C.I.T.BIKANER vs. DR.DEVENDRA GUPTA

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ITA/133/2007HC RajasthanRJHC01018724200621 August 2008Bench: KISHAN SWAROOP CHAUDHARI4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the reassessment proceedings were not justified. Following its own prior judgment in CIT, Bikaner Vs. Shri Ram Singh (dated May 20, 2008), which in turn relied on the Punjab and Haryana High Court's decision in CIT Vs. Atlas Cycle Industries, the Court clarified the interpretation of Section 147. The Court emphasized the significance of the word "also" in Section 147, indicating a conjunctive nature. It held that an AO can only assess or reassess income that has escaped assessment for which he had reason to believe it had escaped. Only in addition to this, can he also put to tax other income that has escaped assessment and has come to his notice subsequently during the reassessment proceedings. Crucially, if the income forming the basis of the "reason to believe" is found not to have escaped assessment, the AO's jurisdiction under Section 147 ceases for taxing other income that may have come to his notice subsequently. The Court found no contrary view from the Supreme Court or other High Courts. Therefore, the questions were answered against the Revenue and in favour of the assessee.

What were the facts?

These five appeals by the Commissioner of Income Tax (CIT), Bikaner, against Dr. Devendra Gupta, relate to assessment years 1994-95 to 1998-99. The appeals challenge a common judgment of the Income Tax Appellate Tribunal (ITAT) dated September 8, 2005. The core issue revolves around reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The Assessing Officer (AO) initially recorded reasons to believe that certain income had escaped assessment. However, during the reassessment proceedings, the specific income that formed the basis for initiating reassessment was not found to have escaped assessment. Instead, the AO sought to tax other income that allegedly escaped assessment, which came to his notice during the reassessment process.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal was justified in adjudicating the validity of the AO's reasons for assuming jurisdiction under Section 147 with reference to the ultimate finding, despite holding that the information from the DDI constituted valid material for assuming jurisdiction? 2. Whether, on the facts and circumstances, the Tribunal was justified in quashing the reassessment and consequential additions, holding that an order under Section 143(3) read with Section 147, assessing other income based on the assessee's statement before the DDIT, was invalid because it did not form part of the reasons recorded under Section 148? Assessee's Contention: The judgment does not record specific contentions for the assessee. However, the Tribunal's decision implies that the reassessment was invalid if the income forming the basis of the initial belief did not escape assessment, and other income was brought to tax without proper justification in the reasons recorded. Revenue's Contention: The Revenue argued that the AO had valid material to assume jurisdiction under Section 147 and that the Tribunal erred in quashing the reassessment. The Revenue likely contended that once jurisdiction under Section 147 is validly assumed, the AO can bring to tax any other income that comes to his notice during the reassessment proceedings, even if it differs from the income initially forming the basis of the reasons recorded. The Revenue relied on the fact that the information received from the DDI constituted valid material for the AO's satisfaction.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- 1. INCOME TAX APPEAL No. 68 of 2006 C I T BIKANER V/S DR. DEVENDRA GUPTA SRIGANGANGAR 2. INCOME TAX APPEAL No. 91 of 2007 C.I.T.BIKANER V/S DR.DEVENDRA GUPTA 3. INCOME TAX APPEAL No. 133 of 2007 C.I.T.BIKANER V/S DR.DEVENDRA GUPTA 4. INCOME TAX APPEAL No. 134 of 2007 C.I.T.BIKANER V/S DR.DEVENDRA GUPTA 5. INCOME TAX APPEAL No. 141 of 2007 C.I.T.BIKANER V/S DR.DEVENDRA GUPTA Mr. KK BISSA, for the appellant / petitioner Mr. DINESH MEHTA, for the respondent Date of Order : 21.8.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. ORDER -----

These five appeals arise out of the common judgment of the learned Tribunal dt. 8.9.2005. The appeals

relate to different assessment years, starting from 1994-95 to 1998-99. The appeals were admitted on different dates, by framing the common questions of law being:- “(i) Whether on the facts and circumstances of the case, the Tribunal was justified in adjudicating the validity of reasons accorded by the Assessing Officer at the time of assuming jurisdiction u/s 147 with reference to the ultimate finding reached by the Assessing Officer notwithstanding holding that the information received from DDI constitutes valid material on the basis of which required satisfaction can be reached by the Assessing Officer for assuming jurisdiction under Section 147? (ii) Whether on the facts and in the circumstances of the case the learned Tribunal was justified in quashing the reassessment and the consequential additions made therein holding that the passing of order under Section 143(3) read with Section 147 assessing the other income based on assessee's alleged statement before the DDIT because it did not form part of reasons recorded under Section 148?” Though two separate questions have been framed, but in substance they comprehend the common question. The precise controversy is, that reasons were recorded for assuming certain income to have escaped assessment, however during re-assessment proceedings, that income was not found to have escaped assessment, but then on the basis of certain other material, certain other incomes were found to have escaped from assessment to tax, and therefore, re- assessment had been made. As such, the question precisely is, as to whether in case where despite existence of material on record, to arrive at a conclusion about 2

escapement of certain income from assessment, in the re- assessment proceedings where such income is not found to have escaped assessment, it is open to the Assessing Officer to complete the re-assessment proceedings, by finding some other income, to be liable to be subjected to tax, which is found by the Assessing Officer, in the re- assessment proceedings, to have been required to be taxed in the original assessment. In our view, this question cannot be said to be any more res-integra, in view of the judgment of this Court dt. 20.5.2008, rendered in Income Tax Appeal No. 65/2006, C.I.T., Bikaner Vs. Shri Ram Singh, wherein the judgment of Punjab and Haryana High Court, in Atlas Cycle's case (CIT Vs. Atlas Cycle Industries reported in 180 ITR-319) was considered, and followed. Various aspects of language of Section 147 were examined in detail, and it was held as under:- “If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word “and” as “or”, the existence of the word “also” is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under Section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had “reason to believe” to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under Section 147. 3

To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under Section 147, the Assessing Officer were to come to conclusion, that any income chargeable to tax, which, according to his “reason to believe”, had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under Section 147.”

We have not been shown any contrary view, to have been taken, whether by the Hon'ble Supreme Court, or by any other High Court, so far. In that view of the matter, following the aforesaid judgment in Ram Singh's case, the questions are answered against the Revenue, and in favour of the assessee. Consequently, the appeals are dismissed. ( KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J. /Sushil/ 4

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