Reassessment: S/s. 147 and 148: A. Y. 2006-07: Additions based on reasons recorded prior to notice deleted in appeal: Reassessment on other grounds recorded after issue of notice not valid:

For the A. Y. 2006-07, the assessment was completed u/s. 143(3) of the Income-tax Act, 1961. On 19-01-2010, the Assessing Officer issued notice u/s. 148 on the ground that the deduction of doubtful debts of Rs. 1,87,41,755/- was wrongly allowed and accordingly there is escapement of income from tax to that extent. Subsequently, after nine months, additional reasons as regards depreciation and section 14A disallowance were supplied by the Assessing Officer. In reassessment additions were made on all the three counts. The Commissioner (Appeals) held the notice u/s. 148 was valid. He also confirmed the addition concerning the depreciation. He deleted the additions concerning bad debts and s. 14A disallowance. Before the Tribunal, the assessee challenged the validity of notice u/s. 148 and the addition concerning depreciation. The Department preferred appeal against the deletion concerning the bad debts. The Tribunal dismissed the Department’s appeal and allowed the assesee’s appeal.

 On appeal by the Revenue against the finding of the Tribunal that the proceedings u/s. 147/148 were invalid and the addition concerning depreciation, the Delhi High Court dismissed the appeal and held as under:

“i) The appeal was not concerned with the issue of bad debts and, therefore, the deletion of the addition made on account of bad debts had become final. Until and unless there was an addition on the basis of the original reasons, no other additions could be made in view of the expression “and also” used in Explanation 3 to section 147. Therefore, in the absence of any addition on the issue of bad debts no additions could have been made by the Assessing Officer.

ii) The initiation of the proceedings u/s. 147 was also bad as held by the Tribunal because of the record of the assessment completed originally nowhere showed that the assessee had claimed any deduction on account of provision for bad debt and the assessing Officer assumed jurisdiction without any material. In fact, the entire issue of the provision for bad debts was discussed by the Assessing Officer at the time of original assessment and, therefore, the Tribunal was right in holding that the attempt to reassess was based on a mere change of opinion.

iii) On the basis of the very same notice issued u/s. 148, the Assessing Officer had recorded additional reasons subsequent to the issuance of the notice and this was impermissible in law.”