2020 (9) TMI 318 - AT - Income Tax

Tribunal Invalidates AO's Additions Beyond Reopening Reasons

The Tribunal upheld the CIT(A)'s decision, ruling that the Assessing Officer's additions on issues not forming the basis of reopening assessments under ... Validity of reopening of assessment u/s 147 - assessments were reopened by the AO on the basis of information received by him regarding the bank accounts allegedly maintained by both the assessees with HSBC Bank, Switzerland but finally no addition was made by him to the total income of the assessees on the said issue in the assessments completed u/s 147/143(3) of the Act wherein additions were made on altogether different issues such as capital gain etc. which did not form the basis of reopening of assessments - HELD THAT:- As decided in M/s. Infinity Infotech Parks Ltd. [2014 (9) TMI 1142 - CALCUTTA HIGH COURT] During reassessment when the AO finds that the item on the basis of which he reopened does not survive, then the reasons recorded to reopen loses its significance and the fall out is that the AO's jurisdiction to reassess is without jurisdiction and therefore is illegal and fragile in the eyes of law; and thereafter he should have dropped the reassessment proceeding there only as discussed supra. After having no jurisdiction to reassess his further action of a new fact finding in the absence of any item specified in the reasons recorded which is the foundation on which he reopens when no longer subsists, the AO's action is hit being 'Quarum non-judice' and, therefore, the impugned addition is non-est in the eyes of law and so it has to necessarily go. Therefore, the appeal of the Revenue is devoid of any merits - Decided in favour of assessee. Issues Involved:1. Validity of reopening assessments under Section 147/148 of the Income Tax Act.2. Legality of making additions on issues not forming the basis of reopening.Issue-wise Detailed Analysis:1. Validity of reopening assessments under Section 147/148 of the Income Tax Act:The assessees filed their returns for the relevant year declaring total incomes of Rs. 18,98,22,722/- and Rs. 19,58,46,609/- respectively. Initially, the Assessing Officer (AO) accepted these returns. Later, information surfaced about undisclosed Swiss bank accounts, prompting the AO to reopen the assessments under Section 147/148. The assessees responded by reiterating their original returns and denied maintaining any Swiss bank accounts. Despite the lack of concrete evidence regarding these accounts, the AO did not add any income related to the Swiss accounts but made other additions, including Long Term Capital Gain, Short Term Capital Gain, and disallowance under Section 14A.2. Legality of making additions on issues not forming the basis of reopening:The assessees argued before the Commissioner of Income Tax (Appeals) [CIT(A)] that since the AO made no additions based on the Swiss bank accounts, which were the basis for reopening, he could not make additions on other unrelated issues. They cited judicial precedents, including decisions from the Rajasthan and Punjab & Haryana High Courts, supporting their contention. The CIT(A) agreed, holding that if no additions are made on the issue that prompted the reopening, the AO cannot make additions on other issues unless they are connected to the original issue.Tribunal's Analysis:The Tribunal reviewed the arguments and the relevant judicial pronouncements. The Revenue's appeal challenged the CIT(A)'s decision, arguing that additions on other issues are permissible. However, the Tribunal noted that the CIT, DR did not present substantial arguments against the CIT(A)'s order. The Tribunal referenced several judicial decisions, including the Calcutta High Court's ruling in M/s. Infinity Infotech Parks Ltd., which supported the assessees' position that the AO must make additions on the specific issue that led to the reopening to validly reassess other issues.Conclusion:The Tribunal upheld the CIT(A)'s decision, confirming that the AO's additions on issues not forming the basis of reopening were invalid. The appeals by the Revenue were dismissed, reinforcing the principle that the AO must adhere to the specific reasons for reopening an assessment under Section 147/148.Order Pronounced:The Tribunal dismissed both appeals of the Revenue, with the order pronounced in the Open Court on 14th August 2020.