2026 (3) TMI 532 - AT - Income Tax

Jurisdiction to reopen: AO cannot compute deemed income under MAT without a fresh notice when original basis is negated.

Reassessment initiated for alleged unsubstantiated related party payments was limited to that specific escaped income; the AO accepted the returned income ... Reopening of the assessment u/s 147 - computation of book profit u/s 115JB - Validity of computing deemed income under section 115JB in reassessment proceedings initiated for alleged undisclosed payments to related parties when the AO accepted the returned income on that issue - HELD THAT: - The Tribunal held that reassessment proceedings under section 147 must be confined to the income which was the basis of the formation of belief leading to reopening, and that although section 147 permits assessment of other income that comes to notice during proceedings, this is permissible only if the income which justified the notice remains assessed as escaped. Following the jurisdictional High Court in CIT v. Jet Airways [2010 (4) TMI 431 - BOMBAY HIGH COURT] if after issuing a notice under section 148 the Assessing Officer accepts the assessee's contention that the initially suspected income had not escaped assessment, the Assessing Officer cannot independently assess other income (such as MAT liability under section 115JB) without issuing a fresh notice under section 148. In the present case the AO initiated reassessment on alleged undisclosed related-party payments but ultimately made no addition on that issue and accepted the returned income; consequently the computation of book profit under section 115JB in the reassessment was held to be beyond the scope of the proceedings and was quashed. [Paras 10, 11, 12]. Final Conclusion: The Tribunal allowed the appeal, holding that the AO could not compute and levy deemed income u/s 115JB in the reassessment after accepting that the income which justified reopening had not escaped assessment, and quashed the MAT computation made in the reassessment. Issues: (i) Whether the Assessing Officer had jurisdiction, in reassessment proceedings initiated under section 147 of the Income-tax Act, 1961, to compute and assess deemed income under section 115JB when the AO accepted the returned income and made no additions on the grounds forming the basis for reopening.Analysis: The reassessment was initiated on the basis that certain payments to related parties lacked substantiation and had escaped assessment. During reassessment proceedings the Assessing Officer accepted the returned income and made no adverse additions on that issue. Despite acceptance, the Assessing Officer computed book profit under section 115JB and arrived at a MAT demand. The authorities relied upon establish that section 147 permits assessment or reassessment of the income which formed the basis of the formation of belief and permits assessment of other income only if such other income comes to the AO's notice in the course of proceedings assessing that originally believed-to-have-escaped income. If the AO, after issuing notice under section 148, concludes that the income forming the basis of the belief has not escaped assessment, the AO cannot independently assess some other income without issuing a fresh notice under section 148 directed to that income.Conclusion: The Assessing Officer exceeded jurisdiction by computing and assessing deemed income under section 115JB in the reassessment proceedings which had been initiated to examine other payments; the computation of book profit under section 115JB is quashed and the assessee is granted relief.Final Conclusion: The appeal is allowed and the MAT computation under section 115JB made in the reassessment is set aside as beyond the scope of the reassessment initiated under section 147.Ratio Decidendi: Where a reassessment notice under section 148 is issued for specific escaped income and the Assessing Officer, during reassessment, accepts that the originally alleged escaped income has not escaped assessment, the Assessing Officer lacks jurisdiction to assess other income (including computation under section 115JB) without issuing a fresh valid notice under section 148 directed to that other income.