Dr. Agarwal’s Health Care Limited Vs DCIT (ITAT Chennai)
Chennai ITAT Quashes Reassessment Where No Addition Was Made on the Recorded Reason for Reopening
The Chennai ITAT held that a reassessment under section 147 cannot survive where the Assessing Officer ultimately makes no addition on the very issue for which the assessment was reopened, but instead makes an addition on an altogether different issue. In the present case, the assessment was reopened on the allegation that the assessee had suppressed the variable component of professional fees payable to doctors. However, while completing the reassessment, the Assessing Officer did not make any addition on that issue and instead disallowed interest expenditure of Rs. 4.02 crore, which was wholly unrelated to the recorded reasons for reopening. The Tribunal observed that the Madras High Court, in Tractors & Farm Equipment Ltd., Anand Cine Services (P.) Ltd., PVP Ventures Ltd. and Martech Peripherals (P.) Ltd., following the decisions of the Bombay High Court in Jet Airways and the Delhi High Court in Ranbaxy Laboratories Ltd., has consistently held that the Assessing Officer can assess other escaped income only if an addition is first made on the issue forming the basis of reopening. Rejecting the Revenue’s reliance on the Karnataka High Court decision in N. Govindaraju, the Tribunal noted that the jurisdictional Madras High Court had expressly declined to follow that view. Since no addition was made on the recorded reason for reopening, the Assessing Officer lacked jurisdiction to sustain the reassessment by making a disallowance on another issue. Accordingly, the Tribunal quashed the reassessment order, leaving the merits of the interest disallowance open.
Cases Discussed
- Anand Cine Services (P.) Ltd. v. ACIT (Madras HC), [(2025) 169 taxmann.com 236 (Mad.)]
- Shri Annakodiraj v. ITO (ITAT Chennai), ITA No. 4121/CHNY/2025
- ACIT v. Shri Kamatchipuram Vellingiri Jayaraman (ITAT Chennai), ITA No. 2777/CHNY/2024
- Tractors & Farm Equipment Ltd. v. ACIT (Madras HC), [(2019) 102 taxmann.com 130 (Mad.)]
- Martech Peripherals (P.) Ltd. v. DCIT (Madras HC), [(2017) 81 taxmann.com 130 (Mad.)]
- PVP Ventures Ltd. v. ACIT (Madras HC), [(2016) 65 taxmann.com 221 (Mad.)]
- N. Govindaraju vs. ITO (Karnataka HC), [2015] 377 ITR 243 (Kar)
- Ranbaxy Laboratories Ltd. v. CIT (Delhi HC), [2011] 12 taxmann.com 74 (Delhi HC)
- CIT v. Jet Airways (I) Ltd. (Bombay HC), [2010] 195 Taxman 117 (Bombay HC)
- National Thermal Power Co. Ltd. v. CIT (SC), [(1998) 229 ITR 383 (SC)]
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 12.11.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.
2. The assessee has raised 3 grounds in its memorandum of appeal. The assessee has also raised an additional ground vide its petition dated 10.07.2026. At the time of hearing, the Ld.AR did not press Ground Nos.1 & 2 and its sub-grounds, hence the same are dismissed. The Ld.AR has only argued the Ground No.3 & its sub-grounds on merits and Ground 4 raised in the additional ground on legal issue.
3. The assessee has raised the following legal ground in its Additional Ground of Appeal vide Ground No.4:
“Ground No.4 On the facts and circumstances of the case, the re-assessment order is bad in law, owing to the fact that no addition was in the reassessment order in relation to the original reason for reopening the assessment u/s.148.”
4. The Ld. AR submitted that the additional ground is purely legal in nature and goes to the root of the validity of the reassessment proceedings. It was further submitted that all the facts necessary for adjudication of the ground are already available on record and no fresh investigation into facts is required. The Ld. DR did not raise any serious objection to the admission of the additional ground.
