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TMI Blog2017 (11) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... osits in the bank accounts of the assessee. This information was received consequent to search conducted upon EMAAR MGF group of companies. The reassessment proceedings were completed under section 147 read with section 143 (3) of the Act on 18th of March 2014 wherein no additions/disallowances were made and the reassessment was completed at 'nil' income. 2.1 Subsequently, the Ld. Pr. Commissioner of Income Tax issued show cause notice under section 263 of the Income Tax Act on 06/01/2016 on the ground that during the course of reassessment proceedings, the assessee company had admitted to the fact that huge cash drawings to the tune of Rs. 35.70 crores was made for the purpose of purchase of land by the assessee company. The Ld. Pr. CIT further noted that no adverse view was taken by the AO in the reassessment proceedings vis-a-vis section 40A(3) of the Act. The Ld. Pr. CIT recorded that the fact that cash payments were made was uncontroverted but no disallowance was made by the AO under section 40A(3) of the Act and, therefore, the order of the AO was erroneous in so far as it was prejudicial to the interest of the revenue. The relevant portion of the show cause notice reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the AO to pass an appropriate order after making the fresh assessment wherein an addition of Rs. 35.70 crores was made. 2.4 Aggrieved, the assessee has now approached the ITAT and has raised the following grounds of appeal - "1. The Ld. Principal Commissioner of Income Tax, Delhi - 7, New Delhi (hereinafter referred to as 'Learned CIT') has erred on the fact and circumstances of case and law by setting aside the reassessment proceedings completed u/s 147 of the Act. Appellant contends that the initiation of proceedings u/s 263 ofthe Act (dated 01.03.2016) is illegal, bad in law and void ab initio and is in gross violation of the principles of natural justice. Ground No. 2: The Learned CIT has failed to appreciate that neither the reassessment order could be regarded as erroneous in law nor could be said to be prejudicial to the interest of revenue. Since the order of the Learned CIT is bad in law, the appellant contends that your Honor may grant a stay against the order u/s 263 and the consequential proceedings till the disposal of present appeal." Ground No. 3: The Learned CIT has failed to appreciate that before making the impugned order u/s 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40A (3) of the Act could be made only if such expenses were claimed as a deduction in the year under consideration. The Ld. Sr. Advocate further submitted that the AO had completely verified the facts in the reassessment proceedings and, therefore, the said order cannot be held as erroneous. The Ld. Sr. Advocate reiterated the fact that the provisions of section 40A(3) could be invoked only if the assessee had claimed deduction in respect of an expenditure and since the assessee had not claimed any deduction for the land purchased during the year, the question of disallowance could not arise. 3.1 The Ld. Sr. Advocate placed reliance on the judgment of the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd versus CIT reported in 336 ITR 136 (Delhi) for the proposition that Explanation 3 to section 147 was not applicable where no disallowance had been made in the reassessment order on the issue raised in the reasons recorded. The Ld. Sr. Advocate also placed reliance on the judgment of the Hon'ble Delhi High Court in the case of CIT versus Software Consultants reported in 341 ITR 240 (Delhi) for the proposition that jurisdiction under section 263 cannot be exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Pr. Ld. Commissioner of Income Tax set aside the order passed under section 147/143 (3) of the Act and directed the AO to make an addition on account of violation of the provisions of section 40 A (3) of the Act although the same was not the subject matter of reopening and reassessment. 5.1 There are numerous judgments wherein the Hon'ble courts have held that if no additions were made in respect of reasons recorded, it was not open to the AO to make addition on some other ground. The Hon'ble Bombay High Court in the case of CIT versus Jet Airways India Ltd reported in 331 ITR 236 (Bombay) has observed that if an assessment has been reopened by recording reasons and ultimately in the reassessment proceedings if it was found that no income has escaped assessment in respect of such reasons recorded, then the AO cannot take up any other issue for examination. The Hon'ble Bombay High Court considered the explanation as appended to section 147 of the Finance Act, 2009 and observed that if the addition was made on the income for which the AO had recorded the reasons about its escapement, only then other issues can be looked into. The Hon'ble High Court further emphasised that on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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