Additions not related to reasons recorded for reopening not permissible as it was not subject matter of reasons recorded by AO for reopening the assessment

Additions not related to reasons recorded for reopening not permissible as it was not subject matter of reasons recorded by AO for reopening the assessment – ITAT

ABCAUS Case Law Citation:
ABCAUS 1183 (2017) (03) ITAT

The Grievance:
The appellant assessee was aggrieved by the additions made by the Assessing Officer on account of the alleged bogus purchases.

Assessment Year : 2009-10, 2010-11 and 2011-12
Date/Month of Pronouncement: March, 2017

Important Case Laws Cited/relied upon:
Ranbaxy Laboratories Limited vs. CIT (Delhi High Court)
CIT vs. Jet Airways (I) Limited (Bombay High Court)

Brief Facts of the Case:
The returns of the assessee for all three years were initially processed under section 143(1) of the Income tax Act, 1961 (‘the Act’). However, the Assessing Officer (‘AO’) subsequently reopened the assessments u/s 147 after recording the reason that there was a suppression of sales by the assessee during all the three years under consideration. He accordingly issued notices under section 148, in reply to which a letter was filed by the assessee requesting that the returns filed originally by him under section 139(1) be treated as the returns filed in response to notices under section 148. During the course of proceedings under section 147, the Assessing Officer found that the relevant transactions were not of suppression of sales by the assessee, but there were certain purchases, the genuineness of which was in doubt. He accordingly verified the said purchases and since the assessee could not establish the genuineness of the same, the Assessing Officer treated the said purchases as bogus and made additions to that extent to the total income of the assessee in the assessments completed under section 147/143(3) for all the three years under consideration.

The assessee challenged the validity of the said assessments as well as the additions made on account of bogus purchases on merits. The CIT(Appeals), however, did not find merit in the said appeals and dismissed the same.

Contentions of the Appellants:
It was contended that the assessments were reopened on the ground that there was suppression of sales by the assessee. However, the AO did not make any additions on account of suppressed sales and actually made additions on account of bogus purchases.

Contention of the Respondent Revenue:
The Revenue defended the contentions of the assessee by stating that there was a mistake in the reasons recorded by the Assessing Officer in mentioning the relevant transactions as suppressed sales instead of bogus purchases.

Observations made by the Tribunal:
The ITAT observed that the Hon’ble Bombay High Court had held that as per the provisions of section 147 amended with effect from 1s t April, 1989, the Assessing Officer had to assess or reassess the income, which escaped assessment and which was the basis of the formation of belief and if it is thus so, he can assess or reassess any other income, which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after the issuing of notice under section 148, he accepts the contention of the assessee and holds that the income which he had formed the reason to believe, had escaped assessment, has, as a matter of fact, not escaped assessment, it was not open to him independently to assess some other income

It was further observed that the Hon’ble Delhi High Court had observed that if even though Assessing Officer had a jurisdiction to reassess the issues other than the issues in respect of the proceedings were initiated, he was not justified to do so when the reasons for initiation of those proceedings had ceased to survive.

The ITAT observed that reasons recorded by the Assessing Officer for all the three years were identical. It was seen that the assessments were reopened by the Assessing Officer for the reason that there was suppression of sales by the assessee and there was no addition made to the total income of the assessee on account of such suppression of sales in any of the three years. The additions finally made by the Assessing Officer to the total income of the assessee were on account of bogus purchases, which was not at all the subject matter of the reasons recorded by the Assessing Officer. Thus, it was not permissible to the Assessing Officer to make additions to the total income of the assessee in the reassessments on the issue of bogus purchases, which was not the subject matter of reasons recorded by him for reopening the assessment

Held:
ITAT deleted the additions made by the Assessing Officer.