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Facts
The assessee filed a return of income, and the case was reopened under Section 147 of the Income-tax Act, 1961, based on the belief that income to the tune of Rs. 1,37,45,896/- had escaped assessment due to alleged investment in shares. The Assessing Officer made two additions: disallowance of expenses and disallowance of speculation loss. The CIT(Appeals) upheld these additions.
Held
The Tribunal held that the Assessing Officer cannot make additions on grounds other than those for which the assessment was reopened under Section 147, especially when no additions were made on the original grounds. Relying on various judgments, the Tribunal quashed the reassessment order.
Key Issues
Whether additions made by the Assessing Officer can be sustained when they are not based on the original reasons for reopening the assessment under Section 147, and no additions were made on those original grounds.
Sections Cited
143(3), 147, 148, 142(1), 57(iii), 133(6), 139(1), 2(40)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA (SMC
Before: SHRI RAMIT KOCHAR
for the assessment year 2012-13 has arisen from the appellate order dated 15.11.2022[DIN & Order No. ITBA/NFAC/S/250/2022-23/1047331531(1)], passed by learned Commissioner of Income-tax (Appeals), NFAC, Delhi, which, in turn, has arisen from the assessment order dated 24.10.2019 passed by Assessing Officer u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 vide DIN ITBA/AST/M/147/2019-20/1019376913(1).
Grounds of appeal raised by assessee in memo of this appeal filed with the Tribunal read as under :
Asst Year: 2012-13 Yugal Kishor Agarwal
“1) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in sustaining the order of Learned Assessing Officer passed u/s 143(3)/147 of the Income Tax Act, 1961. 2) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in sustaining the re-assessment order passed u/s 147/143(3) of the I.T Act, 1961 even when no addition has been made on the issue which was recorded in reasons to believe for initiating re- assessment proceedings by the Learned Assessing Officer. 3) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in not appreciating that the order passed by Deputy Commissioner of Income Tax Circle 4(3)(1) is void ab intio as the Learned Assessing officer was not having any jurisdiction on the appellant. 4) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in sustaining the disallowance of expenses of Rs 12,15,413/- 5) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in sustaining the disallowance of loss of Rs 56,407/- The appellant craves leave to add, alter or vary the grounds of appeal before or at the time of hearing.”
Brief facts of the case are that the assessee filed return of income on 11.07.2012, declaring total income of Rs.8,16,230/-. Case of the assessee was reopened by the Revenue for framing reassessment by invoking provisions of section 147 of the 1961 Act. Notice u/s. 148 dated 26.03.2019 was issued by the Assessing Officer to the assessee. The assessee submitted before the Assessing Officer that return of income originally filed on 11.07.2012 be treated as return of income filed in response to notice u/s. 148 of the Act. Thereafter, statutory notices u/s. 143(2) and 142(1) were issued by the Assessing Officer to the assessee. The assessee participated in the reassessment proceedings, and furnished most of the 2 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal information and replies during the course of reassessment proceedings.
The assessee was having income from salary, income from house property, Remuneration and interest from Partnership firm and income from other sources. While framing reassessment order u/s 147 read with Section 143(3) dated 24.10.2019, the Assessing Officer made two additions – firstly, disallowance of Rs.12,15,413/- claimed by the assessee as expenditure against income from other sources by invoking provision of Section 57(iii) of the Act as the assessee could not furnish any evidences in respect of these expenses , and secondly disallowance of speculation loss of Rs.56,407/- under the head income from business or profession claimed as deduction from interest and remuneration from Partnership Firm as claimed by the assessee in the return of income filed with the Revenue, as the assessee could not furnish any evidences in respect of this loss.
4. Aggrieved, the assessee filed first appeal with ld. CIT(Appeals) and the appeal was dismissed by the ld. CIT(Appeals) vide appellate order dated 15.11.2022.
