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If foundational addition of reassessment proceeding is deleted then other addition also need to be quashed
Here is an important judgement by Pune ITAT which has again reiterated the principle laid down by jurisdictional High Court in the case of in CIT vs. Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212 (Del) wherein it has been held that if foundational addition of reassessment proceeding is deleted, Other addition also need to be quashed
The case before Pune ITAT was as under:
Meenakshi Dhanaji Patil, 1237, G-1, Opp. Ubha Maruti Chowk, A-Ward, Shivaji Peth, Kolhapur, Maharashtra – 416012 PAN : ALDPP0262D
The ITAT Pune observed as under:
This tribunal’s coordinate bench order in ITA No.6611/Del/2016 Indu Arts Vs. ACIT dated 07-06-2017 holds that reopening in such an instance gets quashed as follows:
“7. The position which follows from the above discussion is that the Assessing Officer can make `other addition’ in the reassessment proceedings, provided, the `foundational addition’ is made. When this proposition is taken to a next level, no different consequences will emerge, if the `foundational addition’ is itself finally deleted in an appeal. In such a scenario, the `other addition’ made by the Assessing Officer would automatically cease to stand in isolation. This view has been affirmed by the Hon’ble jurisdictional High Court in CIT vs. Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212 (Del). In that case, the return filed by the assessee for the asst. yr. 1999-2000 declaring income @ Rs. 1,22,460 was processed under s. 143(1) of the IT Act. However, notice was issued under section 148 of the Act subsequently, on the information received from the Director of IT (Inv.), New Delhi, to the effect that the assessee had accepted the accommodation entries from M/s I.G. Properties (P) Ltd., M/s Parivartan Capital & Financial Services (P) Ltd. and from M/s Victoria (P) Ltd. in the garb of share capital. The AO passed the reassessment order making additions of Rs. 31 lacs on account of unexplained share capital including the capital subscribed by the aforesaid three applicants on the basis of which the assessment was reopened. However, during the assessment proceedings, the AO also made certain additions of the credits received from M/s Adhunik Niryat, M/s Mahadev Metals, M/s Royal International and M/s Single Finshare India Ltd., albeit the assessment was not reopened on that basis.
The assessee filed an appeal against these additions.
The CIT(A) confirmed the additions of Rs. 31 lac which was the basis for reopening reassessment, but deleted the other addition. Both the assessee as well as the Revenue preferred appeals against the orders of CIT(A). Appeal of the assessee was allowed by the Tribunal thereby deleting the addition of Rs. 31 lac. Against this order, no appeal was preferred by the Revenue. Thus, the reasons which persuaded the AO to reopen the reassessment proceedings and on the basis of which additions were made were not found valid or justifiable as those additions were deleted by the Tribunal. Appeal of the Revenue was dismissed. In further appeal, the Hon’ble High Court upheld the order of the tribunal by holding that:
`Since the grounds for reopening the reassessment do not exist any longer and no additions were ultimately made on that account, the additions in respect of other items which were not part of “reasons to believe” cannot be made.’ On going through the ratio decidendi of the above judgment, it is vivid that if the `foundational addition’ is finally deleted in appeal, then `other addition’ also can’t stand.
- At this stage, it is pertinent to note the effect of insertion of Explanation 3 to Section 147 by the Finance (No.2) Act, 2009 w.r.e.f. 1.4.1989, which reads as under : –
`Explanation 3.— For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of section 148.’
ITAT Pune observed as under:
“ The situation can be viewed from another angle as well. The Assessing Officer initiated reassessment proceedings and made addition of Rs.22.57 lac. When the ld. CIT(A) held that the addition of Rs.22.57 lac was not sustainable, it meant that the jurisdiction of the Assessing Officer was lacking in initiating the reassessment proceedings. As a consequence of his deletion of the addition, not only the assessment order but all the proceedings flowing therefrom had the effect of becoming null and void. As such, he could not have gone ahead with any other issue and made enhancement of income. Making an enhancement in such circumstances would mean that though the jurisdiction of the Assessing Officer in initiating the reassessment was lacking, still, the assessment would be valid and ex consequenti, the addition would be sustainable. This, in my considered opinion, is a totally illogical and unsound proposition. I, therefore, order to delete the addition of Rs.2.36 lac and odd made by the ld. CIT(A).”
In case all the additions which formed part of reasons recorded are deleted by CIT(A) [i.e., all foundational additions are deleted by CIT(A) ] and the additions which are sustained by CIT(A) do not relate to the reasons recorded then the Assessment Proceedings stands invalid and the same needs to be quashed.
The copy of the order is as under:
Attachments areaPune ITAT