Reassessment

When an assessment is reopened on a particular ground but during the course of assessment being finalised, no addition is made in respect of the ground on which assessment is reopened, other additions cannot be made in the course of such assessment proceedings — as held by MumTrib in Power Pack Conductors v ITO — In favour of: The Assessee ; ITA Nos.7900 & 7901/ Mum/2010 : Assessment Years: 2000–2001 & 2001–2002

Power Pack Conductors v ITO

ITAT BENCH 'SMC' MUMBAI

ITA Nos.7900 & 7901/ Mum/2010

Assessment Years: 2000-01 & 2001-2002

Pramod Kumar, AM

Decided on: 3 March 2011

Counsel appeared:

Dr P Daniel for the appellant

Satveer Singh for the respondent

Order

1. By way of these appeals, the assessee has called into question correctness of CIT(A)’s separate

orders dated 30.8. 2010, in the matter of assessment under section 143(3) r.w.s. 147 of the Income

tax Act, 1961, for the assessment years 2000-2001 and 2001-02, respectively. Since common

grounds raised in both the appeals, they were heard together and are being disposed of by this

common order for the sake of convenience.

2. The grievance common to both the appeals are as follows:

“1. The ld. CIT (A) erred in confirming the order passed by the AO u/s.147 of the I.T. Act, 1961.

2. The ld. CIT (A) in estimating the income at Rs.3,30,560 and the CIT (A) erred in accepting the

method adopted by the AO.

3. The ld. CIT (A) erred in confirming the action of the AO in arriving at the income through

consumption of electricity method which is not a recognized method for arriving at the income.

4. The ld. CIT (A) erred in estimating the production @ 2 kg per unit of electricity consumption

and fixing the price at Rs.30 per kg and estimating the net profit @ 2 % which are all on the

higher side.

5. The ld. CIT (A) erred in dismissing the grounds of appeal regarding charging interest

u/s.234A, 234B & 234C of the I.T.Act., 1961”

3. To adjudicate on these appeals, only a few material facts need to be taken note of. The assessee

is engaged in business of manufacturing steel wool. On the basis of information received from the

Director, Vigilance (Income Tax) informing the Assessing Officer about theft of electricity by the

assessee and some other persons, the assessments were reopened by the Assessing Officer. While

the evidence of such information is not placed on record, as per the information obtained by the

assessee under Right to Information Act, according to MSEB, there was no case of theft of

electricity by the assessee during the period 1.4.1997 to 31.3.2001. While reopening the

assessments, the AO was of the view that the logical inference about the theft of electricity by the

assessee is that by doing so, the assessee has understated the production and sales commensurate

with the theft of the energy. It was observed by the AO that “in view of these facts there is a

reason to believe that the income chargeable to tax has escaped assessment and as such the case is being completed under section 143(3) r.w.s. 147 of the I.T. Act, 1961 in order to bring the

escaped income to tax”. Interestingly, however, when the assessment was framed, it was on the

basis of estimation of income, and in the process of so estimating the income, production was

estimated on the basis of power consumption as per bills raised by Maharashtra State Electricity

Board. In other words, the income was not estimated on the basis of alleged power theft but on

the basis of consumption of power as per MSEB records. It is thus clear that even as the ground

of reopening was understatement of production on account of theft of power, the assessment

actually framed was on the basis of estimate of production in the light of power consumption

according to the MSEB billing. The very reason for which the assessment was reopened did not

actually being a role in estimating the income as finally assessed.

4. The short question which really is required to be adjudicated on the above facts is that when an

assessment is reopened on a particular ground but during the course of assessment being

finalized, no addition is made in respect of the ground on which assessment is reopened, can other

additions be made in the course of such assessment proceedings. This question is in addition to

the fundamental issue as to whether there was any material on record to indicate that the assessee

had actually committed theft of electricity.

5. I have heard the rival contentions, perused the material on record and duly considered the

factual matrix of the case.

6. I have noted that the fundamental basis for reopening the assessment was alleged theft of

electricity but then as per information produced before me by the assessee, there was no case of

theft of electricity against the assessee. The information has been obtained by the assessee under

RTI and there is no material before me to controvert the information so obtained by the assessee.

It would, therefore, appear that the very foundation of the impugned reassessment proceedings is

devoid of legally sustainable merits. That apart, while the assessment is reopened on the ground

that there was theft of electricity and thus production was understated, in the assessment

proceedings, no addition has been made on this account. As a matter of fact, the basis of

estimation as adopted in the assessment proceedings is the consumption of power as per records

maintained by MSEB. The base figure therefore for estimating the production is the electricity

purchased by the assessee from MSEB and not the electricity said to have been stolen by the

assessee from MESB. It is well settled law that when additions are not made in respect of the

ground for which reassessment is resorted to, no other additions can be made in the course of

such reassessment proceedings. If needed, authority contains in CIT v. Atalas cycles, 180 ITR

319(P&H). The same view is now accepted by the Hon’ble Jurisdictional High Court in the case

of CIT vs. Jet Airways, 195 Taxman 117, wherein, Their Lordships have observed that if after

issuing a notice under section 148, the AO accepts contention of the assessee and holds that

income, for which he had initially formed a reason to believe that it had escaped assessment, has,

as a matter of fact, not escaped assessment, it is not open to him to independently assessee some

other income. If the AO intends to do so, according to Their Lordships, a fresh notice under

section 148 would be necessary, legality of which would be tested in event of a challenge by

assessee. In view of these observations of the Hon’ble Jurisdictional High Court it follows that

when the very ground on which the reopening is resorted to is abandoned during the course of

assessment proceedings; it cannot clearly be open to the AO to resort to other additions. In view

of these discussions, in my considered view the impugned reassessment order is devoid of any

legally sustainable merits. I, accordingly, uphold the grievance of the assessee and direct the AO

to delete the impugned additions made in the course of reassessment proceedings.

7. In view of the fact that I have decided the assessment on the basis of above legal grounds, it is

not necessary to adjudicate other grounds raised by the assessee. These grievances, under the

present set of facts, are academic and do not call for any adjudication.

8. In the result, both the appeals are allowed.