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Facts
The Revenue appealed an order of the CIT(A) regarding assessment year 2011-12. The assessee did not appear for hearings, and the case proceeded ex-parte. The primary dispute concerned whether the AO could explore new issues during reassessment when the initial reason for reopening was not pursued.
Held
The Tribunal held that the CIT(A) erred in quashing the reassessment proceedings based on the principle that no new issues could be raised if the original addition was not made. Citing jurisdictional High Court judgments, the Tribunal found the AO had the power to examine other issues.
Key Issues
Whether the AO can make additions on issues other than the one for which assessment was reopened, even if no addition was made on the original issue.
Sections Cited
147, 148, 143(3), 2(22)(e), 69
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
O R D E R PER RAJPAL YADAV, VP
The Revenue is in appeal before the Tribunal against the order of the ld.Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 16.05.2023 passed for assessment year 2011-12.
In response to the notice of hearing, no one has come present on behalf of the assessee. It is the 14th occasion when Tribunal has issued notice to the assessee but no one A.Y.2011-12 2 has responded to these notices. It emerges out from the record that notice has been served through the Department and the reports of the AO are available on the record. Since no one has responded to the notices, therefore, notice was served through affixture by the AO upon the premises of the assessee. Therefore, we deem it appropriate to proceed ex- parte qua the assessee and decide the appeal on merit.
The Revenue has taken five grounds of appeal however, its grievance revolves around two folds, namely whether ld. CIT(A) has erred in holding that no other issue could be explored in an assessment under Section 147 once no addition was made on an item for which assessment was reopened. In Ground No.2 Revenue has pleaded that ld. CIT(A) has erred in deleting the addition of Rs.6,78,96,142/- which was added by the AO with the aid of Section 2(22)(e) of the Income Tax Act being deemed dividend assessable in the hands of the assessee.
4. The brief facts of the case are that assessee has filed his return of income for assessment year 2011-12 declaring total income of Rs.80,54,490/-. An assessment order was A.Y.2011-12 3 passed under Section 143(3) vide which returned income of the assessee was accepted. This order was passed on 31.01.2014. The AO thereafter reopened the assessment on the ground that assessee had purchased a property worth Rs.5 Crore which was not declared by him and since the amount of investment made during the year exceeded the income declared by the assessee in his return, hence assessment was reopened. However, during the course of assessment proceedings, ld. AO was satisfied with regard to the source of unexplained investment in purchase of the property and did not make any addition. The AO took up a second issue vide which it was construed that a deemed dividend income of Rs.6,78,96,142/- deserves to be assessed in the hands of the assessee as per Section 2(22)(e) of the Income Tax Act. The ld. CIT(A) did not concur with the AO on this issue because the ld. CIT(A) put reliance upon the judgement of Hon'ble Bombay High Court in the case of Jet Airways Ltd. 331 ITR 236 and Hon'ble Delhi High Court in the case of Ranbaxy Laboratories 366 ITR 136. Both these judgements propounded that if no additions are being made on an item on which assessment was reopened, then AO A.Y.2011-12 4 cannot make addition of any other item of escaped income.
He has to issue a fresh notice under Section 148 after recording reasons about escapement of second item. The finding of the Id. CIT(A) in paragraph No. 5.8 read as under :
"5.8 It has been held by the Bombay High Court in the case of Jet Airways India Ltd., that if after issuing a notice u/s 148 of the IT. Act, the AO accepts the contention of the assessee and holds that income for which he had initially formed a reason to believe that it had escaped assessment, has; as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income. It is not open to the AO to independently assess some other income, if he intends to do so, a fresh notice u/s 148 of the IT. Act would be necessary. Similar view has been taken by the Delhi High Court in the case of Ranbaxy Laboratories (2011) 366 ITR 136 (DEL). In the instant case, the AO held that the income for which he formed reason to believe had escaped assessment, had in fact not escaped assessment. In fact, the AO has not made any addition on the basis of unexplained investment of Rs. five crores u/s 69 of the IT. Act and of Rs. two crores as income from capital gains, which were the reasons for re- opening the appellant's case u/s 147 of the IT Act, but rather the AO has proceeded to make several other additions amounting to Rs. 6,94,07,814/-. Therefore, in view of above facts and the judicial pronouncements, the notice issued u/s 148 of the IT. Act and reassessment made thereon u/s 147 of the IT. Act is bad in law and the appellant's appeal is allowed on these grounds. Ground Nos. 2,3,9 & 10 filed by the appellant are allowed. The Ground Nos. 4,5,6, 7 & 8 which pertains to the additions made Joy the AO are not adjudicated as the re-opening proceedings have been held to be bad in law and have been quashed. Therefore, Ground Nos. 4,5,6, 7 & 8 are also allowed. "
The Id. CIT DR has submitted that Hon'ble jurisdictional High Court did not concur with the view taken by the Hon'ble Bombay High Court as well as of Hon'ble A.Y.2011-12 5 Delhi High Court. He placed on record judgement of Hon'ble Punjab 8b Haryana High Court in the case of Majinder Singh Kang Vs CIT 344 ITR 358 and CIT Vs Mehak Finvest 367 ITR
Copies of both these judgements have been placed on the record. The Hon'ble Court in the judgement of Mehak Finvest duly took note of judgement of Hon'ble Bombay High Court in the case of Jet Airways 331 ITR 236 as well as of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories. Hon'ble High Court has propounded that AO has jurisdiction to examine any other issue inspite of the fact that he has not made any addition on an item on which assessment was reopened. The relevant finding is reproduced hereunder : "4. Learned counsel for the Revenue submitted that the Tribunal had erred in quashing the proceedings under Section 147/148 of the Act. It was argued that the issue raised herein stands decided in favour of the Revenue by the judgment of this court in Majinder Singh Kang v. C/T12012] 344 ITR 358/25 taxmann.com 124 (Punj. & Hear.). It was submitted that special leave petition against the said judgment was also dismissed by the apex court bearing Special Leave Petition (Civil) No. 13028 of 2011 on August 19,2011."
In view of the above judgment of Hon'ble jurisdictional High Court, the order of the Id. CIT(A) is not sustainable.
Hence, set aside. The AO was within his power to take up any other issue inspite of the fact that addition was not A.Y.2011-12 6 made on item for which assessment was reopened. He could examine the alleged deemed dividend income under Section 2(22)(e) of the Income Tax Act. We find that Id. CIT(A) has not adjudicated the issue whether the actual deemed dividend has been received by the assessee and addition on account of alleged deemed dividend deserves to be made in the hands of the assessee or not. Therefore, this issue is relegated to the file of the Id. CIT(A) for fresh adjudication on merit. It is pertinent to note that Id. First Appellate Authority has decided the legal issue and not the issue on merit. Accordingly, on merit, the issue is remanded back to the file of Id. CIT(A) for fresh adjudication.
In the result, appeal of the Revenue is partly allowed.