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 on that issue and therefore lacked jurisdiction to compute and assess deemed income under the Minimum Alternate Tax in the same proceedings without issuing a fresh notice directed to that income. The ITAT held the MAT computation in reassessment to be beyond the scope of the original reopening and quashed the section 115JB assessment, allowing the appeal and granting relief to the assessee.

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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.

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