ITAT Quashes Reassessment Where No Addition Was Made on Reopening Issue
The Income Tax Appellate Tribunal (ITAT), Surat Bench has quashed the reassessment proceedings initiated by the Income Tax Department for Assessment Year 2012-13 in favour of the partnership firm, Modern Furniture, Navsari, Gujarat.
The Income Tax Department had reopened the firm’s assessment under Sections 147 and 148 of the Income Tax Act after it received information that huge cash deposits were made in the firm’s bank account and that it had allegedly not filed its income tax return. On this basis, the AO had initiated assessment proceedings.
During the reassessment proceedings AO examined the bank account of the firm. Initially, the department had thought that the account had deposits of over Rs 72 lakh, with cash deposits being around Rs 67.73 lakh. However, when the correct bank statement was produced by the assessee, the total credits in the account was found to be Rs. 21.96 lakh only.
The Assessing Officer has rejected the books of account of the firm under Section 145(3) on the ground that the partnership firm has not filed its return within the prescribed time, instead of making any addition for the alleged unexplained cash deposits. Then the officer calculated the profit of the firm at 10% of the turnover by treating the bank credits as business turnover. On this estimate Rs 2,19,622 was added to the firm’s income.
The firm challenged the reassessment before the Commissioner of Income Tax (Appeals). It argued that the reassessment was illegal because it had been reopened on the issue of unexplained cash deposits, but no addition was ultimately made on that issue. Instead, the Assessing Officer made an entirely different addition by estimating business profit. However, the Commissioner (Appeals) upheld both the reopening and the addition.
The matter then reached the Income Tax Appellate Tribunal. Before the Tribunal, the assessee pointed out that it had actually filed its return of income, contrary to what was mentioned in the reasons recorded for reopening. It also argued that the assessing officer had abandoned the original reason for reopening—unexplained cash deposits—and instead made an addition on a completely different basis.
After examining the records, the Tribunal found that the Assessing Officer had not made any addition relating to the alleged unexplained cash deposits, which formed the sole basis for reopening the assessment. Instead, the addition was made only by estimating profit from the business turnover.
The Tribunal relied on the judgments of the Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. and the Delhi High Court in the case of Ranbaxy Laboratories Ltd., which held that if the Assessing Officer does not make an addition on the issue for which the assessment was reopened, he cannot sustain the reassessment by making additions on unrelated issues.
The Tribunal stated that “In view of the reasons set out above, as also bearing in mind entirety of the case, I am of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. I, therefore, quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.”
As a result, the appeal filed by Modern Furniture was allowed, and the reassessment order passed by the Income Tax Department was set aside.
Citation: Modern Furniture Vs ITO (ITAT Surat); ITA No. 55/SRT/2026; 24/07/2026; 2012-13.
