AO cannot assess other escaped income if original reason for reassessment dropped

By TG Team Income Tax Judiciary February 11, 2013

TaxGuru Citation: 2013 taxguru.in 263
Case Name: Commissioner of Income Tax Vs Mohmed Juden Dadani (Gujarat high Court At Ahmedabad)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Gujarat High Court

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Whether the Income-tax Appellate Tribunal was right in law in coming to the conclusion that when on the ground on which the reopening of assessment is based, no additions are made by the Assessing Officer in the order of assessment, he cannot make additions on some other grounds which did not form part of the reasons recorded by him.

For an Assessing Officer to assess income on any ground not mentioned in the reasons recorded, it is essential that there is a valid reopening of assessment. If the grounds, on which the reopening of the assessment fails, there would thereafter be no longer a valid reopening of an assessment in which the Assessing Officer can make any additions on some other grounds.

HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL NO. 964 of 2011 TO

TAX APPEAL NO. 967 of 2011

COMMISSIONER OF INCOME TAX

Versus

MOHMED JUNED DADANI

Date : 29/01/2013

ORAL JUDGEMENT

(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1. In this group of appeals, a short but interesting question which would be repetitive in nature has arisen. We had therefore, in our order dated 12.09.20 12, issued notice for final disposal.

2. We may notice the facts in brief as arising in Tax Appeal No. 964 of 2011. For the assessment year 2003-04, assessee had filed return of income on 29.11.2003. Such assessment was framed originally after scrutiny. Thereafter, th Assessing Officer issued a notice under Section 148 of the Income Tax Act, 1961 on 09.03.2005 for reopening such assessment. The Assessing Officer had recorded following reasons for the purpose of issuing the notice:

…. In the above case, return declaring total income of Rs. 1,82,745/- was filed on 29-11-2003 after claiming the deduction of Rs. 1,82,746/- u/s. 80HHC. On verification of the said return, it is noticed that while computing the deduction u/s 80HHC, the assessee has considered DEPB License income of Rs. 29,85,543/- and excise duty refund of Rs. 22,35,799/-. If these two export incentives are excluded from the income of the assessee, there will be a loss from the export business and consequently the assessee will not be entitled to get deduction u/s. 80HHC of the I. T. Act, 1961.

2. It is imperative that deduction u/s. 80HHC of the Act has to be computed within the parameters of the provisions of section 80AB of the I.T.Act, 1961. In other words, if there is insufficient profit from the export business after setting off the export incentives, the assessee will not be eligible for deduction u/s. 80HHC of the I.T.Act, 1961. This finds support from the decision of the Hon I-ble Supreme Court of India in the case of IPCA Laboratory Ltd., 266 ITR 530. The CBDT, New Delhi also vide its letter No. D.O. No. 275/50/2004-IT (B) dated 6-7-2004 issued directions to reopen cases, wherein deduction u/s.80HHC has been claimed even if there is a loss from the export business.

2. In view of the above, I have reason to believe that income chargeable to tax has escaped the assessment to the extent of Rs. 1,82,746/-. Accordingly, issue notice u/s.148 of the I.T.Act,1961.

2. The Assessing Officer framed fresh assessment on 17.03.2005 assessing total income at Rs. 1,00,60,240/-. In the process he made following additions: