2023 (11) TMI 27 - AT - Income Tax

Reassessment u/s 147 invalid when additions made on grounds different from recorded reasons for reopening

Saket Agarwal Versus ACIT, Circle-58 (1) New Delhi

The ITAT Delhi held that reassessment u/s 147 was invalid where additions were made on grounds different from those recorded in the reasons for reopening. ... Reopening of assessment u/s 147 - change in 'reason to believe' - additions in respect of other income - HELD THAT:- Re-assessment has been made on altogether different grounds than what is recorded in the reasons for reopening the assessment. As per the reasons recorded, allegation of escapement is with reference to income claimed as exempt under Section 10(38) in relation to trading in the scrips of a concern Amulya Leasing and Financing Ltd. However, a perusal of the re-assessment order shows that the additions have been made by invoking Section 68 holding the same to be unexplained cash credit. Thus, the ‘reason to believe’ which in the first instance, impelled the Department to reopen the proceedings has undergone a complete change. As well settled that once the Assessing Officer assumes jurisdiction to reopen the proceedings under Section 148, he cannot independently make additions in respect of other income which escapes assessment unless the Assessing Officer makes some additions based on allegations in the reasons recorded. See JET AIRWAYS (I) LTD. [2010 (4) TMI 431 - HIGH COURT OF BOMBAY] and Living Media India Ltd.[2013 (6) TMI 128 - DELHI HIGH COURT] In the instant case, the foundation of reopening has been knocked out and additions have been made on unrelated grounds which is not permissible in law. Thus, the additions under challenge are not permissible in law. Hence, such impugned additions are liable to be quashed. Decided in favour of assessee. Issues involved:The issues involved in this case include the challenge towards assumption of jurisdiction under Section 147 of the Income Tax Act, 1961, the sustainability of additions made in the course of assessment, and the discrepancy between the reasons recorded for reassessment and the actual additions made.Challenge towards assumption of jurisdiction under Section 147:The appellant contested the initiation of proceedings under Section 147, arguing that the additions made in the assessment were not supported by the reasons recorded. The appellant highlighted that the reassessment was framed invoking Section 68 of the Act for gains on the sale of securities, which was different from the reasons recorded related to the alleged escaped income. The appellant emphasized that the re-assessment was disconnected from the reasons recorded, rendering the impugned additions unsustainable in law.Sustainability of additions made in the course of assessment:The appellant raised multiple grounds of appeal regarding the additions made during the assessment process. These grounds included the treatment of short-term capital gains, disallowance of expenses, and additions made on a hypothetical basis under Section 68 of the Act. The appellant contended that the additions were not supported by the reasons recorded and were therefore not legally sustainable.Discrepancy between reasons recorded and actual additions:It was argued that once the Assessing Officer assumes jurisdiction to reopen proceedings under Section 148, they cannot independently make additions unrelated to the reasons recorded. The appellant cited legal precedents to support this argument, emphasizing that if the Assessing Officer does not assess income based on the recorded reasons, they are not authorized to assess other income in the reassessment. The appellant asserted that in this case, the additions were made on grounds different from those in the reasons recorded, leading to a lack of legal basis for the impugned additions.This judgment underscores the importance of adherence to the reasons recorded for reassessment and the limitations on the Assessing Officer's authority to make additions unrelated to the recorded reasons. The decision favored the appellant, ruling that the additions made in the assessment were not legally sustainable due to the discrepancy between the reasons recorded and the actual additions.