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Issues: Whether, where reassessment was initiated on the basis of alleged unexplained cash deposits but no addition was ultimately made on that basis, the Assessing Officer could sustain a separate disallowance on another issue under section 147 of the Income-tax Act, 1961.
Analysis: The reassessment was founded solely on the alleged escapement arising from cash deposits during the demonetisation period. The reassessment order itself recorded that the explanation for those deposits was accepted and no addition was made on that count. The controlling principle is that the words "and also" in section 147 are cumulative and conjunctive. The Assessing Officer must first assess or reassess the income that formed the basis of the reason to believe; only thereafter can any other income noticed during the proceedings also be brought to tax. If the foundational issue is not assessed or reassessed, jurisdiction to make an independent addition on another matter does not survive.
Conclusion: The reassessment jurisdiction failed once no addition was made on the issue forming the basis of reopening, and the separate disallowance of interest expenditure could not be sustained.
Ratio Decidendi: Under section 147, reassessment on other issues is permissible only after the income forming the foundation of the reopening is assessed or reassessed; if that foundational issue is accepted as not having escaped assessment, no independent addition on a different issue can be made without a fresh notice.
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