The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) allowed the appeal of the assessee, relying on the landmark judgment of Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd., and held that the Assessing Officer ( AO ) cannot make additions to the income of the assessee on new grounds if the original reason for reopening the assessment is not sustained.
The assessee, Glasseye Traders Pvt. Ltd., filed its return for the assessment year 2013-14 on September 28, 2013, declaring a loss of Rs. 1,932.
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Subsequently, the AO initiated proceedings under Section 147, based on information received from the Kolkata Investigation Wing regarding 67 suspicious accounts held at the Industrial Development Bank of India ( IDBI ), Bidhannagar, Kolkata. These accounts were alleged to be connected to various entities involved in suspicious transactions.
The issue was of reopening an assessment under Section 147 of the Income Tax Act. Initially, the assessee filed a return of income for the assessment year 2013-14 showing a loss of Rs. 1,932. Later, proceedings were initiated under Section 147 after the Assessing Officer ( AO ) received information from the Investigation Wing about suspicious accounts related to MPS Greenery Developers Ltd. However, no transactions with this entity were found.
The appellant,contested the reopening of the assessment, arguing that once the original reason for reopening (transactions with MPS Greenery Developers Ltd.) was found to be invalid, the AO could not make an addition based on new entities that were not part of the initial reasons recorded for reopening. The appellant raised several legal points, including the validity of the reassessment under the amended provisions of Section 148, which came into effect from April 1, 2021. Additionally, the appellant argued that since no additions were made for the reason that originally prompted the reopening, no further additions could be made.
The assessee’s counsel, Miraj D. Shah, argued that under Explanation 3 to Section 147, once the reason for reopening has been abandoned, the AO cannot make additions based on unrelated entities or transactions that were not included in the original reasons. In support of this argument, the counsel cited the ruling in CIT(E) vs. B.P. Poddar Foundation for Education [2022], which reinforced the principle that the subsequent additions should be based on the original reasons for reopening.
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The Tribunal examined the case, referring to judicial interpretations of Section 147, particularly the rulings in Jet Airways (I) Ltd. (2011) and ATS Infrastructure Ltd. (2024), which emphasized that if the reason for reopening the assessment is not valid, no independent additions can be made. The Tribunal held that since the original basis for reopening the case (transactions with MPS Greenery Developers) was not substantiated, the AO could not make additions based on unrelated entities.
Consequently, the two member Bench Composed of Sanjay Garg ( Judicial Member ) and Sanjay Aswathi ( Accountant Member ) ruled in favor of the appellant, directing the deletion of the Rs. 3.98 crore addition. As the legal issue was resolved in favor of the assessee, the merits of the addition were not considered, and the appeal was allowed.
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