GIRAFFE DEVELOPERS PRIVATE LIMITED,MUMBAI vs. ASSISSTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(4), MUMBAI

The grounds raised by the assessee in ITA No. 143 of 2026 are reproduced as under:

The grounds raised by the Revenue in ITA No.1841 are reproduced as under:-

During the course of hearing, the learned counsel for the assessee raised an additional ground challenging the very assumption of jurisdiction under section 147 of the Income-tax Act, 1961 (“the Act”). The additional ground reads as under:

We have heard the rival submissions on the admissibility of the additional ground. It is well settled that a pure question of law, which goes to the root of the matter and does not require investigation into fresh facts, can be raised for the first time before the appellate forum. The Hon'ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) has authoritatively laid down this principle. The Hon'ble Bombay High Court has also recognised the amplitude of appellate jurisdiction in CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd.

Briefly stated, facts of the case are that assessee filed return of income for the year under consideration on 27th September 2012 declaring total loss at Rs.55,58,43,964/-, which was further revised on 30th March 2014 retaining the same loss at Rs.55,58,43,964/-. The return had been processed under section 143(1) Income-tax Act, 1961( In short ‘the Act’). Subsequently, on the basis of information received from the Assessing Officer at Pune, the Assessing Officer recorded reasons under section 147 and issued notice under section 148 dated 29/03/2019. The information forming the basis of the recorded reasons was that the assessee had sold Unit No. 901 in the project known as “Ackruti Star” to M/s Pragma Spaces Pvt. Ltd. for a consideration of Rs.29,55,07,500/-, but had not offered the said consideration to tax in Assessment Year 2012-13. Relevant reasons recorded as reproduced by the Assessing Officer in para 2 of the assessment order, is extracted for ready reference, as under:

The reasons recorded by the Assessing Officer specifically proceeded on the premise that income of Rs.29,55,07,500/- arising from the aforesaid sale had escaped assessment. The Assessing Officer accordingly assumed jurisdiction under section 147 and proceeded to reassess the income of the assessee.

In the reassessment proceedings completed on 27/12/2019 under section 143(3) read with section 147, the Assessing Officer made, inter-alia, an addition of Rs.29,55,07,500/- in respect of the aforesaid sale transaction. He also made other additions/disallowances, including disallowance of interest paid under section 201(1A) and assessed interest earned on the fixed deposit of Rs. 42,77,467 and others of Rs. 5,90,56,679 as liable for tax under the head 'Income from Other Sources' rather than under the head 'Profits and Gains of Business and Profession'

In the first appeal, the learned CIT(A), after examining the material on record, deleted the addition of Rs.29,55,07,500/- relating to the sale transaction. The learned CIT(A) recorded a finding that although the agreement had been registered in the relevant financial year, the substantial consideration was received and possession of the property was handed over only in Financial Year 2015-16, and the assessee had offered the sale transaction to tax in Assessment Year 2016-17. The learned CIT(A) further accepted the assessee's contention that shifting the recognition of the transaction to Assessment Year 2012-13 would, on the facts of the case, be tax-neutral. The relevant find of ld CIT(A) is reproduced as under:

It is material to note that the Revenue is also in cross appeal before us but has not challenged the aforesaid deletion.

As regard to the treating of the interest income under the head 'Income from Other Sources', the learned CIT(A) following the finding of the Tribunal in Assessment Year 2014-15 in assessee's own case decided in favor of the assessee.

Before us, the learned counsel for the assessee referred to the additional ground and submitted that the case was reopened on the issue of sale consideration on sale of property to M/s Pragma Space Private Limited, which was allegedly not offered to tax in the year under consideration. Though the AO made addition of that amount in assessment order but said addition has been deleted by the learned CIT(A). Therefore, the learned counsel for the assessee referred to decision of the Third Member of the Tribunal in the case of Mahesh Kumar in ITA No. 2650/Del/2024 for Assessment Year 2012-13, wherein the Tribunal observed that even if the addition on the basis of which assessment was reopened has later been deleted by the first appellate authority, the other additions made cannot be survived in view of the ratio in the case of CIT vs. Jet Airways India Limited, 331 ITR 236 (Bom). The learned counsel further referred to the decision of the Hon’ble Delhi High Court in the case of Valmiki Thapar vs. Principal Commissioner of Income Tax reported in (2025) 173 taxmann.com 983 (Delhi), wherein the reason on the basis of which case was reopened was deleted by the Tribunal and in those circumstances, the Hon’ble High Court held that once the addition which was the basis of the reopening, has been deleted by the Tribunal, the addition made by the AO on the other issues would not survive. The learned counsel also referred to the decision of the Co-ordinate Bench of the Tribunal in the case of DCIT vs. Shapoorji Pallonji and Company Private Limited in ITA No. 2831/MUM/2025 for Assessment Year 2014-15.

