2025 (7) TMI 1585 - AT - Income Tax

Reopening of assessment u/s 147 - Reason to believe - AO power to independently assess some income other than the income referred in section 148 - unexplained investment in acquisition of the property - HELD THAT - From the perusal of the reasons recorded it is seen that the case of the assessee was reopened on the issue of the verification of payment made towards purchases of property for INR 5.50 crores. AO after reopening the case vide notice issued u/s 142(1) on 03.12.2018 asked the assessee to file the details of source payment made for purchases of property at Saket District Centre Saket Delhi. Thereafter the AO from para 4 onwards of the reassessment order went on discussing the issues of capital gains declared on the other properties viz application of provisions of section 50C and disallowance of interest paid on home loans. It is thus clear that the AO has recorded its satisfaction of the escapement of income being the payment towards purchases of immovable property however no adverse inference was taken on this issue as has been observed in para 3 of the reassessment order and no addition was made on this account. As held in the case of CIT vs Jet Airways (I) Ltd. 2010 (4) TMI 431 - BOMBAY HIGH COURT that it is not open to AO to independently assess some income other than the income referred in section 148 for which reason was recorded . We are of the considered view that the AO in the instant case has exceeded its jurisdiction by making additions on the issues which are not forming part of the reasons recorded for re-opening the assessment when no addition was made on the issue covered in the reasons recorded. Therefore no additions could be made dehorse the reasons recorded before issue of notice u/s 148 of the Act. Accordingly the reassessment order passed u/s 147 of the Act is hereby quashed. Assessee appeal allowed.

Summary

ISSUES:

Whether the reopening of assessment under section 147 of the Income Tax Act, 1961 was validly initiated based on recorded reasons and cogent material.Whether the Assessing Officer (AO) has jurisdiction to make additions or disallowances beyond the scope of the reasons recorded for reopening the assessment.Whether the invocation of section 50C for addition on capital gains was justified.Whether the ex-parte dismissal of appeal by Commissioner of Income Tax (Appeals) for non-compliance was appropriate.Whether the disallowance of interest claimed under section 24(b) was justified.Whether the request for referring the case to the Valuation Officer was rightly rejected.

RULINGS / HOLDINGS:

Reopening of assessment under section 147 was valid as there was a "live link between the material" provided by DDIT (I&CI), New Delhi and the belief that income had escaped assessment, satisfying the requirement of "cogent material" leading to an "honest belief" of escapement of income.The AO exceeded jurisdiction by making additions on issues not forming part of the recorded reasons for reopening; "no additions could be made dehorse the reasons recorded before issue of notice u/s 148."Invocation of section 50C additions and disallowance of interest were not upheld as the reassessment order was quashed on jurisdictional grounds.The ex-parte order of the CIT(A) was not decided on merits but the Tribunal proceeded to decide the purely legal ground relating to jurisdiction.The request for referral to the Valuation Officer was rejected by the AO, but this issue became infructuous upon quashing of the reassessment order.

RATIONALE:

The Court applied the statutory framework of sections 147, 148, and 143(3) of the Income Tax Act, 1961, emphasizing the need for recording "reasons to believe" before reopening an assessment and issuing notice under section 148.Precedents from the jurisdictional High Court and Supreme Court were relied upon, including rulings that the "sufficiency or correctness of the material is not to be considered at the stage of issue of notice u/s 148," but the AO's jurisdiction is limited to the issues forming part of the reasons recorded.Explanation 3 to section 147 was discussed, clarifying that it does not grant blanket powers to the AO to make roving inquiries beyond the original reasons for reopening.Judgments cited include Ranbaxy Laboratories Ltd. v. CIT, CIT v. Nova Promoters & Finlease, Rajesh Jhaveri Stock Brokers Pvt. Ltd. v. ACIT, CIT vs Adhunik Niryat Ispat Ltd., ATS Infrastructure Ltd. v. ACIT, and CIT vs Jet Airways (I) Ltd., which collectively establish the principle that additions beyond the scope of recorded reasons require fresh notice under section 148.The Tribunal found that although the AO recorded satisfaction about escapement of income related to unexplained source of investment, no addition was made on that issue, and additions were made on unrelated grounds, thus exceeding jurisdiction.The quashing of the reassessment order rendered other grounds of appeal infructuous.