Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI RAJPAL YADAV & SHRI MANISH BORAD
O R D E R
PER RAJPAL YADAV, VICE PRESIDENT :
The assessee is in appeal before the Tribunal against the order of the learned Commissioner of Income-tax (Appeals), Ujjain (MP) dated 28.11.2017 passed for Assessment Year 2009-10. 2. In the first ground of appeal
, the assessee has challenged reopening of assessment by issuance of notice under Section 148 of the Income-tax Act, 1961.
3. The learned Counsel for the assessee, while impugning the orders of the Revenue Authorities, contended that the assessment was reopened for the reason that the assessee has made cash deposits amounting to Rs.11,00,000/-, without disclosing the source of deposits, and this Shri Sandeep Mehta vs. ITO AY :2009-10 2 Rs.11,00,000/- has escaped assessment. However, while passing the impugned assessment order, learned Assessing Officer has not made addition of Rs.11,00,000/-; rather made various additions by making disallowances out of telephone expenditure, miscellaneous expenditure, shop expenditure, no profit etc… The Assessing Officer has determined the taxable income of the assessee at Rs. 4,41,300/- as against the declared income of Rs.2,76,660/-. The learned Counsel further emphasized that since no addition was made on an issue for which the assessment was reopened, the learned Assessing Officer cannot make addition on other issues.
On the other hand, learned Departmental Representative relied upon the orders of the Revenue Authorities.
We have duly considered the rival contentions and gone through the record carefully. The reasons recorded by the Assessing Officer for reopening of the assessment is available on page No.2 of the paper-book which reads as under:-
“Name of the Assessee : Shri Mehta Sandeep, S/o. Shri Jay Singh Mehta Address : HN-10, Near Gandhivatika, Neemuch, Madhya Pradesh 458441 Status : Individual PAN : ADBPM8174B AY : 2009-10 Reasons for issue of Notice u/s 148 of the Income Tax Act, 1961 As per AIR information available on record the assessee has deposited cash of Rs.1100000/- in his savings bank account during the year. As per data base of ITD, the assessee has filed his return of income showing total income at Rs.276670/-. From the return of income the source of cash deposit of Rs.1100000/- is not explained.
Shri Sandeep Mehta vs. ITO AY :2009-10 3 Therefore, I have reason to believe that the income chargeable to tax of Rs.1100000/- has escaped assessment within the meaning of Section 147 of the Income Tax Act 1961 hence notice u/s 148 is being issued. (K.P. Vaishya) Income Tax Officer, Neemuch”
A perusal of the assessment order would reveal that the Assessing Officer has not made any addition of Rs.11,00,000/-. The total income determined by the Assessing Officer is Rs. 4,41,300/-. The issue in dispute is squarely covered by the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd., reported in [2011] 331 ITR 236, as well as the judgement of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd Vs. CIT, reported in [2011] 336 ITR 136, and judgement of the Hon’ble Gujarat High Court in the case of CIT vs. Mohmed Juned Dadani, reported in [2013] 30 taxmann.com 1. The discussions made by the Hon’ble High Court of Gujarat in the case of Mohmed Juned Dadani (supra) read as under:-
“19. In light of the above decisions, we need to answer the question framed. In order to do so, we may notice the statutory provisions applicable. Section 147 of the Act underwent significant changes w.e.f. 01.04.1989. In the present form as it stands the section reads as under: “[Income escaping assessment.] 147. Income escaping assessment.- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Shri Sandeep Mehta vs. ITO AY :2009-10 4 Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1. Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income- tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.
Shri Sandeep Mehta vs. ITO AY :2009-10 5 Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”
We may notice that Explanation 3 to Section 147 of the Act was inserted by Finance Act 2 of 2009 w.e.f. 01.04.1989. To this aspect of the matter and the effect of the explanation itself we would advert to at a later stage.
Section 148 of the Act pertains to issuance of notice where income had escaped assessment . Sub-section (1) of Section 148 pertains to the requirement of issuance of notice by the Assessing Officer before making the assessment, reassessment or recomputation of income under Section 147 of the Act. Sub-section (2) of Section 148 provides that the Assessing Officer shall before issuing any notice under the said section record his reasons for doing so.