5. We have considered the rival submissions. Since the additional ground raises a pure question of law arising from the facts already available on record and does not require any further investigation of facts, the same is admitted for adjudication in view of the decision of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [(1998) 229 ITR 383 (SC)]. Accordingly, the additional ground is admitted for adjudication.
6. Brief facts of the case are as follows: The assessee is a company engaged in providing healthcare services. For the assessment year 2018-19, it filed its return of income on 30.11.2018 declaring total income of ‘Nil’ and a business loss of Rs.24,89,49,563/-. The assessment was completed under section 143(3) r.w.s. 143(3A) r.w.s 143(3B) of the Act vide order dated 16.04.2021, determining the total income at ‘Nil’ and the business loss at Rs.12,06,46,090/-.
7. Subsequently, the Department received information that the assessee had allegedly suppressed the variable component of professional fees payable to doctors, which was linked to the gross turnover. It was noticed that while the assessee had debited fixed professional fees of Rs.32,64,29,562/-, the variable component amounting to Rs.2,33,42,650/- had allegedly not been accounted for in the return of income. Based on the said information, the assessment was reopened by issuance of notice under section 148 of the Act. Thereafter, the reassessment was completed under section 147 r.w.s. 144 r.w..s 144B of the Act. However, instead of making any addition on account of the alleged suppression of variable component of professional fees paid to doctors, the AO disallowed interest expenditure of Rs.4,02,20,696/- and completed the reassessment accordingly.
8. Aggrieved by the reassessment order, the assessee preferred an appeal before the First Appellate Authority. The FAA confirmed the assessment order of the AO.
9. Aggrieved, the assessee is in appeal before the Tribunal. The Ld. AR challenged the validity of the reassessment proceedings and submitted that the reassessment order is bad in law, as no addition has been made on the issue for which the assessment was reopened. It was submitted that the reassessment was initiated solely on the allegation of suppression of the variable component of professional fees payable to doctors. Although the notice issued under section 148A proposed disallowance of such professional fees, the reassessment order ultimately did not make any addition on that issue. Instead, the AO made a disallowance of interest expenditure amounting to Rs.4,02,20,696/-, which was wholly unconnected with the reasons recorded for reopening. The Ld. AR submitted that it is well settled that where no addition is made on the issue forming the basis of reopening, the AO cannot sustain the reassessment by making additions on altogether different issues. In support of this proposition, reliance was placed on the judgments of the Hon’ble Madras High Court in Tractors & Farm Equipment Ltd. v. ACIT [(2019) 102 taxmann.com 130 (Mad.)], Anand Cine Services (P.) Ltd. v. ACIT [(2025) 169 taxmann.com 236 (Mad.)], PVP Ventures Ltd. v. ACIT [(2016) 65 taxmann.com 221 (Mad.)] and Martech Peripherals (P.) Ltd. v. DCIT [(2017) 81 taxmann.com 130 (Mad.)], wherein, following the decisions of the Hon’ble Bombay High Court in CIT v. Jet Airways (I) Ltd. [2010] 195 Taxman 117 (Bombay HC) and the Hon’ble Delhi High Court in Ranbaxy Laboratories Ltd. v. CIT, [2011] 12 taxmann.com 74 (Delhi HC), it was held that the AO can travel beyond the reasons recorded for reopening only if an addition is first made on the issue forming the basis of the reopening.
10. The Ld. AR also relied on the decisions of the Chennai Bench of the Tribunal in Shri Annakodiraj v. ITO (ITA No. 4121/CHNY/2025) and ACIT v. Shri Kamatchipuram Vellingiri Jayaraman (ITA No. 2777/CHNY/2024). It was therefore contended that, since no addition was made on the very issue for which the assessment was reopened, the reassessment itself is without jurisdiction and liable to be quashed.
