By TIOL News Service

KOLKATA, JULY 05, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether Revenue Officials are permitted to discover some additional income and bring it to tax in a reopening proceedings, which was not even recorded in the reopening notice issued to the taxpayer. NO IS THE VERDICT.

Facts of the case:

During the course of AO conducting reassessment u/s 147, it was discovered that one of the purchasers of a flat from the assessee company claimed to have made a cash payment to a liaison agent for the acquisition of the relevant flat. Though no direct allegation was made by the purchaser against the assessee, the AO deemed it prudent to proceed against the assessee on such count on the reasoning that the assessee who was the seller of the flat must have been the beneficiary of cash payment made by the purchaser. On appeal, the FAA found that there was no direct allegation on the assessee or the assessee's agent having received alleged cash payment. He noticed that assessee chose not to cross-examine the purchaser on the date fixed and the relevant director of the assessee gave an excuse for his absence on the scheduled date, the FAA was of the opinion that the receipt of cash payment by the assessee had not been sufficiently made out by the purchaser or in course of the reassessment by the AO. On further appeal, the Tribunal found that the AO had acted beyond the scope what was permissible in course of reassessment.

High Court held that,

++ the Tribunal relied on judgments of several High Courts for the proposition that in course of proceedings u/s 147, it is only such income chargeable to tax which had escaped assessment for an assessment year with respect to which the AO had reason to believe that it had escaped assessment, can an order of reassessment be made. In other words, if an AO had reason to believe that some income had escaped assessment on one score, and he had issued a notice u/s 148 in such regard, he may not, in course of the proceedings u/s 147, discover some other additional income and bring the same to tax. On such ground, the Appellate Tribunal quashed the proceedings u/s 147 and it does not appear that the Appellate Tribunal can be faulted on such score. The Revenue's sentiment is appreciated. However, in the circumstances, both on facts and on the legal position, the order passed by the Appellate Tribunal or the order of the Commissioner negating the addition of income on account of alleged cash payment cannot be reconsidered.

(See 2018-TIOL-1250-HC-KOL-IT)