Per contra, the learned Departmental Representative (DR) submitted that the ratio of the Hon’ble Bombay High Court in the case of Jet Airways India Limited (supra) apply only when the Assessing Officer has not made addition on the basis of which reasons was recorded, and the further deletion by the appellate authority cannot be a basis as the Assessing Officer cannot be expected to anticipate or pre-judge the outcome of the appellate proceeding while framing the reassessment.

We have carefully considered the rival submissions and perused the material available on record. The short but fundamental question which arises for consideration is whether, after the addition forming the very basis of the recorded reasons for reopening has been deleted by the learned CIT(A) and the Revenue has accepted such deletion, the remaining additions made in the reassessment proceedings can independently survive . The question may be framed in other way that whether the ratio of the Hon’ble Bombay High Court in the case of Jet Airways India Limited (supra) applies in the facts of the instant case.

The statutory scheme of section 147, as it stood during the relevant period, contemplates that, upon valid assumption of jurisdiction, the Assessing Officer may assess or reassess the income which he has reason to believe has escaped assessment and also any other income chargeable to tax which comes to his notice subsequently in the course of the proceedings. The expression “and also” has been construed by the Hon'ble Bombay High Court in CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom) in its cumulative and conjunctive sense.

In Jet Airways (I) Ltd. (supra), the Hon'ble Bombay High Court explained that the Assessing Officer must necessarily assess or reassess the income in respect of which the belief of escapement was initially formed. It is only when such income is assessed or reassessed that the Assessing Officer acquires jurisdiction to bring to tax any other income which may subsequently come to his notice during the course of the reassessment proceedings. Explanation 3 to section 147 does not dispense with this foundational requirement.

The same principle was subsequently affirmed by the Hon'ble Delhi High Court in Ranbaxy Laboratories Ltd. v. CIT [2011] 336 ITR 136 (Delhi), wherein it was held that where the income forming the basis of the notice under section 148 is not ultimately assessed or reassessed, the Assessing Officer cannot independently proceed to assess some other income merely because it came to his notice during the reassessment proceedings.

We also find considerable assistance from the decision of the Third Member of the Delhi Bench of the Tribunal in Mahesh Kumar v. ITO, (supr). In the case of Mahesh Kumar vs. ITO (supra), wherein there was a difference of opinion between the Two Members of the Tribunal and matter was referred to the Third Member. In that case also, the assessment had been reopened on a particular issue; the addition relating to the recorded reasons was subsequently deleted by the first appellate authority and the Revenue did not challenge such deletion. The Third Member, after considering Jet Airways (I) Ltd. (supra), Ranbaxy Laboratories Ltd. (supra) and the other judicial precedents, held that the distinction between a case where the Assessing Officer himself does not make the addition forming the basis of reopening and a case where such addition is initially made but subsequently deleted in appeal cannot be sustained once the appellate order deleting the foundational addition has attained finality. The relevant finding of Hon’ble Third Member is reproduced as under:-

The same principle has thereafter been followed by the Mumbai Bench of the Tribunal in DCIT v. Shapoorji Pallonji and Company Pvt. Ltd., (supra). In that decision, the Tribunal distinguished a situation where the deletion of the foundational addition was still under challenge from a case where the Revenue had accepted the appellate finding. Where the Revenue itself accepts the deletion and the issue has attained finality, the jurisdictional foundation of the reassessment cannot be sustained merely for the purpose of preserving additions on other issues.

The recent decision of the Hon'ble Delhi High Court in Valmiki Thapar v. Principal Commissioner of Income-tax [2025] 173 taxmann.com 983 (Delhi) is also apposite. The Court, following the ratio of Ranbaxy Laboratories Ltd. (supra) and Jet Airways (I) Ltd. (supra), reiterated that where the reasons recorded for reopening do not ultimately survive, the reassessment cannot be sustained merely on the strength of additions made on other issues.

