TMI Blog2019 (12) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... on of reassessment proceedings with reference to the recorded reasons and in the reassessment u/s 147; such income is also assessed; only then the AO will be able to be expand the scope of reassessment proceedings by assessing any other escaped income which comes to his notice in the course of reassessment. If on the other hand, the AO is not able to justify the reopening of a concluded assessment with reference to reasons recorded u/s148(2) or where on examination of assessee's submissions AO agrees that on the basis of reasons recorded it cannot be held that income had escaped assessment within the meaning of Sec. 147 then in such an event the very reopening of a concluded assessment stands vitiated and therefore the AO cannot expand the scope of reassessment by including some more issues or reasons which did not find mention in the reasons recorded u/s148(2). For that we rely on the judgment of the Hon`ble Bombay High Court in the case of CIT Vs Jet Airways India Ltd [ 2010 (4) TMI 431 - HIGH COURT OF BOMBAY] In view of the facts narrated above and the binding precedents applicable to the facts, we are of the view that the reasons recorded are bad in law therefore we qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asst. Year 2005-06 Paid up share capital 1417266.54 Nil Secured Loans 301981.00 Nil Current Liabilities 678031.33 Nil Total of balance sheet 2397278.87 Nil Gross turnover 6174765.00 Nil Depreciation 78226.00 Nil It is observed that the assessee, being a contractor ought to have followed the accounting standard-7, which was not adopted in order to deduce the real profit of the accounting year. Barring the project completion method where revenue is recognized on completion of the project only, the assessee have adopted percentage completion of the method but without offering so much of the profit earned during the gear as bears to the whole profit conceivable from the project the same proportion as the expenses incurred bears to the total cost of the project. Moreover, it is found from the P L account that a sum of ₹ 10,96,677/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld CIT(A), who has confirmed the addition made by assessing officer. Aggrieved, the assessee is in appeal before us. 7.Ld Counsel for the assessee reiterated the submissions made before the authorities below, whereas ld DR relied on the assessment order passed by the AO. 8. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. First of all we shall examine and analyse the reasons recorded by the assessing officer as follows: We note that the reasons recorded contain the following basis for reopening: (a) Reason-1:The assessee has not adopted AS-7 hence real profit not deduced. (b) Raason-2: The assessee has applied percentage completion method (c) Reason-3: The profit offered by the assessee is not much. (d) Reason-4: TDS was not deducted on sum of ₹ 10,96,677/- being rent of Hydra Machinery. (e) Reason-5: TDS certificate issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable only if the payment exceeds a particular amount per person in a year. On the fact of the material before the Assessing Officer at the time of reopening i.e. that the Income Tax Return and Tax Audit Report there was nothing to lead the Assessing Officer to conclude that the sub contract payment was paid to only one person and or that no TDS was deducted thereon. In the audit report there was no qualification of non deduction of TDS and therefore at the time of reasons recording there was nothing before the Assessing Officer to come to the conclusion that the assessee had not deducted the TDS on rent. Thus the reasons recorded had no material having live link to the escapement of income. The ld Counsel submits that till 13.07.2006 the definition of rent is as follows: (i) rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee; The scope of the definition of Rent was enhanced by the Taxation Laws (Amendment) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... link to the escapement of income available before the assessing officer to conclude that there was escapement of income thus the entire reopening was bad in law and hence the assessment order deserves to be quashed. 13. We note that the items listed in the reasons were either not added by the AO to the income of the assessee in reassessment proceedings or on merits it has been demonstrated that the same cannot be added and therefore once the items for which reasons have been recorded are not added or held to be not assessable then no other item of income can be added in such proceedings. The reasons as recorded itself alone without taking any assistance to any other documents or affidavits etc must be able to make out a case for valid reopening and if not then the entire reopening would fail. For that we rely on the judgment of the Hon`ble Bombay High Court in the case of Hindustan lever Ltd. v. R.B. Wadkar, ACIT (2004) 268 ITR 332:137 479 (Bom.), wherein it was held that reopening notice has to be justified on the basis of reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. These reasons recorded cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction and inconsistency it means necessary satisfaction in terms of the statutory provision has not been recorded at all. The AO was not competent to continue with the proceeding under section 147 on some other issues or grounds which were not mentioned in the reasons recorded under section 148(2). A plain reading of Explanation (3) to Sec. 147 shows that for the purpose of reassessment u/s 147 the AO can reassess income in receipt of an issue which escaped assessments and such other income which comes to his notice subsequently in the course of proceedings under the said section even though the reasons for such issue/income were not included in the recorded reasons. The explanation (3) however pre-supposes that the issue with reference to which the reason was recorded, was found to be legally judicially tenable and with reference thereto the AO is able to prove that income had indeed escaped assessment. It is only when the AO is able to establish valid initiation of reassessment proceedings with reference to the recorded reasons and in the reassessment u/s 147; such income is also assessed; only then the AO will be able to be expand the scope of reassessment proceedings by asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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