ITAT Delhi Quashes Reassessment Addition Where Original Reopening Ground Was Dropped

The assessee, an individual, did not originally file a return for AY 2016-17. Based on information from the Investigation Wing, the Assessing Officer reopened the assessment, alleging unexplained investment of Rs. 2.87 crore in property during FY 2015-16.

In response to the notice under Section 148, the assessee filed a return declaring NIL taxable income, claiming non-resident status. During reassessment, the Assessing Officer accepted the explanation regarding the property investment and made no addition on that issue. But the AO proceeded to treat the assessee as a resident and made an addition of Rs. 35.43 lakh on account of income claimed as exempt. The CIT(A) upheld the reassessment order, leading the assessee to appeal before the Tribunal.

Main Issue: Whether the AO could make an addition on a new issue in reassessment proceedings after accepting the explanation on the very ground for which the assessment was reopened.

ITAT’s Ruling: The ITAT allowed the assessee’s appeal and deleted the addition of Rs. 35.43 lakh. Relying on ATS Infrastructure Ltd. v. ACIT and Jet Airways (I) Ltd., the Tribunal held that reassessment jurisdiction is confined to the issue forming the basis of reopening.

The Assessing Officer accepted the explanation regarding the alleged unexplained property investment, the foundation for reopening collapsed. In such circumstances, the AO had no authority to travel beyond the recorded reasons and make additions on unrelated matters. Thus, the reassessment order was held unsustainable to the extent of the impugned addition.

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