The Mumbai Bench of the Income Tax Appellate Tribunal examined the validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, and the legality of an addition made by denying exemption claimed under Section 54F of the Act, when such issue did not form part of the reasons recorded for reopening the assessment.

The Assessing Officer had reopened the assessment for Assessment Year 2012-13 on the basis of information received from the Investigation Wing relating to certain investments, bank accounts, and buy-back of shares, on the premise that income chargeable to tax had escaped assessment. The reasons recorded for reopening did not contain any reference to the exemption claimed by the assessee under Section 54F of the Act.

While completing the reassessment under Section 143(3) read with Section 147, the Assessing Officer did not make any addition in respect of the issues forming the basis of the reasons recorded. However, the Assessing Officer made a solitary addition of ₹83,43,016 by disallowing the exemption claimed under Section 54F of the Act. The reassessment order was upheld by the National Faceless Appeal Centre, which relied upon Explanation 3 to Section 147 and the decision of the Supreme Court in CIT v. Sun Engineering Works (P) Ltd.

The Tribunal noted that it was an admitted position that no addition or disallowance had been made on any of the issues forming the basis of the reopening of assessment. The Tribunal held that Explanation 3 to Section 147 does not override the substantive requirement of Section 147 that the Assessing Officer must first assess or reassess the income which formed the basis of the reason to believe that income had escaped assessment.

Relying upon the binding judgment of the Bombay High Court in CIT v. Jet Airways (I) Ltd. and its reiteration in Principal CIT v. Lark Chemicals Pvt. Ltd., the Tribunal held that where the Assessing Officer accepts that no income has escaped assessment on the issues recorded for reopening, it is not open to the Assessing Officer to independently assess other income without issuing a fresh notice under Section 148 of the Act.

The Tribunal further held that the reliance placed by the Revenue on Sun Engineering Works (P) Ltd. was misplaced, as the said decision had been duly considered by the Bombay High Court while interpreting Explanation 3 to Section 147 in Jet Airways (I) Ltd. The Tribunal observed that the jurisdictional High Court decisions were squarely applicable and binding.

Accordingly, the Tribunal held that the reassessment order was without jurisdiction insofar as it disallowed the exemption under Section 54F of the Act, quashed the addition of ₹83,43,016, and allowed the appeal filed by the assessee.

Source Link - https://itat.gov.in/public/files/upload/1767957115-JsE2Bz-1-TO.pdf

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