Reasonable opportunity in reassessment and section 52 addition deleted under K. P. Varghese, both issues favour assessee.

An appellate authority may set aside an assessment and direct a fresh assessment where the assessee was denied a reasonable opportunity, and the Tribunal found no impropriety in that course. The addition under section 52 of the Income-tax Act, 1961 was also unsustainable because the parties accepted that the Supreme Court ruling in K. P. Varghese negatived the addition on the facts. Both referred questions were therefore answered in favour of the assessee, and the departmental reference was disposed of accordingly.

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Issues: (i) Whether the Tribunal was justified in upholding the order setting aside the assessment and directing a fresh assessment after giving the assessee a reasonable opportunity. (ii) Whether the deletion of the addition under section 52 of the Income-tax Act, 1961 was sustainable.

Issue (i): Whether the Tribunal was justified in upholding the order setting aside the assessment and directing a fresh assessment after giving the assessee a reasonable opportunity.

Analysis: The assessment had been made under section 143(3) of the Income-tax Act, 1961. The Appellate Assistant Commissioner found that the assessee had been denied a reasonable opportunity and therefore set aside the assessment with a direction to afford such opportunity and make a fresh assessment. The Tribunal agreed that there was nothing improper in that course.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Issue (ii): Whether the deletion of the addition under section 52 of the Income-tax Act, 1961 was sustainable.

Analysis: The parties were agreed that, in view of the Supreme Court decision in K. P. Varghese, the addition could not be sustained on the facts of the case.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Final Conclusion: Both referred questions were answered for the assessee, and the departmental reference stood disposed of accordingly.

Ratio Decidendi: Where an appellate authority sets aside an assessment to secure a reasonable opportunity to the assessee, and where the governing precedent negatives the disputed addition, the reference is answered in favour of the assessee.

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