ACIT Vs Kotia Enterpriseas Limited (ITAT Delhi)
Delhi ITAT Quashes Reassessment: AO Cannot Make Additions on New Issues After Dropping the Very Reason for Reopening
The Delhi ITAT quashed the reassessment proceedings holding that where the Assessing Officer does not make any addition on the issue for which the assessment was reopened, he cannot sustain the reassessment by making additions on entirely different issues. The Tribunal held that such assumption of jurisdiction is illegal.
The reassessment was initiated under sections 148A and 148 on the allegation that a transaction of ₹5.89 crore with Larsen & Toubro Ltd. represented unexplained expenditure. However, during reassessment, the Assessing Officer made no addition whatsoever in respect of that transaction. Instead, additions aggregating over ₹21 crore were made under section 68 towards an alleged unexplained loan from M/s CEA Consultants Pvt. Ltd., disallowance of interest on such loan, and estimated commission on alleged accommodation entries.
Before the Tribunal, the assessee contended that it had furnished complete evidence regarding the loan, including the loan agreement, bank statements, income-tax returns and other supporting documents of the lender. More importantly, it argued that the reassessment itself was without jurisdiction because the very transaction cited in the notice under section 148A was ultimately not disturbed by the Assessing Officer.
Accepting the jurisdictional objection, the Tribunal observed that the Assessing Officer had reopened the assessment exclusively on account of the alleged transaction with Larsen & Toubro Ltd., yet no adverse finding or addition was ultimately made in relation to that transaction. Relying on the Delhi High Court decisions in ATS Infrastructure Ltd. (473 ITR 595) and Jaguar Buildcon Pvt. Ltd. (165 taxmann.com 757), the Tribunal held that where the original issue forming the basis of reopening does not survive, the Assessing Officer cannot make additions on unrelated issues.
Accordingly, the ITAT held that the assumption of jurisdiction under the reassessment provisions was invalid, quashed the reassessment order, and, having allowed the appeal on the jurisdictional issue, did not adjudicate the additions on merits.
Cases Discussed
- ATS Infrastructure Limited (Delhi HC), 473 ITR 595
- Jaguar Buildcon Pvt. Limited (Delhi HC), 165 taxmann.com 757
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal arises from order dated 07.01.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-23, Delhi.
1.1 The assessee is engaged in trading and construction activities of Civil Works. The assessee filed its return of income on 24.10.2018, declaring a total income of Rs.76,18,830/-. Thereafter, the AO initiated proceedings u/s 148A of the Act and proposed that an amount of Rs.589,64,152/- would be treated as unexplained expenditure with respect to M/s Larsen & Toubro Limited. After issuing a notice u/s 148 of the Act the Ld. AO made an addition of Rs.20,95,00,000/- u/s 68 of the Act on account of an alleged unverified cash credit from one M/s CEA Consultant Limited. A further addition of Rs.56,19,894/- was also made with respect to payment of interest on the loan assessed u/s 68 of the Act. The Ld.AO made a further addition of Rs.62,85,000/- on ad hoc basis for alleged bogus commission paid for arranging the said bogus entries. A final addition of Rs.3,79,363/- was made by estimating commission paid at 3% of Rs.1,26,45,457/-. This last addition was made on account of a payment made by the assessee to one M/s DNC Infrastructure Private Limited. The payment to M/s DNC Infrastructure was not found to be genuine by the Ld. AO and an estimated commission income was assessed in the hands of the assessee.
1.2 The aggrieved assessee approached the Ld. CIT(A) where he challenged the addition on merits as also on the alleged illegal assumption of jurisdiction by the Ld. AO. Before the Ld. CIT(A) the assessee filed considerable documents including copy of loan agreement, bank statement of the assessee, copy of ITR etc. of M/s CEA Consultants Pvt. Limited and other supporting documents. However, the Ld. CIT(A) affirmed the action of Ld. AO.
1.3 Further aggrieved the assessee has approached the ITAT with several grounds challenging the addition on merits as well as the assumption of jurisdiction by the Ld. AO mainly on the ground that the issue on which the proceedings for reassessment were initiated through the issue of notice u/s 148 of the Act, was not the issue on which the additions were eventually made by the Ld. AO.
2. Before us the Ld. AR argued with the help of paper books and written submissions. It was stated that the assessee had filed considerable documents in support of the loan taken from M/s CEA Consultants Pvt. Limited and since the said transaction was duly accounted for in the books of account, in the bank statements, in the ITR of the loan giver and the fact that interest was being paid on the same, there could be no doubt about its genuineness, also because this transaction was a purely commercial one, with the assessee discharging the onus cast upon him under to Section 68 of the Act. Regarding the noting in the Ld. AO’s order that a notice u/s 133(6) was issued to M/s CEA Consultants Pvt. Limited and was not responded to, the Ld. AR stated that this very same AO was seized of proceedings for AY 2019-20 and M/s CEA Consultants Pvt. Limited had duly replied to the Ld. AO with respect to that year’s proceedings on 27.03.2024. It was flagged by the Ld. AR that this response was with the AO before he passed the order for AY 2018-19 (present year) on 29.03.2024. Regarding the disallowance of interest on this loan, it was stated that the assessee had deducted tax at source and deposited the same in the Government account. The Ld. AR relied on the documents submitted before the authorities below in order to prove the genuineness of the impugned loan from M/s CEA Consultants Pvt. Limited. The Ld. AR requested this Bench to consider the fact that the assessee’s case was reopened for a transaction of Rs.58,96,41,521/-with M/s L&T Limited but no addition was made with respect to this transaction either wholly or partially. It was the submission that this action was not sustainable in the eyes of law considering the cases of M/s Jaguar Buildcon Pvt. Limited reported in 165 taxmann.com 757 (Del.); and the case of ATS Infrastructure Limited reported in 473 ITR 595 (Del.). 2.1 The Ld. DR relied on the findings of Ld. AO and pointed out the relevant portions from the order of Ld.CIT(A). The Ld. DR supported the orders of authorities below.
3. We have carefully considered the rival submissions and have gone through the records before us, including the case laws filed during the course of arguments. We deem it fit to consider the grounds of jurisdiction before proceeding any further in this matter. It is an admitted fact that the Ld. AO initiated reassessment proceedings on the allegation that an amount of Rs.589,64,152/- was suspicious and unjustified as a so-called transaction with M/s Larsen & Toubro Limited. What is clearly visible from the Ld. AO’s order is that this particular transaction has not been considered for any adverse treatment either in full or in part. Accordingly, the assumption of jurisdiction would be illegal considering the finding given in ATS Infrastructure Limited (supra), wherein it has been discussed in detail that the AO would be justified in making additions over and above the amounts proposed for reassessment only when the amounts mentioned in the proceedings u/s 148A of the Act have been added and thereafter some other amounts have also been treated adversely. Also in case the original amount or transaction as per the proceedings u/s 148A of the Act has not been considered for any kind of addition then the AO is not permitted to make any further addition on any other account. This view has also been echoed in the case of Jaguar Buildcon (supra) in para 7 of this order. Respectfully following these two case laws it deserves to be held that the assumption of jurisdiction was fraught with illegality and therefore the resultant assessment order cannot be sustainable in the eyes of law. The assessee gets relief accordingly.
3.1 Since the assessee has succeeded on the grounds of jurisdiction, hence, the grounds on merit are not adjudicated at present.
4. In the result, appeal is allowed.
Order pronounced in the open court on 05.08.2026
