If no addition made in reassessment proceedings on issues as per reasons recorded, AO should drop proceedings instead of passing order
In a recent judgment, the ITAT Delhi has held that having recorded the reasons for reopening the assessment and having formed a belief that income of the assessee had escaped assessment, if no addition is made in the reassessment proceedings in respect of issues that are subject matter of reopening, AO should drop reassessment proceedings instead of passing order.
ABCAUS Case Law Citation:
ABCAUS 4096 (2024) (06) ITAT
In the instant case, the assessee had challenged the revisionary order passed by the PCIT u/s 263 of the Income Tax Act, 1961 (the Act) holding the reassessment order was erroneous as well as prejudicial to the interest of revenue.
The assessment for the relevant year was completed u/s 143(3) r.w.s. 147 of the Act accepting the return of income. Subsequently, the assessment was reopened on the issue of cash deposits, purchase of Immovable property and investment in bonds and time deposits.
The Assessing Officer (AO) after examining the detailed explanations given by the assessee together with documentary evidences did not draw any adverse inference thereon and accepted the returned income of the assessee in the reassessment order passed.
However, the reassessment was sought to be revised by the PCIT by invoking his revision jurisdiction u/s 263 of the Act on the issue of capital gains, investment in time deposits and deduction u/s 54 of the Act on the ground that the AO had not made enquiries on the same thereby making his order erroneous and prejudicial to the interest of the Revenue.
The Tribunal observed that once the AO having recorded the reasons for reopening the assessment and having formed a belief that income of the assessee had escaped assessment, had not made any addition in the reassessment proceedings in respect of issues that are subject matter of reopening, the very basis of formation of belief for the AO vanishes. Hence, the AO could not have framed any reassessment per se.
The Tribunal opined that in the instant case, logically the AO should have simply dropped the initiation of reassessment proceedings instead of passing a separate reassessment order.
The Tribunal further opined that once, the reassessment order per se framed by the AO is not sustainable in the eyes of law, any revision order passed thereon u/s 263 seeking to revise such unsustainable order cannot be accepted in the eyes of law and consequential revision order also passed u/s 263 of the Act deserves to be quashed.
Following the judicial precedents the Tribunal held that the PCIT erred in assumption of jurisdiction u/s 263 of the Act in the facts and circumstances of the instant case. Accordingly, the Tribunal quashed the revision order passed u/s 263 of the Act.
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