Devi Manubhai Shah Vs ITO (ITAT Mumbai)
Reassessment Quashed Where Only Addition Was Beyond Recorded Reasons — Section 54F Denial Invalid
The Mumbai Bench of the ITAT allowed the assessee’s appeal for AY 2012-13, holding that reassessment proceedings fail when the Assessing Officer makes no addition on the issues recorded for reopening and sustains the assessment solely on an unrelated ground.
In this case, reassessment under section 147 was initiated based on alleged irregularities in investments and buyback of shares. However, while completing the reassessment, the AO made only one addition—denial of exemption under section 54F amounting to ₹83.43 lakh, an issue not mentioned in the recorded reasons. No addition was made on the grounds that formed the basis of reopening.
The ITAT held that such an assessment is without jurisdiction, squarely covered by the Bombay High Court’s decisions in Jet Airways (I) Ltd. and Lark Chemicals Pvt. Ltd., which clarify that Explanation 3 to section 147 does not dispense with the mandatory requirement of assessing the income that initially escaped assessment. Only after making an addition on the recorded reasons can the AO assess other escaped income.
Rejecting the Revenue’s reliance on Sun Engineering Works, the Tribunal reiterated that jurisdictional High Court rulings prevail. Since the AO accepted the assessee’s explanation on the recorded reasons and made no addition thereon, he lacked authority to deny section 54F exemption independently.
Accordingly, the ITAT quashed the reassessment order and deleted the entire addition, allowing the appeal in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
