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2025 (5) TMI 1407 - AT - Income TaxReopening of the assessment u/s 148A - addition on cash deposit - HELD THAT - We find that in the case of CIT vs. Jet Airways 2010 (4) TMI 431 - BOMBAY HIGH COURT and Ranbaxy Laboratories Ltd 2011 (6) TMI 4 - DELHI HIGH COURT has held that when no addition was made on the basis of reasons recorded for reopening of the assessment it was not open for the AO to bring some other income to tax in the course of assessment proceedings. As in Ranbaxy Laboratories Ltd 2011 (6) TMI 4 - DELHI HIGH COURT held that since the AO had not made any disallowance in respect of items which were the reasons for initiation of assessment proceedings. There was no justification in making the disallowance of other item in reducing the claim of deduction u/s 80HH or 80IG of the Act. Similar view was taken in Monarch Educational Society 2016 (2) TMI 971 - DELHI HIGH COURT that if no addition is made on the basis of reason to believe recorded by AO for reopening of the assessment under section 148 of the Act resort cannot be had to Explanation 3 to section 147 to make an addition on any other issue not included in the reasons to believe for reopening of the assessment. In the case in hand admittedly no addition has been made by the AO on the items which were basis of reasons recorded therefore we are of the considered view that the AO was not justified in making the addition on cash deposit which was not included in reasons recorded. Thus the reassessment order passed under section 147 read with section 144B is bad in law and same is quashed. Appeal is accordingly allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are: (a) Whether the reopening of the assessment under section 147 of the Income-tax Act, 1961 (the Act) was valid, particularly when the Assessing Officer (AO) initiated reassessment on certain grounds but made no addition on those grounds. (b) Whether the AO was justified in making additions on issues not forming part of the reasons recorded for reopening, specifically relating to unexplained cash deposits under section 69A of the Act. (c) Whether the addition of Rs. 23,65,000 as unexplained income under section 69A was valid, considering the explanations and evidences furnished by the assessee regarding the source of cash deposits. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) and (b): Validity of Reopening under Section 147 and Scope of Reassessment Relevant Legal Framework and Precedents: Section 147 of the Act empowers the AO to reopen an assessment if there is reason to believe that income chargeable to tax has escaped assessment. The reopening must be based on recorded reasons which must be communicated to the assessee via notice under section 148. The scope of reassessment is generally confined to the issues forming the basis of the reasons recorded for reopening. Several High Court decisions were relied upon by the assessee to support the contention that reassessment cannot be expanded beyond the reasons recorded if no addition is made on the original grounds. These include:
These rulings emphasize that if no addition is made on the issue for which reassessment was initiated, the AO cannot make additions on unrelated issues during the reassessment proceedings. Court's Interpretation and Reasoning: The Tribunal examined the reasons recorded by the AO for reopening, which were based on a tax evasion petition alleging large-scale financial transactions, accumulation of black money, and undisclosed immovable property. The AO recorded escapement of income amounting to Rs. 7.11 crores based on these allegations. However, after the assessee filed the return and replies, the AO did not make any addition on these grounds but instead made an addition on an unrelated issue-the cash deposits in the assessee's bank account amounting to Rs. 23,65,000 under section 69A. The Tribunal noted that the AO's addition was not connected to the reasons recorded for reopening. The Tribunal relied on the cited High Court decisions, which held that the reassessment must be confined to the reasons recorded. Since no addition was made on the original grounds, the AO was not justified in making additions on new issues. Application of Law to Facts: The Tribunal found that the reassessment order was bad in law because the AO deviated from the reasons recorded for reopening and expanded the scope of reassessment without justification. Treatment of Competing Arguments: The Revenue contended that once reopening is valid, the AO has jurisdiction to examine any other issue that emerges during reassessment, relying on a Supreme Court decision (Union of India vs. Ashish Agarwal). However, the Tribunal distinguished this on facts and held that the principle of limiting reassessment to reasons recorded is binding in the present case. Conclusion: The Tribunal concluded that the reopening under section 147 was invalid insofar as it was used to make additions on issues not forming part of the reasons recorded. Therefore, the reassessment order was quashed. Issue (c): Validity of Addition under Section 69A for Unexplained Cash Deposits Relevant Legal Framework and Precedents: Section 69A deals with unexplained cash credits or deposits. The burden lies on the assessee to explain the source of such deposits satisfactorily. Once the assessee discharges the primary onus by furnishing credible evidence regarding the identity and source, the burden shifts to the AO to prove otherwise. Case laws relied upon by the assessee include:
Court's Interpretation and Reasoning: The assessee explained the source of cash deposits as savings, gifts from relatives supported by gift deeds, sale of gold jewellery supported by sale bills, and bank withdrawals redeposited. The Tribunal noted that the assessee furnished detailed documentary evidence including audited reports and balance sheets of donors, gift deeds, and sale receipts. The AO, however, rejected these explanations mainly on the ground that the gift deeds were not witnessed, and thus, unreliable. The CIT(A) upheld the AO's view. The Tribunal observed that under the assessee's personal law, oral gifts are valid and absence of witnesses on gift deeds is not fatal. The assessee had also shown taxable income exceeding Rs. 23 lakhs, consistent with the source of deposits. Application of Law to Facts: The Tribunal found that the assessee discharged the primary onus by furnishing identity, source, and credibility of the deposits. The AO failed to bring any adverse material to rebut these explanations beyond mere suspicion. Treatment of Competing Arguments: The Revenue argued that the assessee failed to substantiate the source and prove the gifts and cash in hand. The Tribunal rejected this argument for lack of supporting evidence from the AO and reliance on mere doubts. Conclusion: Although the Tribunal ultimately quashed the reassessment order on procedural grounds, it acknowledged the strength of the assessee's explanation on the merits of the addition under section 69A. 3. SIGNIFICANT HOLDINGS "The reassessment must be confined on the reasons recorded and if no addition is made on such issue, the reassessment cannot expand the scope of addition for other issue. The reasons recorded must having clear communication with the addition made. If the AO deviates from the reasons recorded, the reassessment order is bad in law." "When no addition was made on the basis of reasons recorded for reopening of the assessment, it was not open for the AO to bring some other income to tax in the course of assessment proceedings." "Once the assessee is discharged her primary onus, the onus shifts on the AO to prove otherwise by bringing sufficient material on record. The AO has not brought any adverse material on record except doubting the source." The Tribunal held that the reassessment order dated 23.05.2023 passed under section 147 read with section 144B of the Act is bad in law and quashed the order. The core principle established is that reopening of assessment must be strictly confined to the reasons recorded and communicated to the assessee, and no addition can be made on issues outside those reasons if no addition is made on the original grounds. Also, the burden of proof shifts to the AO once the assessee furnishes credible evidence explaining the source of unexplained cash deposits. Final determination on each issue:
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