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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-7, Ahmedabad (‘CIT(A)’ in short), dated 21.12.2017 arising in the assessment order dated 29.12.2016 passed by the Assessing Officer (AO) under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) concerning AY 2011-12.
[Jt.CIT(OSD) vs. M/s. N. K. Proteins Pvt. Ltd.] A.Y. 2011-12 - 2 - 2. The grounds of appeal raised by Revenue read as under:
“1. The Ld. CIT(A) has erred in law and on facts of the case in deleting the addition of Rs.84,20,58,519/- made by the A.O. towards the purchase of Castor seeds/Soda seeds on NSEL Platform. 2. On the facts and circumstances of the case, the Ld. Commissioner of Income-tax (A) ought to have upheld the order of the Assessing Officer in respect of above issues.”
When the matter was called for hearing, the learned senior counsel for the assessee in the captioned Revenue’s appeal referred to the reasons recorded for initiating the proceedings under s.147 of the Act and submitted that the reasons recorded would suggest that the assessment proceedings of the assessee were reopened by the AO to examine the details in respect of future and option losses debited to the P&L account which had not been considered by the AO during the original assessment proceedings. However, in the re-assessment proceedings, this issue was not taken up by the AO at all. The AO has made an addition of Rs.84,20,58,519/- towards purchase of Castor seeds/ Soda seeds on NSEL Platform. Whereas, the only reason recorded for reopening the assessment proceedings was the issue of allowability of F&O losses, same has neither been discussed nor questioned while framing the assessment. The AO has assessed an altogether different genre of income without making any additions towards income which allegedly escaped assessment as noted in the reasons recorded. Such action of the AO in expanding the scope of assessment of income under s.147 of the Act without making any adjustments in the returned income for the reasons for which action under s.147 of the Act was taken, is wholly unsustainable in law. The legal proposition was cited that where for the ground on which action under s.147/s.148 of the Act was initiated were not acted upon, no additions could be made by the AO on other grounds which did not form part of the reasons recorded for the purposes of reassessment. It was thus submitted that the issue is beyond the [Jt.CIT(OSD) vs. M/s. N. K. Proteins Pvt. Ltd.] A.Y. 2011-12 - 3 - pale of controversy anymore. The learned senior counsel relied upon the decision of the Hon’ble Gujarat High Court CIT v. Mohmed Juned Dadani (2014) 355 ITR 172 (Guj) which according to him squarely clinches the issue. The learned senior counsel thus submitted that the order of the CIT(A) granting relief to the assessee cannot be faulted.
The ld. CIT.DR for the Revenue, on the other hand, relied upon the action of the AO and submitted that the power of the AO is not curtailed for making the impugned additions under s.147 of the Act.
We have carefully considered the rival submissions. We shall straightway address ourselves to the validity of additions made pursuant to jurisdiction assumed under s.147 of the Act on a ground altogether different from the ground for which reasons towards escapement was recorded under s.148(2) of the Act.
For the sake of easy reference, reasons recorded under s.148(2) of the Act by the AO is reproduced hereunder:
“Reason for reopening of assessment in case of M/s N. K. Proteins Limited [AAACN9377N] For AY 2011-12 During the year under consideration assessee company has debited an amount of Rs. 446.34 Lakh on account of Loss from Future and Option under schedule 20 Administration and selling expenses which was allowed during the course of original assessment. It is also noticed that the Chartered Accountant conducting special audit has also not mentioned any observation in his report. The assessee in its submission during course of original assessment had stated that the company was not dealing in any share transaction. Further it was noticed from the assessment records of N. K. Industries for AY 2011-12 (Group Company) that the Assessing Officer has disallowed Rs.1,21,03,101 on Future and Option Loss stating that the hedging loss incurred in Future & Option transactions are speculative as per the provisions of section 43(5) of the Act. The details regarding Future & Option Loss debited in Profit & Loss Account were neither sought nor furnished during the course of original assessment. Prima facie the F&O Loss is required be disallowed. Thus undersigned, having gone through the above [Jt.CIT(OSD) vs. M/s. N. K. Proteins Pvt. Ltd.] A.Y. 2011-12 - 4 - mentioned facts of the case is of the opinion that income to the tune of Rs. 446.34 lakh has escaped assessment with short levy of tax of Rs. 209.98 lakh as detailed below:
Description Amount Rs. In Lakh Surcharge @5% 6.70 Total 140.60 Education Cess @3% 4.22 Total Tax 144.82 Interest u/s 234A for one month 1.45 Interest u/s 234B from 1.4.2011 to 63.71 21.11.2014 @44% Total Short levy of tax 209.98 Under assessment of income 446.34 Income Tax @30% 133.90
Thus, it is a fit case for reopening of assessment u/s 148.”