Applying the aforesaid principles to the facts before us, the position is unambiguous. The Assessing Officer assumed jurisdiction under section 147 on the specific basis that the assessee had failed to offer to tax the consideration of Rs.29,55,07,500/- arising from the sale of the property to M/s Pragma Spaces Pvt. Ltd. That very addition was made in the reassessment proceedings but was subsequently deleted by the learned CIT(A). The Revenue has not preferred any appeal against the deletion. Thus, the very foundation upon which the jurisdiction under section 147 was assumed has ceased to exist and the Revenue has accepted such position.

In these circumstances, the subsequent additions cannot be permitted to survive independently of the jurisdictional foundation of the reassessment. To hold otherwise would amount to permitting the Assessing Officer to retain the reassessment proceedings even after the income in respect of which the belief of escapement was formed is found not to have escaped assessment. Such an interpretation would render the expression “and also” in section 147 otiose and would confer upon the Assessing Officer an unrestricted power to make additions on issues wholly unconnected with the basis on which jurisdiction was assumed.

We are conscious of the submission of the learned Departmental Representative that the Assessing Officer had, in fact, made the addition forming the basis of reopening and could not have anticipated its subsequent deletion by the appellate authority. There can be no dispute with the proposition that, at the stage of making the reassessment, the Assessing Officer is required to proceed on the basis of the material available before him and cannot be expected to foresee the result of appellate proceedings. That, however, is not the controversy before us.

The controversy before us arises at a different stage. The addition forming the basis of reopening has not merely been deleted by the first appellate authority; the Revenue has accepted that deletion by not pursuing the matter further. The question, therefore, is not whether the Assessing Officer acted validly when he originally framed the reassessment, but whether the reassessment can continue to sustain independent additions after the very jurisdictional foundation thereof has ceased to survive and the Revenue has accepted that position. On this aspect, the ratio of Jet Airways (I) Ltd. (supra), as followed in Ranbaxy Laboratories Ltd. (supra) and the subsequent authorities referred to above, squarely applies.

We, therefore, hold that, in the peculiar facts of the present case, once the addition of Rs.29,55,07,500/- forming the basis of the recorded reasons for reopening has been deleted by the learned CIT(A) and the Revenue has not challenged such deletion, the reassessment proceedings cannot sustain the other additions made therein.

The additional ground raised by the assessee is accordingly allowed. Consequently, the reassessment order passed under section 143(3) read with section 147 of the Act is rendered unsustainable in law.

In view of our conclusion above, the additions/disallowances made in the reassessment proceedings cannot survive. Accordingly, the grounds raised by the assessee challenging the disallowance of interest under section 201(1A) of the Act are rendered academic and do not require adjudication on merits. The same are accordingly dismissed as infructuous.

For completeness, we may observe that the learned CIT(A) had sustained the disallowance of interest paid under section 201(1A) by following the decision of the Hon'ble Madras High Court in CIT v. Chennai Properties and Investment Ltd. [1999] 239 ITR 435 (Mad), which, following Bharat Commerce & Industries Ltd. v. CIT [1998] 230 ITR 733 (SC), held that interest payable under section 201(1A) is not allowable as business expenditure under section 37(1). The Hon'ble Bombay High Court has likewise held in Ferro Alloys Corporation Ltd. v. CIT [1992] 196 ITR 406 (Bom) that interest levied for delayed payment of TDS is not deductible as business expenditure. However, in view of our finding on the validity of the reassessment, it is unnecessary to enter upon the merits of this controversy in the present appeal.

The Revenue's appeal challenges the direction of the learned CIT(A) to assess interest income of Rs.6,33,34,146/- under the head “Profits and Gains of Business or Profession” rather than “Income from Other Sources”.

Since we have already held that the reassessment itself cannot survive and that no addition made in the reassessment proceedings can be sustained, the issue raised by the Revenue becomes purely academic. It is, therefore, unnecessary for us to adjudicate upon the correctness of the finding of the learned CIT(A) regarding the proper head of income under which the interest income is assessable.

Accordingly, the grounds raised by the Revenue are rendered infructuous and are dismissed as such.

In the result, ITA No. 143/Mum/2026 filed by the assessee is allowed and ITA No. 1841/Mum/2026 filed by the Revenue is dismissed.

The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.