2023 (1) TMI 364 - AT - Income Tax

Reopening of assessment u/s 147 - Additions beyond the scope of the reason on which assessment was reopened - cash deposits made in the bank account unexplained - disallowance of expenditure claimed by the assessee against income earned from tuition - HELD THAT - AO apparently has accepted the explanation of the assessee regarding the source of deposits in the bank account, since, he has not made any addition in the assessment order with reference to the cash deposits made in the bank account - on examining the return of income he found that against the tuition income the assessee has claimed expenses the genuineness of which, according to the AO, the assessee failed to establish through supporting evidence. Thus, ultimately while completing the assessment AO treated the expenditure claimed as bogus and disallowed it. This is the only addition made by the Assessing Officer while completing the assessment. As evident that the addition ultimately made by AO while completing the assessment has no connection with the income for escapement of which the AO reopened the assessment u/s 147 - Thus, it is patent and obvious, the AO reopened the assessment for assessing a particular item of income, whereas, instead of assessing that income he has added another item of income which was not the subject matter of reopening. AO can add other items of income along with the income for the escapement of which the assessment was reopened. However, without assessing that escaped income the Assessing Officer cannot make assessment of other items of income. Thus,no hesitation in holding that the addition made by disallowing the expenses claimed is unsustainable. Accordingly, direct the Assessing Officer to delete the addition. Assessee appeal allowed.

Issues:
1. Validity of reopening assessment under section 147 based on cash deposits.
2. Verification of approval by Addl. CIT under section 151 for reopening assessment.
3. Disallowance of expenses against tuition income in reassessment.
4. Rejection of evidences and sources of cash deposit in bank.
5. Legality of reassessment proceedings.
6. Request for leave to add, delete, or alter any ground of appeal.

Analysis:

Issue 1: Validity of reopening assessment under section 147 based on cash deposits
The Assessing Officer reopened the assessment under section 147 due to cash deposits in the bank account. However, during the assessment proceedings, it was found that the disallowance was made on the claimed expenses against tuition income, not on the cash deposits. The Tribunal held that the addition of disallowed expenses was not connected to the reason for reopening the assessment. Citing legal precedents, the Tribunal emphasized that the Assessing Officer cannot assess other items of income without addressing the specific income for which the assessment was reopened. Therefore, the Tribunal found the addition of disallowed expenses to be legally unsustainable and directed the Assessing Officer to delete the addition.

Issue 2: Verification of approval by Addl. CIT under section 151 for reopening assessment
The appellant contended that the approval by the Additional CIT under section 151 was not properly verified, indicating a lack of independent satisfaction. However, the Tribunal did not delve into this issue as the focus was on the validity of the addition made during reassessment.

Issue 3: Disallowance of expenses against tuition income in reassessment
The Assessing Officer disallowed the expenses claimed against tuition income as the appellant failed to provide sufficient supporting evidence. Despite multiple opportunities, the appellant could not substantiate the claimed expenses, leading to their disallowance. The Tribunal, however, found this disallowance to be unsustainable based on the lack of connection to the reason for reopening the assessment.

Issue 4: Rejection of evidences and sources of cash deposit in bank
The Assessing Officer rejected the evidences and sources of cash deposits in the bank, attributing them to the sale proceeds of the appellant's property. This rejection was not the primary focus of the Tribunal's analysis, as the key issue revolved around the disallowance of expenses against tuition income.

Issue 5: Legality of reassessment proceedings
The appellant argued that the reassessment proceedings were illegal and speculative, deserving to be quashed. While the Tribunal did not explicitly address the legality of the reassessment proceedings, it focused on the specific additions made during the assessment process.

Issue 6: Request for leave to add, delete, or alter any ground of appeal
The appellant requested the flexibility to modify the grounds of appeal. This request was not directly addressed in the Tribunal's judgment, which primarily focused on the validity of the additions made during reassessment.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer to delete the addition of disallowed expenses, highlighting the importance of connecting assessment additions to the reasons for reopening assessments under section 147 of the Income Tax Act, 1961.

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