The CIT(A) has dealt with the issue in favour of the assessee and has set aside the additions carried out by the AO on a different ground having regard to the fact that no additions were made for the grounds for which the assessment was reopened under s.148 r.w.s. 147 of the Act. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“4.2 I have carefully considered the assessment order, facts of the case and the submissions made by the appellant. 1 have also called for and examined the assessment records in this case and have held a discussion with the AO as well. The main argument of the appellant is that the assessment proceedings were reopened by the AO to examine details in respect of F&O loss debited to the profit and loss account which had not been considered by the AO during the original assessment proceedings. However, during the reassessment proceedings, this issue was not been taken up by the AO at all. The appellant has contended that the AO was not empowered to assess any income that for which the reasons had been recorded and assessment proceedings had been reopened. 4.2.1 A perusal of the assessment order which has been reproduced above shows that the AO has mentioned in para -2 of his order that the reopening was done since details regarding F&O loss debited to the profit and loss account had neither been sought from nor furnished by the appellant when in the case of its sister concern, M/s. N.K. Industries Ltd., such F&O loss had been disallowed by the AO. However, subsequent to this noting, at no other place in the order has the issue of F&O loss been taken up. The addition to the appellant's total income during the reassessment proceedings has been on account of purchase of castor seeds of Rs.50,00,88,283/- and purchase of soya seeds at Rs.34,19,70,236/- on NSEL platform through barter system. A perusal of the reasons recorded by the AO for reopening the assessment [Jt.CIT(OSD) vs. M/s. N. K. Proteins Pvt. Ltd.] A.Y. 2011-12 - 5 - proceedings for Asst. Year 2011-12 i.e. the year under consideration shows that the specific reason recorded by the AO for reopening the case was that an amount of Rs.446.34 lakhs had been debited by the appellant to the profit and loss account on account of loss from F&O which was allowed during the course of original assessment proceedings and which was required to be disallowed. Thus, the AO had recorded that he had reason to believe that income to the tune of Rs.446.34 lakhs had escaped assessment. Therefore, it is very clear that the only reason recorded for reopening the assessment proceedings was the issue of allowability of F&O losses which has not been discussed anywhere in the impugned order. A perusal of the assessment records also shows that these reasons recorded by the AO have not been dropped during reassessment proceedings and no further reasons have been recorded in respect of the addition finally made by the AO. Thus it is seen that it is a fact that no addition had been made by the AO on the issue for which the assessment proceedings were reopened but addition was made on a totally new issue for which no reasons were recorded. 4.2.2 I therefore find merit in the contention of the appellant. The appellant's case is squarely covered by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Mohmed Junaid Dadani [2013] 30 taxmann.com 1 (Gujarat) wherein the Hon. High Court has held that when the ground on which reopening was based, no addition is made by the AO, he could not make additions on some other grounds which did not form part of the reasons recorded by him. 4.2.3 The Hon'ble High Court of Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. in 195 Taxman 117 has also held that if after issuing notice u/s. 148 the AO accepts the contention of an assessee and holds that the income which he initially believed had escaped assessment, has not actually escaped assessment, then he cannot independently assess some other income and if he does, a fresh notice would have to be issued u/s. 148 of the Act. 4.2.4 The Hon'ble Delhi High Court in the case of CIT Vs. Monarch Educational Society 79 Taxman.com 43 has also taken a similar view and has held that if no addition is made in respect of reasons recorded by the AO for reopening assessment, then the AO cannot make an addition on any other issue in re-assessment proceedings.
4.2.5 In this case, the assessment proceedings were reopened by the AO as per the reasons recorded by him on the issue of F&O losses debited to the profit and loss account. The addition however has been made on account of purchases made on NSEL platform without consideration. This issue on which the addition has finally been made does not form part of the reasons recorded by the AO. Nowhere during the proceedings has the AO recorded fresh reasons in respect of these purchases and no new notice u/s. 148 has been issued. In view of these facts and the direct decisions of the Hon'ble Courts as discussed above, I am of the view that the AO was not justified in making an addition in respect of purchases of castor seeds/soya seeds since this issue did not form part of reasons recorded by him for reopening the assessment proceedings. The issue for which the assessment proceedings were reopened i.e. the appellant's claim of F&O losses has not been [Jt.CIT(OSD) vs. M/s. N. K. Proteins Pvt. Ltd.] A.Y. 2011-12 - 6 - discussed anywhere in the impugned order. Considering all these facts, it is held that the re-assessment order u/s. 143(3) read with section 147 of the I.T. Act was bad in law and is quashed. Grounds of appeal Nos. 1 & 2 are accordingly allowed.”
8. The legitimacy of addition made in the re-assessment proceedings de hors the reasons recorded is in question. In the circumstances, where the ground on which the jurisdiction under s.147 of the Act was exercised have not been reckoned and acted upon in the re-assessment proceedings and no additions were carried out for any of such grounds recorded, the AO could not make additions on an altogether different ground which did not form part of the reasons recorded by him as held by the Hon’ble Gujarat High Court CIT v. Mohmed Juned Dadani (2014) 355 ITR 172 (Guj) and other judicial precedents recorded by the CIT(A). The Revenue could not controvert on facts that the additions or part thereof made derives its genesis from the ground taken in the reasons recorded. In the light of settled position of law, we see no error in the findings given by the CIT(A) in favour of the assessee. The CIT(A) has rightly approached the issue and correctly applied the law. We thus decline to interfere.
In the result, the appeal of the Revenue is dismissed.
This Order pronounced on 25/01/2021