2025 (1) TMI 165 - AT - Income Tax

Reassessment proceedings invalid when foundational grounds for reopening are removed by appellate authority

Tejas C. Joshi 9A, Santosa Park Society Versus Income Tax Officer Ward-5 (3) (3), Ahmedabad

ITAT Ahmedabad held reassessment proceedings invalid where unexplained bank deposits formed the basis for reopening. The assessee had disclosed rental ... Validity of Reassessment proceedings - unexplained deposit in the bank account - HELD THAT:- Reasons for reopening of assessment namely credit entries of assessee’s minor child was not clubbed the same in assessee’s Return of Income. Ld. CIT(A) after considering the SBI Account which was opened in the name of Shri Vivan Joshi but later assessee’s name was added as an joint account holder. The rental income from SBI Life Insurance Co. and Aditya Retail were offered for taxation by the assessee through this Bank account. Thus the assessee disclosed the transaction reflected in the bank account. CIT(A) deleted the addition as unexplained credit deposit in the bank account which was the prime facie basis for reopening of assessment. When the basic reasons recorded for reassessment itself is deleted, there cannot be any further addition in the reopened assessment, and such additions cannot sustainable in law. Since the foundation of reassessment proceedings is a valid notice, if this notice is held to be invalid, the entire edifice sought to be raised on such foundation has to collapse and therefore the entire reassessment proceedings liable to be quashed. As relying on B.P. PODDAR FOUNDATION FOR EDUCATION [2022 (9) TMI 660 - CALCUTTA HIGH COURT] and JOGINDER SINGH [2015 (6) TMI 1217 - ITAT AMRITSAR] no hesitation in holding that the reassessment itself is bad in law since Ld. CIT(A) deleted the impugned addition being unexplained deposit in the bank account which was clearly disclosed by the assessee in his Return of Income - Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal should condone a short delay in filing the appeal where the assessee was abroad and an affidavit explaining absence is filed. 2. Whether reassessment proceedings initiated under section 148/147 of the Income Tax Act are invalid where the primary reason recorded for reopening (unexplained bank credit of Rs. 4,05,553) is subsequently deleted by the first appellate authority. 3. Whether additions made in reassessment proceedings on other heads (undeclared cash deposits totalling Rs. 6,50,000 and unexplained receipt of Rs. 7,50,000) can be sustained when the foundational reason for reopening is held to be without basis. 4. Whether the Tribunal should admit and decide an additional ground of appeal raised before it that challenges continuation of reassessment proceedings when the reasons recorded are found to be not sustained. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Condonation of Delay Legal framework: Principles governing condonation of delay in filing statutory appeals, taking into account explanation, reasons for absence, and discretion of the appellate authority. Precedent Treatment: Not independently relied upon in judgment; standard discretionary approach applied. Interpretation and reasoning: The Tribunal examined the notarized affidavit stating absence from the country for the period overlapping the filing deadline and found the explanation cogent and satisfactory. Ratio vs. Obiter: Ratio - discretion to condone delay exercised where reasonable cause is shown; not obiter. Conclusion: Delay of six days in filing the appeal was condoned by the Tribunal as the explanation (being abroad) was acceptable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of Reassessment Where Foundational Reason Deleted Legal framework: Sections 147/148 (reopening of assessment) and the principle that a reassessment must be founded on the reasons recorded; if reasons are invalidated, continuation of reassessment is impermissible. Also reference to the legal consequence that if the notice is held invalid, the reassessment edifice collapses. Precedent Treatment: The Tribunal expressly followed binding/precedential authority holding that where additions made in reassessment proceedings are deleted by the appellate authority on the basis that they were the very reasons for reopening, the entire reassessment must be quashed. The decision cites Calcutta High Court reasoning and coordinate Tribunal decisions (treated as persuasive and followed). Interpretation and reasoning: The Tribunal analysed the material relied on for reopening - unexplained bank credits of the assessee's minor child - and the CIT(A)'s finding that those credits were explained as rental receipts of the assessee and were disclosed in the return. Since the primary reason recorded to reopen the assessment (unexplained deposit) was negated by the appellate fact-finding, the Tribunal held that the foundational justification for reopening no longer existed. The Tribunal applied the logical and legal proposition that reassessment proceedings cannot continue on other bases once the recorded reasons are shown to be unsustainable. Ratio vs. Obiter: Ratio - where the recorded reasons for reopening are found to be unsustainable by the appellate authority (for example deletion of the addition that formed the basis of reopening), the reassessment proceedings which stem from that notice are liable to be quashed. This principle is applied directly to the facts. Conclusion: The reassessment was held to be vitiated because the primary reason for issuing the reopening notice (unexplained bank deposit of Rs. 4,05,553) was deleted by the CIT(A), thereby invalidating the foundation of the reassessment; the reassessment was quashed. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Sustainability of Other Additions When Foundational Reason Fails Legal framework: Principle that additions in reassessment must be supported by reasons recorded and cannot be sustained if they are not covered by or are inconsistent with the reasons that justified reopening; the concept that once the recorded reasons are demolished, subsequent additions which depend on the validity of those reasons cannot stand. Precedent Treatment: The Tribunal relied on authorities where appellate deletion of additions based on the reopening reasons led to quashing of the entire reassessment and consequential deletion of other additions made in reassessment; these precedents were followed rather than distinguished. Interpretation and reasoning: The Tribunal noted that the reassessment was initiated because of the unexplained bank credit; once that was explained and deleted, the Tribunal held that additions in the reassessment (including undisclosed cash claimed by AO) could not be sustained because they flowed from, and were dependent on, the validity of the reopening. The Tribunal emphasized that continuation of reassessment on other grounds is impermissible where the recorded reasons fail. Ratio vs. Obiter: Ratio - additions made in reassessment which are consequent to, or reliant upon, reasons recorded for reopening cannot survive when those reasons are shown to be invalid or deleted by the appellate authority. Conclusions: The Tribunal quashed the reassessment as a whole; consequently, additions other than the deleted bank credit could not be sustained and the appeal was allowed in favour of the assessee on this basis. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Admission of Additional Ground Challenging Continuation of Reassessment Legal framework: Principles permitting amendment or admission of grounds of appeal before final hearing where grounds are relevant to the core controversy and not barred by procedural deficiency; acceptability of raising argument that reassessment cannot continue where reasons are not sustained. Precedent Treatment: Reliance placed on decisions that support quashing reassessment where initial reasons are deleted; these were used to support admission and consideration of the additional ground. Interpretation and reasoning: The Tribunal accepted and entertained the additional ground which contended that reassessment could not be continued if no addition was confirmed based on the reasons recorded. The Tribunal found the additional ground germane because it directly related to the legality of the reassessment in light of the appellate deletion of the foundational addition. Ratio vs. Obiter: Ratio - tribunal may allow/consider additional grounds that are substantive and bear directly on legality of proceedings, especially where they address the core validity of reassessment; not merely obiter. Conclusion: The additional ground was admitted and considered; on that basis and applying precedents, the Tribunal held the reassessment untenable and allowed the appeal. OVERALL CONCLUSION The Tribunal condoned the short filing delay, admitted the additional ground, followed precedents holding that where the primary recorded reason for reopening is shown to be without basis by the appellate authority, the reassessment cannot be sustained, and consequently quashed the reassessment and allowed the appeal.