Aggrieved, the assessee has filed second appeal with the Tribunal and at the outset, ld. Counsel for the assessee drew my attention to ground No. 2 raised by the assessee in memo of appeal filed with ITAT raising legal issue, wherein it was submitted that the Assessing Officer has not made any addition on the grounds/issues , on which the case of the 3 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal assessee was reopened by the AO by invoking provisions of Section 147 , and it was submitted that since no addition has been made by the AO on the ground/issue based on which the case of the assessee was reopened u/s. 147 on the belief that income has escaped assessment, thus the other additions as were made by the AO could not have be made by the Assessing Officer and as such the same could not be confirmed/sustained by the ld. CIT(Appeals). The assessee has filed copy of the reasons recorded by the Revenue on the belief that income of the assessee has escaped assessment while invoking provisions of Section 147, which are placed on record in the paper book, which are reproduced hereunder :
Reason for the As per the information in the possession of this office, the assessee has belief that income purchased shares of Rs. 1,37,45,896/-, during the FY 2011-12 has escaped corresponding to AY 2012-13. assessment The assessee has purchased shares of Rs. 1,37,45,896/-, during the FY 2011-12 corresponding to AY 2012-13. During the course of preliminary verification notices u/s 133(6) were issued to the assessee on 26.02.2019 and 08.03.2019. In response to these notices, the assessee has not submitted any reply. The assessee has not provided any document to substantiate the source of the investment of Rs. 1,37,45,896/- in the share transactions despite given opportunities In view of the facts discussed as above it is very evident that the assessee did not explain the sources of investment of Rs.1,37,45,896/- in the share transactions despite given opportunities. Therefore, I have reason to believe that income of Rs. 1.37,45,896/- as mentioned above has escaped assessment within meaning of Sec 147 of the IT Act, 1961. In this case, a ROI was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case, only requirement to initiate proceedings u/s 147 is reason to believe which has been recorded above. It is pertinent to mention here that in this case the assessee has filed ROI 4 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal for the year under consideration but no assessment as stipulated u/s. 2(40) of the Act was made and the return of income was only processed u/s. 143(1) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to Sec. 147 are applicable to the facts of this case and the A.Y. under consideration is deemed to be a case where income chargeable to tax has escaped assessment. Sd/- 16/03/19 Asstt. Commissioner of Income Tax, Circle 3(1), Etah 5.2. Thus, ld. Counsel for the assessee submitted that the case of the assessee was reopened on the ground that the assessee has not provided any documents to substantiate the source of investment of Rs.1,37,45,896/- in the share transactions which forms the belief that the income to that extent has allegedly escaped assessment as per the Revenue , and the case of the assessee was reopened for framing reassessment u/s 147. My attention was drawn to page 3 of PB filed by the assessee, wherein the AO issued notice dated 08.03.2019 u/s 133(6)(PB /Page 3) seeking information/evidences about the sources of transactions towards purchase of shares to the tune of Rs. 1,37,45,896/- alongwith bank statement and copy of ITR along with all annexures viz. P&L Account, Balance Sheet , Audit Report etc. It was submitted that the assessee duly explained before the AO vide reply dated 15.03.2019 filed on 18.03.2019(PB/Page 4-5) that the assessee has entered into transactions
5 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal in futures and options wherein contracts were settled/squared, and no investment of Rs. 1,37,45,896/- was made by the assessee in the shares.
The profit/loss on F&O were offered for taxation. The assessee also drew my attention to the reply dated 16.08.2019 filed during reassessment proceedings(Page 8/PB). My attention was drawn to the re-assessment order and it was submitted that no addition has been made by the AO with respect to the issue of sources of alleged investment in shares to the tune Rs. 1,37,45,896/- which became the reasons for belief of the Revenue that the income has escaped assessment. There are two additions made by the Assessing Officer. One is on account of disallowance of expenses of Rs.12,15,413/- by invoking the provisions of section 57(iii) and other disallowance is of Rs.56,407/- being speculation loss. Learned counsel relied upon the following judgments :
1 Hon’ble Bombay High Court – CIT v/s Jet Airways (I) Ltd in IT Appeal Nos 1526 of 2008 & 1714 of 2009 2. Hon’ble Delhi High Court – Pr. CIT v/s Sunlight Tour & Travels Pvt Ltd in 3. Hon’ble Agra ITAT- Anugrah Varshney v/s Income Tax Officer in
Hon’ble Agra ITAT – Vacmet India Ltd v/s DCIT in ITA No 334/AGR/2019 5. Hon’ble Mumbai ITAT- Sandeep Kumar Hissaria v/s ITO in ITA No 1571/Mum/2012 6. Hon’ble Mumbai ITAT- Aditya Logistics (I) Pvt Ltd v/s ACIT in ITA No 2408/Mum/2012 5.3. These judgments are filed in the form of legal paper book, carrying 59 pages, which is placed on record in file. Ld. Counsel for the assessee
6 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal submitted that the additions could not be sustained as were made by the Assessing Officer because on the basis of reasons recorded for reopening of assessment by invoking provisions of Section 147 which forms the belief that income to the tune of Rs. 1,37,45,896/- has escaped assessment being alleged investment in purchase of shares , no additions have been made on that ground. It was submitted that the AO rightly did not made any addition on account of alleged investments in share purchase, as the assessee never made such investment rather the assessee dealt in F&O in shares wherein the contracts were squared/settled periodically without making any investment.
Learned Sr. DR relied upon the orders of authorities below.