Section 147 of the Act thus, gives power to the Assessing Officer for reopening an assessment. Such powers, however, are hedged with several conditions. First the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment. Further if the reopening is resorted beyond the period of four years from the end of the relevant assessment year, additional requirement that income chargeable to tax has escaped assessment by the reason of failure on the part of the assessee to make a return under Section 139 or in response to a notice under Section 142(1) or 148 of the Act or to disclose fully and truly all material facts necessary for the assessment must also be satisfied. If the requirements of giving jurisdiction to the Assessing Officer to reopen assessment are satisfied, he may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the said section.
Section 147 of the Act, even without the aid of Explanation 3 thus enabled the Assessing Officer while framing an assessment under Section 147 of the Act, to assess or reassess such income for which he had recorded his reasons to believe had escaped assessment and also any other income which escaped assessment which came to his notice subsequently in the course of the assessment proceedings. 24. Sans explanation (3), Section 147 of the Act, however, by no stretch of imagination, can be construed as to provide that if the reason on which the Shri Sandeep Mehta vs. ITO AY :2009-10 6 assessment is reopened fails, the Assessing Officer still can proceed to assess some other income which according to him had escaped assessment and which came to his light during the course of the assessment. For assuming jurisdiction to frame an assessment under Section 147 of the Act what is essential is a valid reopening of a previously closed assessment. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. 25. A question may therefore, arise whether introduction of Explanation (3) would change this position and for that purpose we need to ascertain what is true purport of Explanation 3 and the purpose for which the same was introduced. Let us have a closer look to such Explanation which provides that for the purpose of assessment or reassessment under the said section, the Assessing Officer may assess or reassess the income in respect of any issue which escaped assessment and which comes to his notice subsequently in the course of reassessment proceedings. The explanation further provides that this would be so notwithstanding that the reasons for such issue have not been included in the reasons recorded under Section 148(2). 26. If the contention of the assessee that even after introduction of Explanation 3 to Section 147 of the Act, the situation has not undergone any material change is accepted, the question that immediately would come to one s mind is, what then was the purpose of introducing such an explanation. An argument may arise that if before and after introduction of Explanation 3, the nature of jurisdiction exercised by the Assessing Officer was not to undergo any change, would Explanation 3 not be rendered redundant. Would such a situation not run counter to a well known legal principle that the Legislature cannot be seen to have enacted a redundant legislation and that every effort should be made to give such interpretation which ensures that a provision in a statute is not rendering otiose. Such question may have led to some interesting discussion. However, the entire issue has been put beyond any pale of controversy by virtue of the explanatory memorandum for introducing such explanation. Such explanatory memorandum reads as under: “Clarificatory amendment in respect of reassessment Proceeding under section 147 The existing provisions of section 147 provides, inter alia, that if the Assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for re-opening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section.
Shri Sandeep Mehta vs. ITO AY :2009-10 7 Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not emplowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.
With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148. This amendment will take effect retrospectively from 1st April, 1989 and will, accordingly, apply in relation to assessment year 1989-1990 and subsequent years.
From the above, it can be seen that the explanation was meant to be clarificatory in nature and to put the issue beyond any legal controversy. When the Legislature found that in face of the provisions contained in Section 147 of the Act post 01.04.1989 some of the courts had taken a view that the Assessing Officer is restricted to the reassessment proceedings only on issues in respect of which the reasons were recorded for reopening the assessment, such explanation was introduced in the statute. Thus, the explanation was meant to be merely clarificatory in nature and was introduced with the purpose of putting at rest the legal controversy regarding the true interpretation of Section 147 of the Act which had arisen on account of certain judicial pronouncements. We have noticed that prior to enactment of Explanation 3 to Section 147, Punjab and Haryana High Court in case of Commissioner of Income Tax Vs. Atlas Cycle Industries reported in 180 ITR 319 (supra) had taken a restricted view of the power of the Assessing Officer to make any addition on the grounds not mentioned in the reasons recorded for reopening the assessment. We may also notice that Kerela High Court in case of Travencore Cements Ltd. Vs. Assistant Commissioner of Income-Tax and anr reported in 305 ITR 170 had taken somewhat similar stand.
