2024 (8) TMI 517 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 -addition on some other grounds which did not form part of the reasons recorded - Scope of explanation 3 of section 147 - Tribunal rested its conclusions that once the principal grounds on which reassessment was proposed are dropped, no further additions can be made even by taking recourse to Explanation 3 - whether once the issue of accommodation entry and which alone formed the subject matter of the notice issued u/s 148 was ultimately dropped, any further additions could have been made thereafter? HELD THAT - Tribunal rested its conclusions on the judgment rendered by a Division Bench of this Court in Ranbaxy Laboratories Ltd. 2011 (6) TMI 4 - DELHI HIGH COURT to hold that once the principal grounds on which reassessment was proposed are dropped, no further additions can be made even by taking recourse to Explanation 3. Indelible connection between Section 148A(b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened. Explanation 3, or for that matter, the Explanation which presently forms part of Section 147, would come into play only once it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in light of principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the AO in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated. Explanation 3, cannot consequently be read as enabling the AO to attempt to either deviate from the reasons originally recorded for initiating action under Section 147/148 of the Act nor can those Explanations be read as empowering the AO to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions - we answer the question which stands posited in the negative and against the appellant.

Summary

Issues Involved:
1. Deletion of the addition under Section 68 by ITAT.
2. Interpretation and application of Explanation 3 of Section 147 of the Income Tax Act, 1961.
3. Reliance on the case of Ranbaxy Laboratories Ltd. by ITAT.
4. Validity of additions based on information from the Investigation Wing.
5. Connection of the addition with the reasons for reopening the assessment.

Issue-wise Detailed Analysis:

1. Deletion of the Addition under Section 68 by ITAT:
The appellant challenged the ITAT's decision to delete the addition of Rs. 58,18,50,000/- under Section 68 of the Income Tax Act. The ITAT upheld the CIT(A)'s order, which concluded that the Assessing Officer (AO) could not make additions on grounds not forming part of the reasons recorded for reopening the assessment. The ITAT observed that the reopening was based on information about accommodation entries from TVH Trading Company Pvt. Ltd. amounting to Rs. 26,40,00,000/-, which had already been added in a previous order. The addition of Rs. 58,18,50,000/- pertained to amounts received from five persons, which were not part of the reasons for reopening.

2. Interpretation and Application of Explanation 3 of Section 147:
The appellant argued that Explanation 3 of Section 147 empowered the AO to assess or reassess income in respect of any issue that comes to his notice during the proceedings, even if not included in the reasons recorded under Section 148. The Tribunal, however, relied on the judgment in Ranbaxy Laboratories Ltd. v. Commissioner of Income-tax, which held that once the principal grounds for reassessment are dropped, no further additions can be made by invoking Explanation 3.

3. Reliance on the Case of Ranbaxy Laboratories Ltd. by ITAT:
The ITAT's reliance on the Ranbaxy Laboratories Ltd. case was contested by the appellant, who argued that the facts of the current case were different. The Tribunal, however, found the principles laid down in Ranbaxy Laboratories Ltd. applicable, noting that once the primary grounds for reopening are dropped, further additions cannot be made. This position was reaffirmed by the High Court, which cited its recent decision in ATS Infrastructure Limited, reiterating that the AO's power to reassess is confined to the issues forming the basis for reopening.

4. Validity of Additions Based on Information from the Investigation Wing:
The appellant contended that the additions were based on concrete information from the Investigation Wing, not on roving and fishing enquiries. The Tribunal, however, found that the addition of Rs. 58,18,50,000/- was unrelated to the reasons recorded for reopening the assessment, which were based on accommodation entries from TVH Trading Company Pvt. Ltd. The High Court upheld this view, emphasizing that the AO cannot make additions on grounds not forming part of the reasons for reopening.

5. Connection of the Addition with the Reasons for Reopening the Assessment:
The appellant argued that the addition related to accommodation entry in the form of share premium was connected to the reasons for reopening the assessment. The Tribunal, however, found no such connection, noting that the addition pertained to amounts from five different persons not mentioned in the reasons for reopening. The High Court upheld this finding, reiterating that the AO's power to reassess is limited to the issues forming the basis for reopening.

Conclusion:
The High Court dismissed the appeal, holding that the ITAT did not err in deleting the addition under Section 68. The Court affirmed that once the primary grounds for reopening the assessment are dropped, no further additions can be made by invoking Explanation 3 of Section 147. The reliance on the Ranbaxy Laboratories Ltd. case was found appropriate, and the Tribunal's conclusions were upheld. The appeal was thus dismissed.