Explanation 3 to Section 147 of Income Tax Act cannot be extended to make New Addition beyond Initial Reopening Assessment Reasons: ITAT quashes Order [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) quashed the assessment order as no addition was made based on the reason to believe recorded by the Assessing Officer ( AO ) for reopening the assessment under section 148 of the Income Tax Act, 1961.

On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reopening of the assessment proceedings as well as the re-assessment order passed by the AO is illegal & without jurisdiction as the same has been passed without there being valid service of notice issued under section 148 of the Income Tax Act.

Mr Ved Jain, representing the assessee challenged the jurisdiction in this case. He stated that, since for the reason for which reopening was done, no addition has been done on that account. He further submitted that the addition is with respect to an item which is not mentioned in the reason recorded for reopening

During the course of assessment proceedings, the assessee was required to file a valid confirmation with the details of each Members such as complete Name & address, PAN, details of their business/profession, their relations with each other, their ITR and copy of bank account of the members evidencing such transactions. But the assessee failed to prove their identity, credit worthiness and genuineness and the explanation offered was not satisfactory found. Hence, the receipts of Rs. 51, 85, 000/- shows as received from members of the society, are to be added to the income of the society as unexplained income

The bench observed that the issue urged by the Revenue stands covered in favour of the assessee by the decision of this court in Ranbaxy Laboratories Ltd. v. CIT which has been followed in CIT v. Software Consultants , if no addition is made on the basis of the reasons to believe recorded by the Assessing Officer for reopening the assessment under section 148 of the Act, resort cannot be had to Explanation 3 to Section 147 of the Income Tax Act to make an addition on any other issue not included in the reasons to believe for reopening the assessment. No substantial question of law arises. The appeal was dismissed.

The two member bench of the tribunal comprising Anubhav Sharma (Judicial member) and Shamim Yahya (Accountant member) found that the issue is squarely covered in favour of the assessee, and the assessment order was liable to be quashed. Therefore, the same was quashed accordingly.  The appeal of the assessee stands allowed. 

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