AO Cannot Reassess Other Income Without Assessing Initial Grounds: Calcutta HC

Calcutta High Court, in the case of CIT vs. Infinity Infotech Parks Ltd, addressed the validity of reassessment proceedings initiated by the Income Tax Department under Section 147 of the Income Tax Act, 1961. The case arose from an appeal against an order by the Income Tax Appellate Tribunal (ITAT) dated December 20, 2013, concerning the assessment year 2006-07. The department challenged the ITAT’s decision on whether the Assessing Officer (AO) could reassess income beyond the originally recorded reasons for reopening the assessment.

The reassessment proceedings were initiated after the AO noticed, during the 2007-08 assessment, that Infinity Infotech had received deposits of Rs. 86.74 lakhs from office space buyers, which the company claimed were refundable after 270 years. The AO considered this a strategy to suppress sale proceeds and included it as part of taxable income in the 2007-08 assessment. When it was discovered that similar deposits existed in the 2006-07 assessment year, reassessment proceedings were initiated.

The ITAT relied on the Bombay High Court’s ruling in CIT vs. Jet Airways India Ltd. (331 ITR 236) and the Delhi High Court’s decision in Ranbaxy Laboratories Ltd. vs. CIT (336 ITR 136) to hold that reassessment must first address the specific reason for which it was initiated. If the originally recorded reason is not assessed, the AO cannot reassess other income that comes to light later. The Tribunal found that in 2007-08, the Revenue had accepted its decision and had not filed an appeal, making the reassessment for 2006-07 questionable.

The Calcutta High Court upheld the Tribunal’s decision, stating that since reassessment could not be sustained on the original grounds, the AO was not permitted to widen its scope by including new issues. The court concluded that no substantial question of law arose in the case, leading to the dismissal of the appeal. This judgment reinforces the principle that reassessment must adhere strictly to the recorded reasons under Section 148(2) of the Income Tax Act, 1961.