CIT-II, AMRITSAR vs. M/S MEHAK FINVEST PVT. LTD.

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ITA/505/2009HC Punjab & HaryanaPHHC01084620200917 July 2014Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE RAJAN GUPTA5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the appeal deserves to succeed. It referred to Explanation 3 to Section 147, inserted retrospectively by Finance (No.2) Act, 2009, which empowers the AO to assess or reassess income in respect of any issue that has escaped assessment and comes to his notice subsequently during reassessment proceedings, even if the reasons for such issue were not included in the original reasons for reopening. The Court relied on its own decision in Manjinder Singh Kang’s case, which held that the AO is empowered to make additions on grounds not forming the basis of the reassessment notice if other escaped income comes to notice during reassessment proceedings. The SLP against Manjinder Singh Kang's case was dismissed. The Court found that the judgments relied upon by the assessee were either prior to the insertion of Explanation 3 or did not consider it. Therefore, the ITAT's order was unsustainable. The matter was remanded to the Tribunal to adjudicate afresh on merits.

What were the facts?

The Revenue (Commissioner of Income Tax II Amritsar) appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated January 20, 2009, for Assessment Year 2000-01. The ITAT had dismissed the Revenue's appeal against the Commissioner of Income Tax (Appeals) order dated September 19, 2008, which had allowed the assessee's (M/s Mehak Finvest Pvt. Limited) appeal. The Assessing Officer (AO) had initiated reassessment proceedings under Section 147 of the Income Tax Act, 1961, based on information that the assessee company was involved in providing accommodation entries. During these proceedings, the AO found fresh share application money of ₹47,00,000/- which the assessee could not explain, and treated it as undisclosed income, making an addition under Section 68.

What were the issues?

1. Whether on the facts and circumstances of the case, the ITAT was right in concluding that the AO could not have assessed income chargeable to tax which came to his notice subsequently in the course of proceedings under Section 147, though it was not the basis for reopening. (Question of law turning on Section 147). 2. Whether on the facts and circumstances of the case, the ITAT was right in law to conclude that once the AO had not made any addition on the income which formed the basis for reopening the assessment under Section 147, then the AO was precluded from making additions qua other income that escaped assessment and came to his notice during reassessment proceedings. (Question of law turning on Section 147). 3. Whether on the circumstances of the cases, the ITAT was right in law to conclude that proceedings under Section 147 were vitiated, though there was no challenge to the reopening proceedings at the instance of the assessee. (Question of law turning on Section 147). Revenue's contention: The Tribunal erred in quashing the proceedings under Sections 147/148. The issue stands decided in favour of the Revenue by this Court's judgment in Manjinder Singh Kang v. Commissioner of Income Tax, Amritsar and another, ITA No.421 of 2010, decided on 13.9.2010, against which SLP was dismissed by the Apex Court. Assessee's contention: The Tribunal rightly decided the issue in favour of the assessee, relying on judgments in CIT vs. Jet Airways (I) Limited, Ranbaxy Laboratories Ltd. Vs. CIT, Balbir Chand Maini vs. CIT and another, CIT vs. M.P. Iron Traders, and CIT II, Amritsar vs. M/s Empire Finvest Limited. The Tribunal relied on M/s Empire Finvest Limited's case against which no appeal was filed. The circumstances are similar, hence the appeal should be dismissed.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 68,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 17.7.2014 Commissioner of Income Tax II Amritsar ……Appellant Vs. M/s Mehak Finvest Pvt. Limited …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr.Dinesh Goyal, Advocate for the appellant. Mr. Pankaj Jain, Sr. Advocate with Mr. Divya Suri, Advocate for the respondent. Ajay Kumar Mittal,J.

1.

This order shall dispose of ITA Nos.505 and 454 of 2009, as according to the learned counsel for the parties, the issue involved in both the cases is similar. However,the facts have been extracted from ITA No.505 of 2009. 2. ITA No.505 of 2009 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 20.1.2009, Annexure A.4 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, (in short, “the Tribunal'), for the assessment year 2000-01, claiming following substantial questions of law:- i) Whether on the facts and circumstances of the case, the ITAT was right in concluding that the AO could not have assessed income chargeable to tax which has come to his notice subsequently in the course of proceedings under section 147 GURBAX SINGH 2014.08.14 10:45 integrity of this document High Court Chandigarh though was not the basis for reopening of proceedings under section 147 of the Income Tax Act? ii) Whether on the facts and circumstances of the case, the ITAT was right in law to conclude that once the AO had not made any addition on the income which form the basis for reopening the assessment under Section 147 of the IT Act then the AO was precluded in law from having made the additions qua other income chargeable to tax, which escaped assessment and came to the notice of the AO during the course of proceedings under section 147? iii) Whether on the circumstances of the cases, the ITAT was right in law to conclude that proceedings under section 147 were vitiated though there was no challenge to the reopening proceedings at the instance of the assessee?

