The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that additions made during reassessment proceedings cannot survive when they are unrelated to the income for which the assessment was originally reopened.
The Bench of Narender Kumar Choudhry (Judicial Member) and Rakesh Kumar Lodha (Accountant Member) consequently deleted additions aggregating to approximately ₹2.11 crore made against Western Imaginary Transcon Private Limited for Assessment Year 2010-11.
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The Tribunal was deciding cross-appeals filed by the taxpayer and the Income Tax Department against an order dated December 1, 2025, passed by the National Faceless Appeal Centre (NFAC) under Section 250 of the Income Tax Act, 1961.
The taxpayer raised a preliminary legal objection concerning the validity of the additions made in the reassessment. Since the objection went to the root of the proceedings, the Tribunal decided to consider the taxpayer’s appeal first.
The assessment had been reopened under Section 147 based on information received from the Investigation Wing regarding high-value transactions in bank accounts maintained by the company.
According to the recorded reasons dated May 5, 2017, the company maintained a current account with Union Bank of India, Vile Parle East Branch, in which several high-value fund transfers had allegedly taken place. Some of the transactions ranged between ₹50 lakh and ₹2.16 crore in a single day.
The reasons also referred to cash deposits of ₹10,500 and cheque deposits of ₹1 crore in the Union Bank account. In addition, the Assessing Officer referred to cash deposits of ₹1.65 lakh and cheque deposits of ₹9.61 lakh in a current account maintained with the Bank of Maharashtra.
The total transactions referred to in the reasons for reopening amounted to ₹1.11 crore. The Assessing Officer recorded that the company had not furnished details explaining the treatment of these credits in its books and that the source of the bank credits remained unexplained and required verification.
However, the reassessment order ultimately made additions on substantially different grounds. These included ₹50.16 lakh as disallowance of unexplained expenses under Section 37, ₹54.42 lakh as an unexplained current trading liability under Section 41(1), and ₹1.067 crore as unexplained credit entries under Section 68. A further amount of ₹2,206 was assessed as business income, taking the total computation to approximately ₹2.11 crore.
The taxpayer argued that none of the substantive additions arose from the reasons recorded for reopening the assessment. It relied upon the Bombay High Court’s ruling in CIT v. Jet Airways (I) Ltd. and the Mumbai ITAT’s decision in Mellona Developers Pvt. Ltd. v. ITO.
The Revenue opposed the taxpayer’s contention and supported the orders passed by the Assessing Officer and the Commissioner of Income Tax (Appeals).
After examining the reassessment order, the Tribunal found that the additions of ₹50.16 lakh under Section 37 and ₹54.42 lakh under Section 41(1) were admittedly not based on the recorded reasons or the notice issued under Section 148.
The ITAT separately examined the Section 68 addition of ₹1.067 crore. This amount represented five credit entries in a current account maintained with the Bank of Maharashtra. Three entries aggregating to ₹80.20 lakh were received from Dhanera & Co. India, while two entries totalling ₹26.50 lakh were received from S.C. Shah & Co. India.
In the first appellate proceedings, the Commissioner (Appeals) confirmed the addition of ₹80.20 lakh relating to Dhanera & Co. India but deleted the ₹26.50 lakh addition concerning S.C. Shah & Co. India.
The Commissioner (Appeals) had found that the taxpayer produced the creditor’s confirmation, PAN details, income-tax return, financial statements and bank statements in relation to S.C. Shah & Co. India. The loans had been advanced through account-payee cheques and were subsequently repaid through banking channels.
Since the Assessing Officer had not undertaken further verification or produced material contradicting the evidence, the Commissioner held that the taxpayer had discharged its initial burden under Section 68 in respect of the ₹26.50 lakh credit.
However, the Commissioner took a different view regarding the ₹80.20 lakh received from Dhanera & Co. India. Although ledger accounts, confirmation and bank statements were produced, the taxpayer did not place independent financial statements or income-tax returns of the creditor on record to establish its financial capacity.
The Commissioner therefore concluded that the identity and banking trail had been demonstrated, but the creditworthiness of Dhanera & Co. India had not been satisfactorily established. The addition of ₹80.20 lakh was accordingly confirmed.
The Tribunal, however, found a fundamental mismatch between the bank account mentioned in the reopening reasons and the account containing the credits eventually assessed under Section 68.
The recorded reasons referred to cash deposits of ₹1.65 lakh and cheque deposits of ₹9.61 lakh in Bank of Maharashtra current account number 60009269852. In contrast, the five entries aggregating to ₹1.067 crore were found in a different Bank of Maharashtra current account bearing number 60033878661.
The ITAT therefore held that the Section 68 addition also did not emanate from the reasons recorded for reopening.
Significantly, the Assessing Officer had not made any addition concerning the income that originally formed the basis for reopening the assessment. All the additions ultimately made under Sections 37, 41(1) and 68 related to entirely different issues.
Relying on the jurisdictional Bombay High Court’s decision in Jet Airways, the Tribunal observed that when an Assessing Officer does not assess or reassess the income that formed the basis of the recorded belief regarding escapement of income, the officer cannot independently assess some other income discovered during the reassessment proceedings.
For independently assessing such other income, the tax authorities would be required to issue a fresh notice under Section 148 in accordance with law, the Tribunal noted.
Applying this principle, the ITAT held that the additions made by the Assessing Officer and partly affirmed by the Commissioner (Appeals) could not be sustained. It accordingly deleted the additions without examining the other grounds or the merits of the individual additions.
Since the additions were deleted on the preliminary legal ground itself, the Tribunal held that the Revenue’s appeal challenging the partial relief granted by the Commissioner (Appeals) no longer survived for adjudication.
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