ITAT Quashes 2.58 Cr Addition as Beyond Scope of Reopening, Carry Forward of Losses Allowed

ITAT Quashes 2.58 Cr Addition as Beyond Scope of Reopening, Carry Forward of Losses Allowed

The assessee challenged two separate reassessment orders for the assessment years 2012-13 and 2018-19. In AY 2012-13, the reassessment was initiated based on alleged accommodation entries involving Rs. 1.84 crore received from another company. However, no additional amount was allocated to this specific transaction; instead, the Assessing Officer added Rs. 2.58 crore as a 2% commission on the total bank credits unrelated to the original reason for reopening. In AY 2018-19, the company faced the disallowance of Rs. 64,887 in routine expenses on the ground that NIL business income was shown, and the costs were related to exempt income. In, appeal, the CIT(A) upheld both the additions.

Central Issue: whether regular business expenses can be denied in the absence of income exemption and whether reassessment can be maintained when no addition is made to the specific income for which reasons were recorded.

ITAT’s Decision: The ITAT (2012-13) held that no addition was made on the issue recorded in the reasons for reopening, and the additions made were on unrelated issues. Relying on Ranbaxy Laboratories Ltd. and other binding precedents, the Tribunal quashed the reassessment as beyond jurisdiction.

Thus, the appeal was allowed and the reassessment order was cancelled. The ITAT for the assessment in the year 2018-19 found that the expenses were routine (e.g., audit fees, rent, and legal charges), the AO did not dispute their genuineness, and no exempt income was earned in the year. Therefore, there was no basis to invoke disallowance, and the carry forward of losses was also allowed. The Tribunal allowed the appeal, restored all expenses, and allowed the losses to be carried forward.

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