No Addition on Reopening Ground Makes Other Additions Unsustainable: ITAT Mumbai

ITO Vs Western Imaginary Transcon Pvt. Ltd. (ITAT Mumbai)

Summary: The Mumbai ITAT decided cross-appeals arising from the NFAC/CIT(A) order dated 01.12.2025 for AY 2010-11. The first matter in source order was the Revenue’s ITA No.1008/MUM/2026, while the assessee’s connected appeal was ITA No.1948/MUM/2026. The Tribunal first took up the assessee’s appeal because it raised a legal issue going to the root of the reassessment. The Assessing Officer had reopened the assessment under section 147 on the basis of information regarding high-value transactions and deposits in bank accounts, including cash deposit of Rs.10,500 and cheque deposits of Rs.1 crore with Union Bank of India and cash deposit of Rs.1,65,000 and cheque deposits of Rs.9,61,162 with Bank of Maharashtra, aggregating to transactions of Rs.1,11,36,662. The recorded reasons stated that the source of the credits remained unexplained and required verification. The additions ultimately made by the AO, however, were on different issues. The AO added Rs.50,16,695 as unexplained expenses under section 37, Rs.54,42,313 as unexplained current trading liability under section 41(1), and Rs.1,06,70,000 as unexplained credit entries under section 68. The Tribunal found that the additions under sections 37 and 41(1) admittedly did not arise from the reasons recorded for reopening. As regards the section 68 addition, the CIT(A) found that it represented five credits in Bank of Maharashtra current account No.60033878661: Rs.80,20,000 received from Dhanera & Co. India and Rs.26,50,000 received from S.C. Shah & Co. India. The CIT(A) deleted Rs.26,50,000 after finding that the assessee had discharged the section 68 onus but sustained Rs.80,20,000 because Dhanera & Co. India’s financial capacity had not been satisfactorily demonstrated. The Tribunal noted a decisive mismatch: the Rs.1,06,70,000 section 68 addition related to current account No.60033878661, whereas the recorded reasons referred to cash deposits of Rs.1,65,000 and cheque deposits of Rs.9,61,162 in a different Bank of Maharashtra current account, No.60009269852. Consequently, the section 68 addition also did not emanate from the recorded reasons. More fundamentally, the AO made no addition at all in respect of the income that formed the basis of reopening. Following CIT-5 Vs Jet Airways (I) Ltd. (Bombay High Court), the Tribunal held that where the AO does not assess or reassess the income forming the basis of the recorded reasons, he cannot independently assess other income discovered during reassessment; a fresh notice under section 148 would be required in accordance with law. The Tribunal therefore deleted the additions made under sections 37, 41(1) and 68 without examining the other aspects or merits. The assessee’s appeal was allowed. Since the additions themselves stood deleted on this legal ground, the Revenue’s challenge to the CIT(A)’s partial deletion no longer survived and its appeal was dismissed as infructuous. Cases Discussed

• CIT vs. Jet Airways (I) Ltd., (2011) 331 ITR 236 (Bom.) – Bombay High Court held that where no addition is ultimately made in respect of the income forming the basis of reopening, the AO cannot independently assess other escaped income in the same reassessment; expressly followed by the Tribunal.
• Mellona Developers Pvt. Ltd. vs. ITO, ITA No. 8637/Mum/2025, order dated 15.06.2026 (ITAT Mumbai) – Relied upon by the assessee in support of the contention that additions not emanating from the recorded reasons for reopening were unsustainable.

FULL TEXT OF THE ORDER OF ITAT MUMBAI These cross appeals have been preferred by the Assessee and the Revenue against the order dated 01.12.2025, impugned herein, passed by the National Faceless Appeal Centre (NFAC)/the Ld. Commissioner of Income Tax (Appeals) {in short “Ld. Commissioner”} u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the A.Y. 2010-11. 2. Brief facts relevant for adjudication of the instant appeals are that the Assessee, by way of ITA No. 1948/M/2026, has raised a legal issue going to the root of the matter, therefore, for the sake of brevity, we deem it appropriate to decide the Assessee’s appeal first. 3. Coming to ITA No. 1948/M/2026, we observe that the Assessing Officer (in short “AO”) reopened the case of the Assessee u/s 147 of the Act by recording the following reasons for reopening dated 05.05.2017:-

“The reasons for re-opening the assessment for the A.Y.2010-11 is a under:-

“The reasons for re-opening the assessment for the A.Y.2010-11 is a under:-

In the instant case, Information has been received from ADIT (Inv.) Unit-5(4), Mumbai that the assessee company is maintaining a current account No. 319701010036606 with Union Bank of India, Vile-Parle (East) Branch, Mumbai, wherein high value funds transfer have taken place, a few transactions are above 50 lakhs to 216 lakhs in a day. In F.Y.2009-10 relevant to assessment year 2010-11, the cash deposit of Rs.10,500/- & cheque deposits Rs. 1,00,00,000/- with Union Bank of India and cash deposit of Rs. 1,65,000/- & cheque deposits Rs. 9,61,162/- with Bank of Maharashtra in current account No. 60009269852. The total transaction done by the assessee’s company is Rs. 1,11,36,662/-. The assessee company has not provided any details of such credits in respect of their treatment in his books of account. Therefore, the source of credits appearing in the bank account remains unexplained which should be verified.”

4. The AO, however, ultimately made the following additions: –

5. Thus, the Assessee has raised a legal issue to the effect that the additions ultimately made by the AO, vide assessment order do not emanate from the reasons recorded for reopening and, therefore, in view of the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd., (2011) 331 ITR 236 (Bom.) and the decision of the Tribunal in the case of Mellona Developers Pvt. Ltd. vs. ITO, ITA No. 8637/Mum/2025, order dated 15.06.2026, the additions are unsustainable. 6. On the contrary, the Ld. DR refuted the claim of the Assessee and supported the orders passed by the authorities below. 7. We have heard the parties, perused the material available on record and given thoughtful consideration to the rival claims of the parties. We observe from the assessment order that the AO made the additions of Rs. 50,16,695/- and Rs. 54,42,313/- on account of disallowance of unexplained expenses u/s 37 and unexplained current trading liability u/s 41(1) of the Act, respectively. Admittedly, the aforesaid additions are not based upon the reasons recorded for reopening and/or the notice issued u/s 148 of the Act. 8. We further observe that the AO also made an addition of Rs. 1,06,70,000/- on account of credit entries u/s 68 of the Act. The said addition was specifically dealt with by the Ld. Commissioner, who found that the same represented five credit entries appearing in the bank account maintained with the Bank of Maharashtra, comprising three credit entries aggregating to Rs. 80,20,000/- received from Dhanera & Co. India and two credit entries aggregating to Rs. 26,50,000/- received from S.C. Shah & Co. India. 9. The Ld. Commissioner confirmed the addition to the extent of Rs. 80,20,000/- relating to Dhanera & Co. India, whereas deleted the addition of Rs. 26,50,000/- relating to S.C. Shah & Co. India on the ground that the Assessee had discharged the onus cast upon it u/s 68 of the Act. 10. For the sake of completeness and brevity, we deem it appropriate to reproduce the relevant findings of the Ld. Commissioner qua the addition of Rs. 1,06,70,000/-, which read as under: –

“6.4 Addition u/s 68 – cash credits of Rs. 1,06,70,000/-:

The Assessing Officer has made an addition of Rs. 1,06,70,000/- u/s 68 on the ground that the assessee did not explain the nature and source of credits appearing in the bank account with Bank of Maharashtra. The assessment order does not set out the specific entries forming part of the addition. From the bank statements and the submissions of the appellant, it emerges that the impugned sum corresponds to five credits in the current account No. 60033878661, namely three credits from Dhanera & Co. India aggregating to Rs. 80,20,000/- and two credits from to Rs. 26,50,000/-SC Shah & Co. India

In respect of SC Shah & Co. India, the appellant has furnished the confirmation, PAN details, copies of income-tax return and financial statements of the creditor and bank statements showing that the amounts were advanced through account payee cheques from an identifiable bank account. The ledger account in the books of the appellant shows that the loans have been subsequently repaid through banking channels. These documents establish the identity of SC Shah & Co. India, the genuineness of the loan transactions and, prima facie, the capacity of the creditor. The Assessing Officer, both in the assessment order and in the remand report, has not undertaken any further verification or brought any material to impeach the evidences filed. In such circumstances, the initial onus cast upon the appellant u/s 68 stands discharged and no addition is called for in respect of the sum of Rs. 26,50,000/- received from SC Shah & Co. India. The addition to this extent is therefore deleted.

