless AO Relevant Legal Framework: Amendments to the Act introduced faceless assessment and appeal schemes, requiring notices under Section 148 to be issued by the Faceless Assessing Officer (FAO). Non-compliance with procedural requirements can render the notice and assessment invalid. Court's Interpretation and Reasoning: The assessee contended that since the notice under Section 148 was issued by the Jurisdictional AO and not the FAO, the assessment was without jurisdiction and invalid. Key Evidence and Findings: The record showed that the notice was issued by the JAO instead of the FAO. Application of Law to Facts: The Tribunal noted this ground but refrained from adjudicating on it, as the primary legal ground concerning jurisdiction and disallowance was decided in favour of the assessee, rendering this issue academic. Treatment of Competing Arguments: The Revenue did not contest this ground in detail, and the Tribunal did not find it necessary to address it further. Conclusion: The Tribunal did not decide this issue on merits due to the disposal of the appeal on other grounds. Issue 3: Validity of Disallowance of Deduction under Section 80P This issue is integrally connected with Issue 1. The disallowance of Rs. 8,89,901/- under Section 80P was challenged on the ground that the AO had no jurisdiction to make such disallowance once the original basis for reopening did not survive. The Tribunal, after detailed discussion under Issue 1, held that the disallowance was not sustainable and directed deletion of the same. Significant Holdings "The moment the AO finds no escapement of income of the assessee on the basis of which he had assumed jurisdiction under Section 147 of the Act, he loses jurisdiction to proceed further and make any other addition or disallowance to the income of the assessee." "If in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147." The Tribunal conclusively held that the disallowance of deduction under Section 80P was beyond the jurisdiction of the AO as the original basis for reopening did not survive. Consequently, the reassessment order and the appellate order upholding it were quashed to the extent of the disallowance.
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