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Facts
The assessee, engaged in manufacturing organic chemicals, filed a return declaring a loss. The initial assessment accepted the return. Reassessment proceedings were initiated under Section 147 due to large expenses claimed without substantiation. However, the Assessing Officer (AO) accepted the returned income and drew no adverse inference.
Held
The Tribunal held that the AO had no jurisdiction to make additions based on the book profit computation under Section 115-JB after accepting the returned income and drawing no adverse inference for the original grounds of reopening. The AO's actions went beyond the scope of the reassessment proceedings initiated under Section 147.
Key Issues
Whether the AO had the jurisdiction to compute book profit under Section 115-JB and raise a demand when the reassessment proceedings were initiated for reasons that were not substantiated and the AO ultimately accepted the returned income.
Sections Cited
250, 147, 148, 143(3), 144B, 115-JB, 234 A, 234 B, 234 C, 10
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAILShri Om Kandalkar
Date of Hearing – 10/02/2026 Date of Order - 13/02/2026
O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 20.02.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2015-16.
The solitary grievance of the assessee is against the reopening of the assessment under section 147 of the Act for the year under consideration.
We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is engaged in the business of manufacturing organic chemicals, viz., acetic acid, ethyl acetate, acetaldehyde, etc., during the year under consideration. The assessee filed its return of income on 27.11.2011, declaring a loss of Rs. 3,16,49,438/-. The return filed by the assessee was selected for scrutiny, and vide order dated 06.11.2017, passed under section 143(3) of the Act, the scrutiny assessment was concluded, accepting the return of the assessee.
Subsequently, on the basis that the assessee had claimed large expenses in the profit and loss account without substantiating the genuineness and reasonableness of these payments to related parties, reassessment proceedings under section 147 of the Act were initiated, and a notice under section 148 of the Act was issued on 23.03.2021. After considering the submissions of the assessee during the reassessment proceedings, the Assessing Officer (“AO”), vide order dated 30.03.2022 passed under section 147 read with section 144B of the Act, accepted the return of income filed by the assessee and no adverse inference was drawn.
As per the assessee, despite accepting the return of income and making no addition on the grounds on which proceedings under section 147 of the Act were initiated, the AO raised a demand of Rs. 1,72,92,206/- by computing the book profit under Section 115-JB of the Act at Rs. 4,24,72,661/-.
During the hearing, the learned Authorised Representative (“learned AR”) submitted that during the year under consideration, the computation under section 115-JB of the Act resulted in a loss of Rs. 2,91,23,411/-. Further, the learned AR submitted that there are no findings of the AO in the assessment order making any addition to the book profit computed under section 115-JB of the Act. Accordingly, the learned AR submitted that no addition was made by the AO in respect of the issue, which was the subject matter of the reopening of the assessment under section 147 of the Act. Thus, the computation of deemed income under section 115-JB of the Act at Rs. 42,472,661/- is completely erroneous.
