Delhi ITAT: Reassessment Invalid If AO Makes No Addition on Reason for Reopening

Background and Core Issue

In the case of Akriti Financial Private Limited Vs DCIT (ITAT Delhi), the Delhi Bench of the Income Tax Appellate Tribunal examined the legality of reassessment orders passed under Section 147 r.w.s. 144B of the Income Tax Act 1961 for Assessment Years 2013-14 and 2014-15.

The central question before the Tribunal was whether a reassessment could legally survive when the Assessing Officer (AO), after reopening the assessment on a specific ground, ultimately did not make any addition relating to that very ground, but proceeded to make additions on other issues instead.

The assessee challenged the reassessment proceedings themselves as being invalid, contending that once the AO failed to make any addition based on the alleged accommodation entries forming the sole basis for reopening, the entire reassessment exercise collapsed in law.

Facts of the Case

Origin of Reassessment Proceedings

  1. A survey action took place on 20.08.2019, during which the Department claimed to have unearthed material suggesting that Akriti Financial Private Limited was allegedly involved in providing or obtaining bogus share application money through accommodation entries.
  2. The AO formed a belief that the assessee had routed fictitious share capital transactions through M/s Rakesh Raj and Associates.
  3. Based on this, the AO recorded reasons to believe that income had escaped assessment and initiated reassessment proceedings under Section 147.

Amounts Referenced in the Recorded Reasons

The recorded reasons specifically referred to alleged accommodation entries in the nature of fictitious share application money as under:

  • For AY 2013-14: Rs. 1,43,32,000/-
  • For AY 2014-15: Rs. 1,78,57,125/-

These amounts, tied to transactions with M/s Rakesh Raj and Associates, formed the sole foundation for reopening the assessments.

Completion of Reassessment

The AO completed the reassessments on 26.05.2023. However, the actual additions made were as follows:

  • For AY 2013-14: Addition of Rs. 1,66,32,000/- as unexplained cash credit under Section 68.
  • For AY 2014-15: Addition of Rs. 1,75,57,025/- as unexplained cash credit under Section 68.

Crucially:

  • These additions under Section 68 did not pertain to the alleged fictitious share application money involving M/s Rakesh Raj and Associates.
  • The specific sums and transactions referred to in the recorded reasons for reopening were not subject to any addition or adjustment in the reassessment orders.

The assessee’s counsel highlighted this discrepancy before the Tribunal, and the Revenue did not dispute this factual position.

The assessee, at the very outset, pressed a purely legal challenge to the validity of the reassessment proceedings. The argument was: