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Facts
The assessee's case was reopened under Section 147 for unreflected capital gains and expenses. However, the Assessing Officer did not make additions on these initial grounds but instead added ₹ 12,00,000 under Section 40A(3) without issuing a fresh notice for this new issue. The assessee appealed this addition to the Tribunal.
Held
Citing CIT vs. Jet Airways (I) Ltd., the Tribunal held that if the initial grounds for reopening under Section 147/148 are not sustained, the AO cannot independently assess other income without issuing a fresh notice under Section 148. Consequently, the addition made under Section 40A(3) without a fresh notice was unsustainable and deleted.
Key Issues
Can the Assessing Officer make an addition on a new issue under Section 40A(3) during reassessment proceedings, when the original grounds for reopening under Section 147 are not sustained, without issuing a fresh notice under Section 148?
Sections Cited
250, 147, 143(3), 40A(3), 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, NAGPUR “SMC” BENCH : NAGPUR
Before: SHRI NARENDER KUMAR CHOUDHRY
I.T.A.No. 420/NAG/2023 (Assessment Year 2011-12) ABC Realty Pvt. Ltd., ITO, Ward–1, Amravati. 1, C/o Amarnath Mudliar, Camp Road, Amravati, vs. Maharashtra. PAN : AAGCA 7162 E (Appellant) (Respondent) For Assessee : Shri K.P. Dewani, Ld. Advocate For Revenue : Shri Anand Nagrale, Ld. Sr. DR Date of Hearing : 16.06.2025 Date of Pronouncement : 16.06.2025 ORDER
This appeal has been preferred by the assessee against the order dated 01/11/2023 impugned herein passed by the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [in short, “Ld. Commissioner”] u/sec. 250 of the Income Tax Act, 1961 (for short, “the Act”) for the Assessment Year (for short, “AY”) 2011– 12.
2 ITA.No.420/NAG/2024 2. In the instant case, the case of the assessee was reopened u/sec. 147 of the Act mainly on the issue of capital gains of ₹ 1,26,11,045/– out of sale of plot & building and the expenses amounting to ₹ 1,35,59,605/– incurred on the building, which were not reflected in the return of income, which escaped assessment. Admittedly, the Assessing Officer (for short, “AO") did not make any addition on such count/issue, on which the case of the assessee was reopened u/sec. 147 of the Act. However, the A.O. vide assessment order dated 09/09/2016, u/sec. 143(3) r.w.s. 147 of the Act ultimately made the addition of ₹ 12,00,000/– on account of disallowance u/sec. 40A(3) of the Act, without issuing any fresh notice for this issue/count, which is un-sustainable, specifically in view of the judgment passed by the Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236, wherein it has been held as under:– “21. ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………..Sec. 147 has this effect that the AO has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under s. 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped
3 ITA.No.420/NAG/2024 assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.”
As observed above that in view of the dictum laid down by jurisdictional high Court in the case referred to above, the addition under consideration is unsustainable and therefore the same is deleted.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 16.06.2025.