2022 (9) TMI 99 - AT - Income Tax

Reopening of assessment u/s 147 - addition attributable to the reasons recorded - relation between the reasons recorded and the additions made - Assessee had made huge cash deposits in bank accounts - Whether in the absence of any addition made on the vary reasons recorded, no further addition in this case is warranted? - HELD THAT - We have gone through the record and find that there is no relation between the reasons recorded and the additions made. As per the record before us, the AO has not enquired about the deposits in the bank and no addition has been made on account of any of the amounts received on 10 occasions as mentioned in the reasons recorded. Since, no addition has been made on the reasons recorded and since the additions made have no relation with the reasons recorded while reopening the case and cannot be attributable to the reasons recorded, hold that the Assessing Officer had deficiency of jurisdiction in assessing any other income unrelated to the reasons recorded and owing to the facts of the instant case, the Explanation 3 to Section 147 is not attracted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdictional validity of proceedings under Section 147.
2. Validity of the notice under Section 148.
3. Disallowance of property development expenses.
4. Disallowance of plot boundary expenses.
5. Disallowance of sewerage and water pipe expenses.
6. Disallowance of brokerage expenses.
7. Addition of opening balance of capital.
8. Jurisdictional validity of disallowances beyond the scope of Section 147/143(3).

Detailed Analysis:

1. Jurisdictional Validity of Proceedings under Section 147:
The assessee contested that the initiation and completion of assessment under Section 147/143(3) were without jurisdiction. The grounds included the lack of specific, relevant, reliable, and tangible material to form a "reason to believe" that income had escaped assessment. The reasons recorded were deemed mechanical and without application of mind, and no valid approval was obtained under Section 151.

2. Validity of the Notice under Section 148:
The assessee argued that the absence of service of notice under Section 148 invalidated the jurisdiction to frame the assessment. The proceedings initiated were not in accordance with the law and thus unsustainable.

3. Disallowance of Property Development Expenses:
The Commissioner of Income Tax (Appeals) upheld the disallowance of Rs. 97,49,250 out of the total expenditure of Rs. 1,27,19,231 incurred on property development. The assessee contended that the remand report by the Assessing Officer (AO) recommended a lower disallowance of Rs. 14,50,583, and the disallowance upheld was excessive and untenable. The basis of using CPWD rates for site development to deny excess expenditure was also challenged.

4. Disallowance of Plot Boundary Expenses:
The Commissioner of Income Tax (Appeals) sustained a disallowance of Rs. 31,50,480 out of the plot boundary expenses. The assessee argued that this disallowance was both in law and on facts.

5. Disallowance of Sewerage and Water Pipe Expenses:
A disallowance of Rs. 13,18,835 out of the total expenditure of Rs. 26,37,670 under the head "Sewerage and Water Pipe Expenses" was sustained by the Commissioner of Income Tax (Appeals). The assessee contested this disallowance as erroneous.

6. Disallowance of Brokerage Expenses:
The Commissioner of Income Tax (Appeals) sustained a disallowance of Rs. 4,23,750, being 50% of the expenditure incurred under the head 'brokerage expenses'. The assessee argued that this disallowance was both in law and on facts.

7. Addition of Opening Balance of Capital:
The Commissioner of Income Tax (Appeals) upheld an addition of Rs. 1,79,735 out of the opening balance of capital declared in the balance sheet. The assessee contended that this addition was erroneous.

8. Jurisdictional Validity of Disallowances Beyond the Scope of Section 147/143(3):
The assessee argued that the disallowances made and sustained were beyond the scope of the order of assessment framed under Section 147/143(3). The proceedings under Section 148 were initiated based on cash deposits, but no addition was made on this account, making the disallowances without jurisdiction and unsustainable.

Judgment:
The Tribunal found no relation between the reasons recorded and the additions made. The AO did not enquire about the deposits in the bank, and no addition was made on account of the amounts received as mentioned in the reasons recorded. The Tribunal cited established jurisprudence, including cases like Commissioner of Income-Tax vs. Jet Airways (I.) Ltd., Ranbaxy Laboratories Ltd. vs. Commissioner of Income-Tax, and Pr. Commissioner of Income-tax-1 vs. Lark Chemicals (P.) Ltd., which emphasized that the AO must assess or reassess the income which escaped assessment and was the basis of the formation of belief. If no addition is made on the reasons recorded, the AO cannot assess any other income unrelated to the reasons recorded.

Conclusion:
Since no addition was made on the reasons recorded and the additions made were unrelated to the reasons for reopening the case, the Tribunal held that the AO had a deficiency of jurisdiction. Consequently, the appeal of the assessee was allowed.