3.

A few facts relevant for the decision of the controversy involved, as narrated in ITA No.505 of 2009 may be noticed. The assessee is a private limited company. It filed regular return of income on 30.11.2000 for the assessment year 2000-01 declaring a net taxable income of ` nil, which was processed under section 143(1) of the Act. The Assessing officer received information from Additional Director of Income Tax (Investigation) that various finance companies managed and controlled by Shri Kapil Aggarwal and Shri V.K.Umat, Chartered Accountants of Amritsar were involved in providing accommodation entries to various assessees. One such finance company was M/s Mehak Finvest P. Limited. The bank accounts of this finance company were first used to receive cash and then to issue accommodation entries. All the accounts were held in the name of various employees of Shri Kapil Aggarwal and Shri V.K.Umat, Chartered Accountants. Accordingly, the Assessing officer had reason to believe that income chargeable to tax had escaped assessment. The Assessing officer GURBAX SINGH 2014.08.14 10:45 integrity of this document High Court Chandigarh initiated proceedings under section 147 of the Act. It was noticed that fresh share application money amounting to ` 47,00,000/- could not be explained by the respondent and therefore, treating the same as undisclosed income made the addition of the said amount as unexplained cash credits under section 68 of the Act vide order dated 31.3.2005, Annexure A.

2.

Aggrieved by the order, the respondent filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 19.9.2008, Annexure A.3, the CIT(A) allowed the appeal. Dissatisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 20.1.2009, Annexure A.4, the Tribunal dismissed the appeal relying upon the decision of this court dated 6.8.2008 in ITA No.493 of 2007 in assessee’s sister concern - M/s Empire Finvest for the assessment year 1996-97. Hence the instant appeals by the revenue.

4.

Learned counsel for the revenue submitted that the Tribunal had erred in quashing the proceedings under sections 147/148 of the Act. It 2014.08.14 10:45 integrity of this document High Court Chandigarh ITR 161 (P&H), CIT vs. M.P. Iron Traders, (2004) 189 CTR 154 (P&H) and CIT II, Amritsar vs. M/s Empire Finvest Limited, ITA No.421 of 2009, decided on 26.11.2009, to contend that the Tribunal had rightly decided the issue in favour of the assessee. It was submitted that the Tribunal had relied upon the decision in M/s Empire Finvest Limited's case (supra) against which no appeal had been filed. In the present case, the circumstances being similar, the appeal be dismissed.

6.

After hearing learned counsel for the parties, in our view, the appeal deserves to succeed. Explanation 3 to Section 147 has been inserted by Finance (No.2) Act, 2009 retrospectively with effect from 1.4.1989. It reads thus:- Income escaping assessment.

147.

XX XX XX 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. 7. This Court in Manjinder Singh Kang’s case (supra), considering the scope of Explanation 3 to Section 147 of the Act held that the Assessing Officer is empowered to make additions even on the ground on which re-assessment notice might not have been issued where during reassessment proceedings, he concludes that some other income has escaped assessment which comes to his notice during the course of proceedings for re-assessment under Section 148 of the Act. The provision GURBAX SINGH 2014.08.14 10:45 integrity of this document High Court Chandigarh no where postulates or contemplates that the Assessing Officer cannot make any additions on any other ground unless some addition is made on the ground on which re-assessment had been initiated. The Special Leave consideration in M/s Empire Finvest Limited's case (supra). In view of binding precedent of this Court in Manjinder Singh's case (supra) against which SLP has been dismissed on 19.8.2011, the judgment of Bombay High Court in Jet Airways (I) Limited's case (supra), which has been followed by Delhi High Court in Ranbaxy Laboratories Limited's case (supra), would not come to the rescue of the assessee.

9.

In view of the above, the order dated 20.1.2009 (Annexure A.4) passed by the Tribunal is unsustainable and is set aside. Accordingly, the appeals are allowed. The matter is remanded to the Tribunal to adjudicate the issue afresh on merits in accordance with law. (Ajay Kumar Mittal) Judge July 17, 2014 (Jaspal Singh) ‘gs’ Judge GURBAX SINGH 2014.08.14 10:45 integrity of this document High Court Chandigarh

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