Reopening on one ground and addition on different Ground – ITAT Confirmed CIT(A)’s Decision to Cancel Reassessment

 

Recently, ITAT Confirmed CIT(A)’s Decision to Cancel Reassessment as AO Mistakenly Reopened the Case Citing Unsecured Loans Instead of Share Application Money but Made Addition on Different Grounds.

In this case, Commissioner of Income Tax (Appeals) [CIT(A)] has cancelled the reassessment proceedings initiated against Kedia Builders and Colonizers Pvt. Ltd. for the assessment years 2012-13 to 2016-17.

The reassessment was conducted under Section 147 of the Income Tax Act based on allegations that the assessee had received unexplained cash credits through bogus share application/premium entries from shell companies linked to Shri Mukesh Banka. The CIT(A) quashed the reassessment, leading to the Revenue’s appeal before the ITAT.

The Assessing Officer (AO) reopened the case by citing “unsecured loans” as the reason for suspected escaped income. However, the final addition of ₹90,00,385 was made on account of share application/premium entries. The AO claimed these entries originated from non-existent companies controlled by Mukesh Banka, an alleged entry operator managing shell companies. Investigations confirmed that these entities had no legitimate business activities, and field inquiries proved their non-existence.

The CIT(A) held the reassessment invalid, emphasizing that the AO mistakenly treated share application money as unsecured loans in the reassessment notice. Since the final addition was unrelated to the original grounds for reopening, the CIT(A) ruled the reassessment invalid. The CIT(A) relied on key precedents such as Calcutta Discount Co. Ltd. and Gemini Leather Stores, which established that additions must correlate with the original reasons cited for reopening the assessment.

In its defense, the Revenue argued that the AO acted on credible post-assessment information and claimed that the reassessment process followed proper procedure. They maintained that the AO’s findings were based on reliable evidence, including statements from Mukesh Banka, confirming that these companies were mere shell entities created for bogus transactions.

The ITAT upheld the CIT(A)’s decision, concluding that since the AO reopened the case on the grounds of “unsecured loans” but ultimately made additions for “share application money”, the reassessment was invalid. Since the final addition was unrelated to the stated reopening reasons, the ITAT ruled in favor of the assessee. The ruling in ITA No. 901/JP/2024 was extended to ITA Nos. 874 & 875/JP/2024, resulting in the dismissal of all three Revenue appeals.

The Copy Of the order is as under: