ITAT quashes reassessment where an addition made on issue not forming part of recorded reasons

The assessee, an individual engaged in share investment, filed her return for AY 2011-12 declaring nil income and a business loss of Rs. 82.67 lakh, which was processed under Section 143(1). Therefore, based on information from the Investigation Wing, Kolkata, alleging purchase of commodity scrips worth Rs. 5.99 lakh on the NMCE platform and non-disclosure of bank interest of Rs. 2.16 lakh, the Assessing Officer reopened the assessment under Section 147. During reassessment proceedings, the assessee explained that the alleged interest income formed part of the total interest already offered to tax and sought supporting material regarding the commodity transactions. However, the Assessing Officer made no addition on either of the two items referred to in the recorded reasons. He disallowed the entire trading loss of Rs. 82.67 lakh on the ground that the assessee lacked the financial capacity to incur such a loss, treating it as a bogus loss.

The CIT(A) upheld both the reopening and the disallowance, leading to the present appeal before the Tribunal.

Main Issue: Whether a reassessment under Section 147 is sustainable when no addition is ultimately made on the issues forming the basis of the recorded reasons, and the addition is made on an entirely different ground.

Tribunal Held: The Tribunal held that the reassessment itself was without jurisdiction. It noted that the reasons recorded for reopening were confined only to alleged undisclosed commodity purchases of Rs. 5.99 lakh and unreported interest income of Rs. 2.16 lakh, aggregating to Rs. 8.15 lakh. No addition was made on either of these issues while completing the reassessment. Instead, the Assessing Officer proceeded to disallow the trading loss of Rs. 82.67 lakh, which did not find any mention in the reasons to believe.

Relying on Mohmed Juned Dadani, the Tribunal observed that reassessment cannot be sustained where the foundation for reopening fails and additions are made merely on suspicion or on issues unconnected with the recorded reasons. Since the jurisdictional condition for reopening was not satisfied, the entire reassessment was held to be invalid in law. Therefore, the Tribunal allowed the assessee’s appeal and quashed the reassessment, without examining the merits of the disallowance.

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