As regards the credits from Dhanera & Co. India amounting in aggregate to Rs. 80,20,000/-, the appellant has produced ledger accounts and a confirmation, as well as bank statements showing that the amounts were received and repaid through banking channels. However, unlike in the case of SC Shah & Co. India, no independent financial statements or income-tax returns of Dhanera & Co. have been placed on record to demonstrate its financial strength or capacity to advance loans of this magnitude. The material available is limited to internal entries in the appellant’s books, confirmation and movement of funds through bank, without any supporting evidence regarding the true credit-worthiness of the creditor. In the absence of such evidence, mere routing of funds through bank channels is not sufficient to establish that the creditor had the means to advance the loan; the genuineness of the transaction thus remains partially unsubstantiated. The appellant has relied on several judicial pronouncements, but those decisions proceed on the footing that adequate material regarding identity, genuineness and capacity of the creditor had been produced. In the present case, while identity and banking trail of Dhanera & Co. are shown, the capacity is not satisfactorily proved.

Having regard to the totality of facts and the nature of evidences on record, I am of the view that the appellant has not been able to fully discharge the onus u/s 68 in respect of the credits from Dhanera & Co. India aggregating to Rs. 80,20,000/-. The addition to this extent is therefore confirmed. The balance amount of Rs. 26,50,000/-representing loans from SC Shah & Co. India is deleted as indicated above.”

11. Thus, from the aforesaid facts and the material available on record, it becomes clear that the five credit entries aggregating to Rs. 1,06,70,000/-, which were subjected to addition by the AO, pertained to the credit entries appearing in current account No. 60033878661 maintained with the Bank of Maharashtra. On the contrary, the reasons recorded for reopening referred, inter alia, to cash deposits of Rs. 1,65,000/- and cheque deposits of Rs. 9,61,162/- in current account No. 60009269852 maintained with the Bank of Maharashtra. Therefore, the addition of Rs. 1,06,70,000/- made u/s 68 of the Act, also does not emanate from the reasons recorded for reopening. 12. Further, it is an admitted fact that the AO did not make any addition in respect of the income, which formed the basis of the reasons recorded for reopening. The additions ultimately made by the AO were on altogether different issues. The Hon’ble Jurisdictional High Court in the case of Jet Airways (I) Ltd. (supra) has held, in substance, that where, after issuance of notice u/s 148 of the Act, the AO does not assess or reassess the income which formed the basis of the reasons to believe that income had escaped assessment, it is not open to him to independently assess some other income which comes to his notice during the course of reassessment proceedings. In such circumstances, for assessing such other income independently, recourse to a fresh notice u/s 148 of the Act would be required in accordance with law. 13. In the present case also, the AO did not make any addition in respect of the income for which the assessment was reopened, whereas the additions ultimately made u/s 37, u/s 41(1) and u/s 68 of the Act did not emanate from the reasons recorded for reopening. Therefore, in view of the dictum laid down by the Hon’ble Jurisdictional High Court in Jet Airways (I) Ltd. (supra), we are of the considered view that the additions made by the AO, and partly affirmed by the Ld. Commissioner, cannot be sustained. Consequently, the same are, accordingly, deleted. 14. As we have deleted the additions on the aforesaid legal aspect itself, therefore, we deem it appropriate not to delve into the other aspects or merits of the case, as adjudication of the same would be a futile exercise. 15. Coming to the Revenue’s appeal, as in the Assessee’s appeal we have deleted the additions on the legal aspect itself, thus the grounds raised by the Revenue challenging the decision of the Ld. Commissioner in deleting part of the additions, would not survive for adjudication. Consequently, adjudication of the Revenue’s grounds would also be a futile exercise. Thus, the Revenue’s appeal is dismissed as having become infructuous. 16. In the result, the Assessee’s appeal is allowed, whereas the Revenue’s appeal is dismissed, as infructuous. Order pronounced in the open court on 14.08.2026.