2025 (4) TMI 534 - AT - Income Tax

Assessment order passed u/s 148 r.w.s. 144 - addition made on the issue of cash deposits - Reasons for opening of the assessment are different than reasons for making additions - HELD THAT - Revenue was in possession of the information that the assessee has deposited a sum of Rs 42, 46, 000/- during the F.Y. 2011-12 in his saving bank account held with ICICI Bank Ltd. The assessee has not filed his return of income for the year under consideration. In absence of return of income the above transactions considered was considered as not verifiable and accordingly reasons for reopening of the case were recorded and notice u/s 148 of the Act was issued on 19.03.2019 which was duly served upon the assessee through registered post. The assessee made part compliance and submitted the copy of balance Sheet and Profit loss account. Thereafter despite various opportunities provided assessee remained non-compliant and ld. AO went on making the addition which were based on the profit and loss account and Balance Sheet filed by the assessee and the has abstained from making any addition on account of cash deposited to the Saving Bank account as alleged in the reasons recorded for re-opening of the case. Thus once the Assessing Officer is satisfied with the reasons recorded for reopening the case they no longer have the jurisdiction to tax any other income. We get strength of this view from a decision serviced by the ld. AR of the assessee in the case Shri Ram Singh 2008 (5) TMI 200 - RAJASTHAN HIGH COURT as held AO was justified in initiating the proceedings under section 147/148 but then once he came to the conclusion that the income with respect to which he had entertained reason to believe to have escaped assessment was found to have been explained his jurisdiction came to a stop at that and he did not continue to possess jurisdiction to put to tax any other income which subsequently came to his notice in the course of the proceedings which were found by him to have escaped assessment. Thus once the ld. AO abstained from making any addition on the reasons recorded his jurisdiction came to a stop at that and he did not continue to possess jurisdiction to put to tax any other income which subsequently came to his notice in the course of the proceedings which were found by him to have escaped assessment. Based on these observations ground no. 1 raised by the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the reopening of the assessment under Section 147/148 of the Income Tax Act was justified based on the information about cash deposits in the assessee's bank account.

2. Whether the Assessing Officer (AO) had jurisdiction to make additions unrelated to the reasons for reopening the assessment.

3. Whether the assessment under Section 144 was conducted in violation of natural justice due to inadequate opportunity for the assessee to present evidence.

4. Whether the additions made by the AO regarding fixed assets, interest on loans, depreciation, truck operating expenses, and expenses payable were justified and supported by evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Reopening the Assessment

- Relevant Legal Framework and Precedents: Section 147/148 of the Income Tax Act allows the reopening of an assessment if the AO has reason to believe that income has escaped assessment. The Supreme Court in CIT v. Kelvinator of India Ltd. emphasized that "reason to believe" cannot be based on mere suspicion or change of opinion.

- Court's Interpretation and Reasoning: The Tribunal found that the AO's reasons for reopening the assessment were based solely on the cash deposits in the bank account, which were not ultimately added to the income. The Tribunal cited the Rajasthan High Court's decision in CIT v. Shri Ram Singh, which held that if the income initially believed to have escaped assessment is explained, the AO's jurisdiction to assess other income ceases.

- Conclusion: The Tribunal concluded that the reopening was not justified as the AO did not make any addition based on the cash deposits, which were the original reason for reopening the assessment.

Issue 2: Jurisdiction to Make Additions Unrelated to Reopening Reasons

- Relevant Legal Framework and Precedents: The jurisdiction of the AO under Section 147 is limited to assessing income that has escaped assessment as per the reasons recorded. The Delhi High Court in Ranbaxy Laboratories Ltd. v. CIT held that the AO cannot assess other income if the original reason for reopening is not sustained.

- Court's Interpretation and Reasoning: The Tribunal found that once the AO did not find any escapement of income based on the cash deposits, he lacked jurisdiction to make other additions unrelated to the reasons for reopening.

- Conclusion: The Tribunal held that the AO exceeded his jurisdiction by making additions unrelated to the initial reason for reopening the assessment.

Issue 3: Adequacy of Opportunity and Natural Justice

- Relevant Legal Framework: Section 144 of the Income Tax Act allows for best judgment assessment when the assessee fails to comply with notices. However, principles of natural justice require that the assessee be given adequate opportunity to present their case.

- Court's Interpretation and Reasoning: The Tribunal noted that while notices were issued, the AO proceeded with the assessment without considering the submissions made by the assessee's representative. The Tribunal found that the opportunity provided was inadequate and illusory.

- Conclusion: The Tribunal concluded that the assessment under Section 144 was conducted in violation of natural justice due to inadequate opportunity for the assessee to present evidence.

Issue 4: Justification for Additions Made by the AO

- Relevant Legal Framework: The AO made additions for fixed assets, interest on loans, depreciation, truck operating expenses, and expenses payable based on the lack of documentary evidence.

- Court's Interpretation and Reasoning: The Tribunal found that the AO's additions were based on assumptions and lacked proper basis. The assessee had submitted audited financial statements, which were not adequately considered by the AO.

- Conclusion: The Tribunal held that the additions made by the AO were not justified and were based on conjecture and suspicion rather than evidence.

3. SIGNIFICANT HOLDINGS

- The Tribunal emphasized the importance of adhering to the reasons for reopening an assessment under Section 147/148 and held that the AO's jurisdiction is limited to those reasons.

- The Tribunal reiterated the principle that "reason to believe" must be based on concrete evidence and not mere suspicion, aligning with the Supreme Court's interpretation in CIT v. Kelvinator of India Ltd.

- The Tribunal underscored the necessity of providing adequate opportunity to the assessee to present their case, as part of the principles of natural justice.

- The Tribunal concluded that the AO's additions were unjustified, as they were based on assumptions without proper evidence, and emphasized the need for assessments to be based on credible evidence.

- The Tribunal allowed the appeal, setting aside the assessment order and highlighting that the AO's jurisdiction ceased once the original reason for reopening was not sustained.

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