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Facts
The assessee's case was reopened under Section 147 based on information of a ₹15 lac accommodation entry. Although no addition was made for this specific entry, the AO subsequently made an addition of ₹6.38 crores for the sale of shares in paper companies, which was not part of the original reasons recorded under Section 148(2). The assessee challenged the AO's jurisdiction to make this additional assessment.
Held
The Tribunal ruled that once the original income for which reasons were recorded under Section 148(2) is not added, the AO loses jurisdiction to make additions for any other income discovered during reassessment proceedings. Furthermore, the Tribunal found the reasons for reopening to be vague and scanty, rendering the reassessment proceedings invalid from the outset.
Key Issues
Whether an AO can make additions for income not part of the initial reasons recorded under Section 148(2) when the original escaped income is not added; and the validity of reassessment based on vague and scanty reasons.
Sections Cited
147, 148, 148(2), 143(3), 139(1)
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 09.10.2023 for the AY 2010-11.
At the outset, there is a delay of 4 days in filing the appeal. After hearing rival contentions and after considering the explanation offered by the assessee in the condonation application along with affidavit ,we note that the same is for sufficient and genuine reasons and can not be attributed to the assessee in any manner. Accordingly, the delay for 4 days is condoned and appeal is taken up for adjudication.
That the ld. CIT(A) erred in law and on facts in upholding the order of the ld. AO wherein no addition has been made for the reason recoded u/s 148(2) of the Act and consequently, he ld. AO has no jurisdiction to make any other addition.
After hearing the rival contentions and perusing the material on record, we find that the assessee has raised an additional ground of appeal challenging the jurisdiction of the AO to make addition. In our opinion the issued raised in the additional ground is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts are required from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely coverd by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT in 187 ITR 688 , ii) National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 and also by the decision of Hon’ble Calcutta High Court in PCIT vs. Britannia Industries Ltd. [2017] 396 ITR 677 (Cal). Therefore we are inclined to admit the same for adjudication.
The facts in brief are that the assessee filed return of income on 29.09.2010. Thereafter, the ld. AO received the information from Director of Income Tax (Investigation), Unit-1, Ward-1(2), which states that huge cash was deposited in the different branches of ICICI in Kolkata and thereafter transferred to the different bank accounts maintained by Neena Commercial Pvt. Ltd. The information also stated that the assessee M/s Neena Commercial Pvt. Ltd. is a beneficiary company and received accommodation entry to the tune of ₹15 lac. Accordingly, the case of the assessee was reopened u/s
The ld. AR vehemently submitted before us that the case of the assessee was reopened u/s 147 of the Act, by issuing notice u/s 148 of the Act, after obtaining the approval of the competent authority. The ld. AR submitted that the reasons were recorded u/s 148(2) of the Act, wherein the ld. AO has noted that the assessee is a beneficiary of accommodation entry of ₹15 lacs without mentioning the other details of the transactions such as to from whom it was received. The ld. AR submitted that in the assessment framed by the ld. AO u/s 143(3) read with section 147 of the Act dated 30.12.2017, no addition was made in respect of the said item of Rs. 15.00 lacs being stated to be accommodation entry which was subject matter of the reasons recorded u/s 148(2) of the Act. The ld. AR contended that once, the ld. AO has accepted the contention of the assessee as regards the issues mentioned in the reasons recorded for the income stated to have escaped assessment, then ld. AO has no jurisdiction in terms of explanation 3 of Section 147 of Act, to make any addition in
Second argument of the ld. AR was that the assessment framed was based upon the reasons recorded u/s 148(2) of the Act which are totally silent about the nature of bogus entries and persons with whom the transactions have taken place due to which the income of the assessee have escaped assessment. The AR argued that the AO has recorded a very vague and ambiguous reasons which could not be allowed to unsettle a settled assessment. The ld AR argued that the information/materials on the basis of which the assessment was re-opened were not sufficient to re-open the assessment and therefore the re-opening has been done invalidly and may be quashed. The ld AR in defense of his arguments relied on the decision of Hon’ble Delhi High court in the CIT vs. Insecticides (India) Ltd. (2013) 38 taxmann.com 403 (Delhi).The ld. AR prayed that the case of the assessee may kindly be allowed on additional ground by quashing the assessment.
The ld. DR relied heavily on the orders of the lower authorities and submitting that the issue was never raised before the lower
We have heard the rival contentions and perused the materials available on record and observe that the AO has re-opened the assessment u/s 147 read with section 148 of the Act after recording reasons to believe qua the income which has escaped assessment. We further note that the AO having convinced after examining the evidences filed by the assessee during assessment proceedings did not make any addition while framing the assessment in respect of funds of Rs. 15.00 Lacs alleged to be received from shell company Violent Tradelink Pvt. Ltd. which was the subject matter of the reasons recorded. The AO however made addition of Rs. 6,38,81,102/- on account of sale of shares in paper companies. We note that the sale of shares in paper companies was not part of the reasons recorded u/s 148(2) of the Act. Therefore, when no addition is made for the escaped income as per the reasons recorded , then the AO has no jurisdiction to make any other addition in respect of item of income which has escaped assessment as discovered by the AO during the assessment. The case of the assessee finds support from the decision of Hon’ble jurisdictional High Court in the case of M/s. Infinity Infotech Parks Ltd. (supra) wherein the Hon’ble Calcutta High Court has held by following the decision of Hon’ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) and also Hon’ble Delhi High Court decision in the case of Ranbaxy Laboratories Vs. CIT (supra) that ,where the income stated to be escaped by the AO which was the foundation for recording of reasons to believe, is not added in the assessment framed and reassessment order u/s. 147, then it is not opened to the AO to independently assess any other income, which comes to his notice subsequently during the
We also note that the reasons were recorded by the AO in a very scanty and vague manner without mentioning the details of entire transactions such as from whom the accommodation entries were received. In our opinion considering the said vagueness in the reasons, the re-opening has been invalidly made as there was no sufficient information /materials before the AO. Therefore, we hold that the assessment has been re-opened invalidly without there being sufficient information or materials and is based upon vague and scanty reasons. The case of the assessee is squarely covered by CIT vs. Insecticides (India) Ltd. (supra)
Accordingly, we are inclined quash the re-opening of assessment.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15.01.2025.