AO can reassess issues other than the issues proceedings were initiated but he was not justified when the reasons for the initiation of those proceedings ceased to survive

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: A : NEW DELHI

BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT

AND

SHRI A.D. JAIN, JUDICIAL MEMBER

ITA No.4398/Del/2009

Assessment Year: 1999-2000

Aggregate Finance &

Investment Pvt. Ltd.,

1117/12, 3rd Floor,

Naiwala,

Karol Bagh,

New Delhi.

PAN: AAACA6428R

(Appellant)

Vs.

ITO,Ward 1 (2),

New Delhi.

 (Respondent)

Assessee by: Shri R.C. Rai, CA

Revenue by: Ms Anusha Khurana, Sr.DR

ORDER

PER A.D. JAIN, JUDICIAL MEMBER

This is an appeal filed by the assessee for Assessment Year 1999-2000 against the order dated 14.09.2009 passed by the ld. CIT(A)-IV, New Delhi. The revised grounds of appeal filed are as follows:-

“1. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the re-opening of the case, which is otherwise bad in law and not tenable.

2. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the disallowance of loss on sale of shares amounting to Rs.2,59,650/- “ in spite of fact that reason & issue for initiation of re-assessment proceedings ceased to survive.”

3. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the action of ld. Assessing Officer in treating the loss on sale of shares as capital loss which is otherwise business loss and allowable under law.

These action of Hon’ble Commissioner of Income Tax (Appeals)- IV, New Delhi, and ld. Assessing Officer being arbitrary, unjust, illegal and invalid in law liable to quashed and it is prayed to your honour that they please be quashed and/or any other relief just deem fit and proper please be directed.”

2. Apropos ground No.1, the learned counsel says that no addition was made on the reasons recorded; that accordingly, the reasons cease to exist, as held in ‘Ranbaxy Laboratories Ltd. vs. CIT’, 336 ITR 136 (Del) and once the reasons recorded for reopening cease to exist, there remains no reason to reopen the completed assessment.

3. Per contra, the ld. DR submits that even if no addition has been made on reasons recorded, the reopening of the completed assessment on the basis of the reasons recorded is valid. In support of this contention, the learned DR has sought to place reliance on the following case laws:-

i) “ITO vs. M.V. Balaji” (2011) 007 ITR (Trib) 795 (Chennai)

ii) “CIT vs. Sun Engineering Works Pvt. Ltd.” 198 ITR 297 (SC)

iii) “CIT vs. N. Krishnan” 233 ITR 646 (Ker)

iv) “V. Jaganmohan Rao vs. CIT” 75 ITR 373 (SC)

v) “CIT vs. Standard Motor Products of India Ltd.” 142 ITR 877 (Mad)

vi) “CIT vs. B. Nagi Reddi” 144 ITR 62 (Mad)

vii) “CIT vs. Ram Kishan Leela” 295 ITR 525 (Raj)

viii) “ACIT vs. Asian Exim International 113 TTJ 427 (Asr.)

4. We have heard both the parties on this issue and have considered the material on record with regard thereto. The reasons recorded for reopening the completed assessment are as follows:-

“Reasons recorded for issue of notice u/s 148 of the IT Act, 1961. The Directorate of Investigation-I, New Delhi, vide its office letter No.1320 dated 02.03.2006 had sent a report in case of beneficiaries and operators of accommodation entries in Delhi. The letter was accompanied with a detailed report. A perusal of the report shows that M/s Aggregate Finance and Investment Pvt. Ltd. who is assessed to tax with the undersigned, has been an entry provider under a group managed by Sh. P.N. Jha/Sh. Vipulav Bharati. These accommodation entries have been provided on a large scale and the assessee company has been providing these entries through nearly several bank accounts operated in Delhi. These entries have been provided by the

assessee during the financial year relevant to the A.Y. 1999- 2000. The value of these entries runs into several lacs of rupees.

2. In view of the above credible information received from the DIT (Inv.), I have reasons to believe that the amount and its transactions i.e., the entries provided by the assessee more than one lac rupees, which is chargeable to tax has escaped assessment, as per the provisions of Section 147 (a), (b) & (c) of the Income Tax Act, 1961.

3. I am therefore satisfied that the said income has escaped assessment, and accordingly after recording the above said reasons as laid down under the provisions of Section 148(2) of the Income Tax Act, propose to issue a notice to the above mentioned assessee u/s 148(1) of the IT Act, 1961.

4. The proposal is forwarded for your kind consideration and necessary approval in view of the fact that:-

(i) The assessment year involved is A.Y. 99-00. In view of this, since 4 years has elapsed, but not more than 6 years, the proposal is forwarded as laid down under the provisions of Section 149(1)(b) of the IT Act, 1961.

(ii) Kind approval for issue of notice u/s 148(i) is sought as per the procedure laid down under the provisions of Section 151, read with sub section (1) & (2) of the Income Tax Act, 1961.”

5. In the computation of income contained in the order passed by the Assessing Officer in the reassessment proceedings, the Assessing Officer has recorded as follows:-

“With the above remarks total income is computed as under:-

Loss as per Profit and Loss a/c Rs. 3,349

Add Loss on sale of long term investments

Not allowed as discussed above Rs.2,59,650

Net taxable income Rs.2,56,301

Rounded off to Rs.2,56,300”

6. It thus remains an undisputed fact that no addition has been made on the reasons recorded for reopening the completed assessment. Now, what is to be seen is as to whether, as contended by the assessee, since no addition has been made on the reasons recorded, no reasons for reopening the completed assessment survive and, consequently, the completed assessment could not have been reopened, or whether in spite of no addition having been made qua the reasons recorded, those reasons still survive and the reopening on the basis of those reasons is in order, as maintained by the department.

7. In ‘Ranbaxy Laboratories’ (supra) it has been held, inter alia, as follows:-

“The very basis of initiation of proceedings for which reasons to believe were recorded was income escaping assessment in respect of items of club fees, gifts and presents, etc., but while these items were not disturbed, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which was not permissible. The Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not justified when the reasons for the initiation of those proceedings ceased to survive.”

8. Thus, the ratio of ‘Ranbaxy Laboratories’ (supra) is that where the reasons for initiation of reopening proceedings cease to survive, the Assessing Officer is not justified to re-assess issues other than the issues in respect of which the reopening proceedings were initiated.

9. “Sun Engineering Works” (supra) and “Jaganmohan Rao” (supra), both rendered by the Hon’ble Supreme Court, it is seen, have been considered in “Ranbaxy Laboratories” (supra).

10. Whereas “Ranbaxy Laboratories” (supra) has been rendered by the Hon’ble jurisdictional High Court, the rest of the cases relied on by the Ld. DR are from other High Courts. Now, once the jurisdictional High Court has decided the issue in favour of the assessee, these case laws are not required to be gone into, the decision of the Hon’ble jurisdictional High Court being binding on us.

11. In the result, the appeal filed by the assessee is allowed, as indicated above.

The order pronounced in the open court on 01.08.2012.

                                                              Sd/-                   Sd/-

                                                [G.D. AGRAWAL] [A.D. JAIN]

                                          VICE PRESIDENT  JUDICIAL MEMBER

Dated, 01.08.2012.

dk

Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT

Deputy Registrar,

ITAT, Delhi Benches