I have considered the contentions of both the parties and perused the material on record. I have observed that the assessee filed return of income on 11.07.2012 u/s 139(1), declaring total income of Rs.8,16,230. Case of the assessee was reopened by the Revenue for framing reassessment by invoking provisions of section 147. Notice u/s. 148 dated 26.03.2019 was issued by the Assessing Officer to the assessee. The assessee submitted that return of income originally filed be treated as return of income filed in response to notice u/s. 148 of the Act. Statutory notices u/s. 143(2) and 142(1) were issued by the Assessing Officer to the assessee in reassessment proceedings. The assessee participated in the reassessment 7 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal proceedings. The assessee is drawing income from salary, income from house property , Remuneration and Interest from Partnership, and income from other sources. I have observed that the case of the assessee was reopened by Revenue by invoking provisions of Section 147 on the belief that income to the tune of Rs.1,37,45,896/- has escaped assessment with respect to investment made by the assessee in the purchase of shares, source of which could not be explained by the assessee during the course of preliminary verification u/s. 133(6) carried on by the Assessing officer.
The assessee has placed on record the said reply , dated 15.03.2019 filed before the AO on 18.03.2019. The assessee has explained that the assessee dealt in Futures and Options(F&O) contracts in shares, which were squared/settled. No investment was made in the shares. The Profit/loss is offered for taxation. The assessee also disclosed the bank accounts maintained by the assessee. Further, the Assessing Officer had observed that originally return of income was not processed u/s. 143(3) read with section 143(2) of the Act. Case of the assessee was reopened after expiry of four years, but before six years from the end of the assessment year. I have observed that no addition has been made by the AO with respect to the reasons recorded for reopening of the concluded assessee which formed the belief of the AO that income has escaped assessment to the tune of Rs. 1,37,45,896/- towards purchase of shares, 8 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal for which case of the assessee was reopened with respect to the alleged investment of Rs.1,37,45,896/- made by the assessee in the share transactions. Before me, it is explained by ld. Counsel for the assessee that the assessee has not made any investment in the shares, but rather the assessee has entered into the transactions in Futures and Options(F&O), and contracts are squared up in settlement wherein profits/loss was offered for taxation. In any case, it is observed that no additions has been made in reassessment proceedings by the AO with respect to the alleged sources of investment made by the assessee to the tune of Rs.1,37,45,896/- in shares, as was claimed by the Revenue in the reasons recorded for reopening of the concluded assessment by invoking provision of Section 147 which formed the belief for reopening of the concluded assessment.
The assessee’s contention that no investment was made in the share purchase, and rather transactions in F&O in shares were carried out, and contracts were squared/settled without any investment/purchase of shares.
The AO accepted the contentions of the assessee/The assessee has raised specific ground No. 2 before ITAT wherein the assessee has challenged on legal ground the sustainability of re-assessment order u/s. 147 when no addition has been made on the issue with respect to which the case of the assessee was reopened at the time of initiation of reassessment proceedings u/s 147. I have observed that the assessee has 9 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal relied upon following judgments and orders, wherein re-assessments were quashed on the ground that once no addition has been made with respect to the reasons recorded for reopening of the concluded assessment which formed the belief of the AO that income has escaped assessment, re- assessment order cannot be upheld/sustained if the additions are made on the other issues while no additions have been made on the issue on the basis of which the concluded assessment were reopened u/s 147 and which formed the belief of the Revenue that income has escaped assessment:
1 Hon’ble Bombay High Court – CIT v/s Jet Airways (I) Ltd in IT Appeal Nos 1526 of 2008 & 1714 of 2009 2. Hon’ble Delhi High Court – Pr. CIT v/s Sunlight Tour & Travels Pvt Ltd in 3. Hon’ble Agra ITAT- Anugrah Varshney v/s Income Tax Officer in
4. Hon’ble Agra ITAT – Vacmet India Ltd v/s DCIT in ITA No 334/AGR/2019 5. Hon’ble Mumbai ITAT- Sandeep Kumar Hissaria v/s ITO in ITA No 1571/Mum/2012 6. Hon’ble Mumbai ITAT- Aditya Logistics (I) Pvt Ltd v/s ACIT in ITA No 2408/Mum/2012 7.2. It is also observed that I was part of the division Bench in ITA No. 1571/Mum/2012 dated 04.03.2016 in case of Sandeep Kumar Hissaria v. order dated 08.09.2016 in Aditya Logistics (I) Pvt. Ltd. v. ACIT, which pronounced the orders in which it was held that when no additions have been made on the grounds/issues on the basis of which assessment was reopened u/s. 147 and which formed the 10 | P a g e Asst Year: 2012-13 Yugal Kishor Agarwal belief that the income has escaped assessment, then Assessing Officer cannot make addition on other grounds/issues. The assessee also relied upon a leading decision of Hon’ble Bombay High Court in case of CIT v. Jet of 2009 dated 12.04.2010. Respectfully following the aforesaid decisions relied upon by the assessee, I quash the reassessment order passed by the Assessing Officer and as sustained by the ld. CIT(Appeals). Accordingly, appeal of the assessee stands allowed on this legal ground. Since the reassessment order has been quashed on this legal aspect as above, I am not proceeding to decide the merits of additions as were made by the Assessing Officer and sustained by the ld. CIT(A). The assessee succeeds in this appeal. I order accordingly.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 15/01/2025.