2022 (6) TMI 1019 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - additions made other than the addition for which the reopening was made - as per assessee assessment was reopened for escapement of income on account of cash deposits made into bank account of State Bank of India by the assessee and whereas while completing the assessment the Assessing Officer made various disallowances of expenses other than the reason for which the assessment was reopened - HELD THAT - A plain reading of the reasons recorded the Assessing Officer has reason to believe that the income of the assessee has escaped assessment in respect of cash deposits of Rs.68,68,705/- as they were remained unexplained. However, while completing the assessment the Assessing Officer disallowed 25% of purchases for want of bills and vouchers. The Assessing Officer also disallowed opening capital shown by the assessee in his capital account as no explanation was offered by the assessee. There is one more addition which was made by the assessee is in respect of license fee paid by the assessee for want of supporting documents. Other than these three additions there is no other addition or disallowance made by the Assessing Officer, which relates to cash deposits by the assessee made into his bank account. In other words, the Assessing Officer did not make any addition for which the assessment was reopened. Hon ble Delhi High Court in the case of Ranbaxy Laboratories Limited 2011 (6) TMI 4 - DELHI HIGH COURT submits that if no addition is made for which the assessment was reopened other additions made other than the addition for which the reopening was made will not survive. Hon ble Delhi High Court considering the decision of the Hon ble Bombay High Court in the case of CIT Vs. M/s. Jet Airways (I) Limited 2010 (4) TMI 431 - HIGH COURT OF BOMBAY held that if the Assessing Officer does not make any addition on the primary ground on the basis of which proceedings under Section 147 were initiated he cannot make other addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the ad hoc addition of Rs. 886503.00.
2. Confirming the addition of Rs. 385000.00 of opening capital.
3. Confirming the addition of license fee of Rs. 326000.00.
4. Validity of the reassessment proceedings.

Issue-wise Detailed Analysis:

1. Sustaining the ad hoc addition of Rs. 886503.00:
The assessee challenged the CIT (Appeals) decision to sustain an ad hoc addition of Rs. 886503.00, which was based on a 25% disallowance of all expenses, including the license fee paid to the Excise and Taxation Department, Haryana. The assessee argued that this disallowance was made without considering vital evidence, specifically a certificate from the Excise and Taxation Department regarding the license fee paid.

2. Confirming the addition of Rs. 385000.00 of opening capital:
The assessee contested the CIT (Appeals) decision to confirm the addition of Rs. 385000.00, which pertained to the opening capital as of 01.04.2009. The assessee argued that this addition was related to the closing balance of the capital for the financial year 2008-09 and was not relevant to the year in which the addition was made. The CIT (Appeals) had observed that the accounts for the previous year were not audited because no business was conducted in that year, leading to the conclusion that the addition was illegal and should be deleted.

3. Confirming the addition of license fee of Rs. 326000.00:
The assessee disputed the CIT (Appeals) decision to confirm the addition of a license fee amounting to Rs. 326000.00, which was relevant to the financial year 2009-10. This fee was paid on 23.03.2009 and 30.03.2009 and debited in the current year. The assessee argued that the addition was unjustified and should be deleted as the relevant documents were produced.

4. Validity of the reassessment proceedings:
The primary issue raised by the assessee was the validity of the reassessment proceedings initiated by the Assessing Officer (AO). The reassessment was reopened due to alleged escapement of income related to cash deposits made in the assessee's bank account. However, the AO made various disallowances of expenses unrelated to the reason for reopening the assessment. The assessee relied on the decision of the Hon'ble Delhi High Court in Ranbaxy Laboratories Limited Vs. CIT, which held that if no addition is made for the reason the assessment was reopened, other additions made would not survive.

Detailed Analysis:

Validity of the reassessment proceedings:
The Tribunal examined the reasons recorded by the AO for reopening the assessment, which was based on unexplained cash deposits of Rs. 6868705/- in the assessee's bank account. However, the AO did not make any addition related to these cash deposits while completing the assessment. Instead, the AO disallowed 25% of purchases for lack of bills and vouchers, disallowed the opening capital shown by the assessee, and made an addition for the license fee paid without supporting documents.

The Tribunal referred to the Delhi High Court's decision in Ranbaxy Laboratories Limited Vs. CIT, which established that if the AO does not make any addition on the primary ground for reopening the assessment, other additions would not survive. The Tribunal noted that the AO made various other additions unrelated to the reason for reopening the assessment, and thus, the reassessment order was deemed invalid.

Conclusion:
The Tribunal quashed the reassessment order passed by the AO under Section 143(3) read with Section 147 of the Income Tax Act, holding it as bad in law. Consequently, the Tribunal allowed the assessee's appeal on the preliminary ground, rendering the other grounds raised by the assessee on merits academic and not addressed at this stage. The appeal of the assessee was allowed, and the order was pronounced in the open court on 20/06/2022.