Explanation 3 to Section 147 of the Act thus does not in any manner, even purport to expand the powers of the Assessing Officer under Section 147 of the Act. In any case, an explanation cannot expand the scope and Shri Sandeep Mehta vs. ITO AY :2009-10 8 sweep of the main body of the statutory provision. In case of S.Sundaram Pillai Vs. V.R.Pattabiraman reported in AIR 1985 Supreme Court 582 the Supreme Court observed that, an explanation added to a statutory provision is not a substantive provision but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. It was observed as under:
“52. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is-
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscruity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve.
(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful.
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.
Above decision has been referred to and relied upon in several subsequent decisions. Above proposition being well settled, it is not necessary to refer to all such decisions.
We may also approach the question from a slightly different angle. It is not in dispute that once an assessment is reopened by a valid exercise of jurisdiction under Section 147 of the Act, it is open for the Assessing Officer to assess or reassess any income which had escaped assessment which comes to his light during the course of his assessment proceedings which was not mentioned in the reason for issuing notice under Section 148 of the Act. In a notice for reassessment which has been issued beyond a period of four years from the end of relevant assessment year, the condition that income chargeable to tax has escaped assessment for the reason of the failure on the Shri Sandeep Mehta vs. ITO AY :2009-10 9 part of the assessee to disclose truly and fully all material facts for the purpose of assessment must also be established unless ofcourse some other ground viz. non-filing of the return at all etc. is available to the Assessing Officer. If such non-disclosure of material facts is established with respect to the reason recorded for issuing notice for reopening the assessment, it would be open for the Assessing Officer to thereafter even assess other income which might have escaped assessment but which may not necessarily satisfy the requirement of non-disclosure of true and full material facts. If in such a situation, the stand of the revenue is accepted, a very incongruent situation would come about if ultimately the Assessing Officer were to drop the ground on which notice for reopening had been issued but to chase some other grounds not so mentioned for issuance of the notice. In such a situation, even if a case where notice for reopening has been issued beyond a period of four years, the assessment would continue even though on all the grounds on which the additions are being made, there was no failure on the part of the assessee to disclose true and full material facts. In such a situation an important requirement of failure on part of the assessee to disclose truly and fully all material facts would be totally circumvented.
As already noted, except for the Punjab and Haryana High Court in case of Majinder Singh Kang Vs. Commissioner of Income-Tax and anr (supra) all courts have uniformly taken a view that Explanation 3 to Section 147 of the Act does not change the situation insofar as the present controversy is concerned. Leading decision of Bombay High Court in case of CIT. vs. Jet Airways (I) Ltd. has been followed by different High Courts. In case of CIT. vs. Jet Airways (I) Ltd.,the High Court, in its elaborate decision considering the statutory provisions, different judicial pronouncements and the explanatory memorandum for introduction of Explanation 3 to Section 147 of the Act, ruled in favour of the assessee.
Punjab and Haryana High Court in case of Majinder Singh Kang Vs. Commissioner of Income-Tax and anr (supra) ofcourse has sounded a different note. We may, however, notice that the explanatory memorandum to Explanation 3 to Section 147 of the Act was not brought to the notice of the High Court in the said decision. The High Court gave considerable importance on such Explanation 3 to Section 147 of the Act and the language used therein.
In the result, we answer the question in the affirmative i.e. in favour of the assessee and against the revenue. All tax appeals are dismissed.”
All the Hon’ble High Courts are unanimous in propounding the proposition of law as contemplated in Section 147 of the Act. The Hon’ble Shri Sandeep Mehta vs. ITO AY :2009-10 10 Courts have observed that expression “or” employed between assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. According to the Hon’ble Courts the expression “and also any other income” would contemplate that any other income could only be added if any addition is being made on an issue for which the assessment is reopened. In the present case, no addition was made on the issue for which the assessment was reopened. Therefore, any other issue cannot be taken up by the Assessing Officer. We, therefore, allow this ground of appeal of the assessee and quash the additions made by the Assessing Officer in the reassessment order. The appeal of the assessee is accordingly allowed.
In the result, appeal of the assessee is allowed.