Before proceeding further, it is pertinent to note the findings of the AO in the assessment order passed under section 147 read with section 144B of the Act, which are reproduced as follows: - “The assessee company was engaged in the business of manufacturing organic chemicals viz., acetic acid, ethyl acetate, acetaldehyde etc during the year under consideration. The assesse e-filed its return of income on 27.11.2015 declaring income of Rs. (-)3,16,49,438/-. The case was selected for Scrutiny assessment under u/s 148. Assessment u/s 143(3) of the I.T. Act was completed on 06.11.2017 accepting the same as the assessed income. The records and financials provided by the assessee were gone through thoroughly and it was seen that the assessee company had claimed a large expenses in the P& L account. During the course of assessment proceeding no proper documents were provided to substantiate the genuineness and reasonability of the following amounts paid to the related parties. Purchases Rs.9,66,41,816/- Interest paid Rs.97,02,575/- Rent paid Rs.4,85,396/- Logo license fees Rs.12,82,228/- Printing & Stationary Rs.3,17,106/- Total Rs.2,14,29,121/- Therefore, the above mentioned expenses were supposed to include in the total income of the assessee and taxed accordingly in the assessment order passed by the then AO. Failure to do so has resulted in under assessment of (A.Y. 2015-16) 4
income Rs. 2,14,29,121/- with resultant short levy of tax of Rs. 69,34,990/- (plus interest u/s. 234 A, B, C as applicable). Accordingly, subject to provisions of section 148, there is a need to assess the income of Assessee Company which has escaped of Rs. 2,14,29,121/- assessment in A.Y. 2015-16 by reason of the failure on the part of the assesse to disclose fully and truly all material facts necessary for the assessment. On analysis of the information, the Jurisdictional Assessing Officer (JAO) initiated the proceedings u/s 147 and a notice dated 27/03/2021 u/s 148 of the Income Tax Act, 1961 was also issued and served upon the assessee after taking prior approval of the competent authority. Further notices dated, 14/06/2021, 20/12/2021, 21/12/2021, 28/02/2022 u/s. 142(1) of the Income Tax Act, 1961 was issued to the assessee. In this regard assessee has filed reply as, previous assessment order, balancesheet, Tax audit report. All documents are examined. No any adverse drawn, hence return income is accepted.”
Thus, from a perusal of the assessment order, it is evident that the reassessment proceedings under section 147 of the Act were initiated on the basis that during the assessment proceedings under section 143(3) of the Act, no proper documentary evidence was furnished by the assessee to substantiate the genuineness and reasonableness of the following amounts paid to the related parties: - “Purchases Rs.9,66,41,816/- Interest paid Rs.97,02,575/- Rent paid Rs.4,85,396/- Logo license fees Rs.12,82,228/- Printing & Stationary Rs.3,17,106/- Total Rs.2,14,29,121/-
Despite initiating the reassessment proceedings on the aforesaid issue, the AO completed the reassessment proceedings at the returned income, without drawing any adverse inference against the assessee. However, we find that in the computation sheet provided to the assessee along with the assessment order, the AO computed a demand of Rs. 1,72,92,206/-, after arriving at a deemed total income of Rs. 4,24,72,661/- (A.Y. 2015-16) 5 under section 115-JB of the Act. We find that while computing its MAT liability under section 115-JB of the Act, the assessee arrived at a loss of Rs. 2,91,23,411/- as follows: - “Computation under MAT (43,980,828) Add: 14,858,992 14,858,992 Less: Income Exempt u/s 10 – Dividend 1,575 1,575 Income under MAT (29,123,411) Liability under MAT NIL
As noted in the foregoing paragraph, there are no findings of the AO as regards the addition to the computation of book profit under section 115- JB of the Act. Thus, even though the entire reassessment proceedings were initiated to examine the genuineness and reasonableness of payments made to related parties amounting to Rs. 2,14,29,121/-, ultimately, there was no addition to the total income of the assessee on this count. Therefore, from the perusal of the material available on record, it is evident that the AO accepted the reasons on the basis of which notice under section 148 was issued and made no addition thereon. Thus, the reasons for reopening the assessment do not survive, in the present case, in view of the findings of the AO. Instead, the AO proceeded to compute the book profit under section 115-JB of the Act, resulting in a demand on the assessee.
In this regard, it is pertinent to note the following finding of the Hon’ble Jurisdictional High Court in CIT v. Jet Airways (India) Ltd., reported in (2011) 331 ITR 236 (Bom): - (A.Y. 2015-16) 6 “16. ……..Section 147 has this effect that the Assessing Officer 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 section 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 assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.
We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament……”
Thus, respectfully following the decision of the Hon’ble Jurisdictional High Court cited (supra), we are of the considered view that, in the present case, the AO had no jurisdiction to make any addition pursuant to the notice issued under section 148 of the Act. Accordingly, the computation of book profit under section 115-JB of the Act by the AO is quashed, as the same is beyond the purview of the reassessment proceedings initiated under section 147 of the Act in the present case. Accordingly, the relief is granted to the assessee.
In the result, the appeal by the assessee is allowed.
Order pronounced in the open Court on 13/02/2026