11. The Ld.DR was duly heard.
12. We have heard rival submissions and perused the material on record. The assessment was reopened on the basis of information that the assessee had allegedly suppressed the variable component of professional fees payable to doctors amounting to Rs.2,33,42,650/-. The notice issued under section 148A of the Act also called upon the assessee to explain why the said expenditure should not be disallowed. However, while completing the reassessment under section 147 read with sections 144 and 144B of the Act, the Assessing Officer did not make any addition on the said issue. Instead, the reassessment was concluded by disallowing interest expenditure of Rs.4,02,20,696/-, which did not form part of the reasons recorded for reopening. The issue as to whether the AO can sustain a reassessment by making additions on issues other than those forming the basis of reopening, without making any addition on the original reason, is no longer res integra. The Hon’ble Jurisdictional Madras High Court in Tractors & Farm Equipment Ltd. (supra) and subsequently in Anand Cine Services (P.) Ltd. v. ACIT. (supra), following the decisions of the Hon’ble Bombay High Court in CIT v. Jet Airways (I) Ltd. and the Hon’ble Delhi High Court in Ranbaxy Laboratories Ltd. v. CIT, (supra) has held that the AO can examine and assess other escaped income only when an addition is made on the issue forming the basis for reopening. Where the very reason for reopening does not survive and no addition is made thereon, the reassessment cannot be sustained by making additions on altogether different issues.
13. The AO, in the impugned assessment order dated 24.03.2023 (page 9), relied upon the decision of the of the Hon’ble Karnataka High Court in the case of N. Govindaraju vs. ITO reported in [2015] 377 ITR 243 (Kar) to hold that once the notice for reopening is valid, the additions can be made on all issues (including any other income also) which may come to the notice of the AO during the course of reassessment proceedings though the reason for reopening itself does not survive. However, we find that the Hon’ble Jurisdictional Madras High Court in Anand Cine Services (P.) Ltd. vs. ACIT [(2024) 169 taxmann.com 236 (Mad.)] has considered the aforesaid decision of the Hon’ble Karnataka High Court in N. Govindaraju (supra). The senior standing counsel for the Revenue had specifically relied upon the said judgment to contend that the AO could make additions on other issues even where no addition was made on the issue for which the assessment had been reopened. The Hon’ble Jurisdictional High Court, after considering the said contention, did not accept the proposition canvassed by the Revenue and held as under:-
“12. Learned senior standing counsel submitted that the interpretation placed on Section 147 in Maninder Singh Kang and Govindaraju should be adopted. In view of the binding decision of the Division Bench of this Court in TAFE (supra), the course of action canvassed by learned senior standing counsel is not open and his contention cannot be countenanced.”
14. Since the Hon’ble Jurisdictional High Court has expressly considered and declined to follow the view taken by the Hon’ble Karnataka High Court in N. Govindaraju (supra), the decision of the Hon’ble Madras High Court is binding on us. Respectfully following the dictum laid down by the Hon’ble Jurisdictional High Court in Anand Cine Services (P.) Ltd. (supra), we hold that where no addition is ultimately made on the issue forming the basis of reopening, the reassessment cannot be sustained merely for making additions on other issues that came to the notice of the AO during the reassessment proceedings.
15. In the present case, admittedly no addition has been made in respect of the alleged suppression of professional fees, which constituted the sole reason for reopening the assessment. Therefore, the Assessing Officer lacked the jurisdiction to make a disallowance of interest expenditure, which was entirely unconnected with the recorded reasons for reopening. Respectfully following the binding decisions of the Hon’ble Jurisdictional High Court, we hold that the reassessment order passed u/s.147 of the Act is unsustainable in law. Accordingly, the reassessment order is quashed. Since we have quashed the reassessment proceedings in one of the legal grounds, the ground on merits (Ground No.3 and its sub-grounds) do not require adjudication and are left open.
16. In the result, the appeal filed by the assessee is partly-allowed.
Order pronounced in the open court on 21stJuly,2026 at Chennai.
