CA Prarthana Jalan
No further addition if addition not made on reasons recorded for initiating re-assessment
The Hon’ble Agra ITAT has in the case of Anugrah Varshney V/s ITO in ITA no 134/Ag/2014 dated 05/04/2016 has held that AO had no power to assess any other income to tax unless addition is made of income which he had reason to believe had escaped assessment.
Brief facts of the case are that the A.O initiated re-assessment proceedings on the appellant by recording reasons that interest expenses had been claimed against LIC commission and income from other sources, which he believed was not allowable since there was no nexus between the expenses and the income earned and further that the appellant had wrongly claimed indexation on sale of UTIMEP-92. But in the re-assessment order passed u/s 147 addition made was on account of unexplained gift amounting to Rs. 5,00,000/- and unexplained cash credit of Rs. 15,47,000. No addition was made on the reasons recorded for initiating re-assessment.
It was vehemently argued from the side of the appellant that no addition on account of the issue raised in the reasons recorded were made.The provisions of section 147 specifically stat that addition could be made on account of the issue on which the reopening was resorted and also on other income which has been found to have escaped assessment, during the course of reassessment proceedings. The interpretation of the same is that it is only if addition on account of income which has been found to have escaped assessment as per the reasons recorded is made that addition on account of any other income can be made.Judgments of the Hon’ble Bombay High Court in the case of Jet Airways India vs CIT 331 ITR 236, the Hon’ble Delhi High Court decision in case of Ranbaxy Laboratories Ltd. Vs. CIT 336 ITR 136 and to the decision of the Agra Bench of the Tribunal in the case of ITO Vs. Smt. Urmila Singhal in ITA No. 286/Ag/2011 dt. 20/07/2012, also supported the same contention. Whereas the department took the support of Explanation 3 and stated that additions can be sustained on other issues also.
After going through all the case laws and arguments the Hon’ble Bench held as under:-
We find that Explanation 3 empowers AO’s to make assessment on any matter which comes to their notice during assessment proceedings. But the same alongwith section 147 has been interpreted as stated above. Therefore, the presence or absence of Explanation 3 to section 147 does not nullify the interpretation given by the courts in the above stated judgments. Further the argument of the Ld. DR that the reason is not rendered invalid merely because no addition has been made on account of incomes which the AO had reason to believe had escaped assessment, is also of no consequence, since as is evident from the order cited above, the courts have not held the reasons to be invalid in such cases and quashed the proceedings. The validity of the reasons had not been in issue in these cases, but the courts have interpreted the provisions of section 147 on first principles and held that the AO had no power to assess any other income to tax unless addition is made of income which he had reason to believe had escaped assessment. 11. Respectfully following the above judgments, we hold that in the absence of any addition having been made on incomes which the AO had reason to believe had escaped assessment, no addition of any other income could have been made and that the AO had exceeded his jurisdiction in passing the impugned order u/s 147. The same is liable to be quashed. We quash accordingly. Further since the order has been quashed on legal issue, we are not adjudicating on the merits of the case.