Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI ‘G’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI SUDHANSHU SRIVASTAVA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the
Commissioner of Income Tax [Appeals] - 14, New Delhi dated 12.08.2016
pertaining to assessment year 2007-08.
The grievances of the Revenue read as under:
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in deleting the addition of Rs.6,01,00,000/- made by the AO on account of unexplained share capital by treating it as unexplained credit in the books of the assessee within the meaning of Section 68 of the Income Tax Act, 1961.
On the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in holding that the assessee has established the identity of the shareholders disregarding the fact that no such companies were found at the addresses given and the premises too did not belong to the companies. Inspector’s report also proves it.
On the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in holding that the assessee had established the creditworthiness of the shareholders.
On the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in holding that the assessee had established genuineness of the transaction even when no shareholder’s director responded to the notice issued u/s 133(6) and the assessee also could not produce any of the shareholder companies directors.
On the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in placing reliance on the decision of Hon’ble Apex Court in the case of M/s Lovely Exports Pvt. Ltd.(2008)216 CTR 195(SC) disregarding the fact that the facts of the assessee’s case are completely different from the facts of the case before the Hon’ble Apex Court.
On the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in not considering the decisions relied upon by the AO.”
At the very outset, the ld. counsel for the assessee invoking Rule 27
of the ITAT Rules, 1963 stated that he may be allowed to challenge the
reopening of the assessment which was also challenged before the ld.
CIT(A) but though the appeal of the assessee was allowed by the ld.
CIT(A), the challenge of the reopening of assessment was decided against
the assessee. Therefore, Rule 27 squarely applies and the assessee may
be allowed to challenge the order of the ld. CIT(A) which has been
decided against it.
We have carefully considered the point raised by the ld. Counsel for
the assessee and find force in his claim. The assessee has challenged the
reopening of the assessment before the ld. CIT(A) as it appears from Form
No. 35. This ground of the assessee was dismissed by the ld. CIT(A). The
relevant findings of the ld. CIT(A) read as under:
“On perusal of the records I am of the considered opinion that the Ld.
AO has rightly initiated proceedings u/s 147/148 of the Act as he has
reason to believe that income has escaped assessment and there is
tangible material to come to the conclusion that there is escapement
of income in view of the above mentioned facts and circumstances of
the case. Therefore, the re-opening proceedings are justified and the
action of the Ld. AO is confirmed. Hence, the grounds are dismissed.”
Rule 27 of the ITAT Rules read as under:
“the respondent, though he may not have appealed, more support the order appealed against on any of the ground decided against him”
Since the challenge for reopening of the assessment goes to the
root of the matter, we heard the representatives of both the sides at
length on this issue. Case records carefully perused and with the
assistance of the ld. counsel, we have considered the relevant
documentary evidences/judicial decisions relied upon.
Briefly stated, the facts of the case are that the return of income
for the year under consideration was filed on 31.10.2007 declaring an
income of Rs. 2,09,361/–. Assessment was completed under section
143(3) of the Act vide order dated 29.5.2009 wherein the returned
income was accepted. Notice under section 148 read with section 147 was
issued on 27.03.2014 and the assessee, in response to which, stated that
the return filed originally may be treated as return of income filed in
response to notice under section 148 of the Act. Reasons recorded by the
Assessing Officer for issuing of notice under section 148 of the Act read as
under:
The assessee raised strong objections against the issuance of notice
under section 148 of the Act. In its objections, the assessee strongly
agitated that it had not received any of the impugned amount during the
year under consideration from the persons alleged by the Assessing
Officer in the reasons recorded for reopening the assessment. It was
brought to the notice of the Assessing Officer that the assessee has not
entered into any transaction of any nature with the companies as
mentioned in the reasons recorded.
The assessee further contended that since it had not received any
of the amount mentioned in the reasons recorded from the parties
mentioned therein, the very basis for reopening of the assessment does
not survive and no further action should be taken. However, objections
raised by the assessee were disposed of by the Assessing Officer vide
order dated 09.06.2014. The order reads as under:
After disposing of the objections raised by the assessee for
reopening the assessment, the Assessing Officer proceeded with the
assessment proceedings and framed order under section 147 read with
section 143(3) of the Act by making addition of Rs.6.01 crores under
section 68 of the Act.
A perusal of the reasons recorded, extracted hereinabove, for
reopening assessment clearly shows that the Assessing Officer had
reasons to believe that income to the extent of Rs. 88 lakhs, as per
information mentioned in the reasons, escaped assessment in the case of
the assessee for Assessment Year 2007–08.
Strictly keeping in mind the reasons for reopening the assessment
mentioned hereinabove, we find that the assessment order dated
26.03.2015, framed under section 147 read with section 143(3) of the
Act, was completed as under:
Income declared by the assessee Rs. 2,09,361/- Add Income from undisclosed sources Rs. 6,01,00,000/-
A perusal of the assessment order shows that though the Assessing
Officer proceeded by asking the assessee to explain the nature of
transaction with the parties namely, M/s Vanguard Jewels Ltd., M/s Alka
Diamond Industries Ltd and M/s Nakshatra Business Pvt Ltd, unsecured
loan from these parties should not be treated as bogus and should be
considered as only accommodation entries. Thereafter, the entire
assessment order is silent with this query.
However, the Assessing Officer then proceeded to examine the
amount received on account of security premium and made addition
thereof. It can be seen that the computation of income is totally
devoid of any addition which was basis for the Assessing Officer to believe
that income has escaped assessment, that is, Rs.88 lakhs.
In our considered view, the Assessing Officer has drawn support
from Explanation 3 to section 147 of the Act which was inserted by the
Finance [No. 2] Act, 2009 w.r.e. 01.04.1989 and the same reads as under:
“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.”
This insertion of Explanation 3 to Section 147 of the Act has been
examined and interpreted by the Hon'ble High Court of Bombay in the
case of CIT Vs. Jet Airways [I] Ltd 331 ITR 236. The relevant part of the
judgment is extracted as under:
“5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 section 147.
The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 is that even though the notice that has been issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. The reasons for the insertion of Explanation 3 are to be found in the Memorandum explaining the provisions of Finance (No. 2)Bill of 2009. The Memorandum treats the amendment to be clarificatory and contains the following Explanation :
"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 empowered 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 section147 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."
In order to appreciate the reasons for the amendment inserting Explanation 3, it would be necessary to advert to some of the judgments of the High Courts, prior to the amendment.
The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative.
A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 ,that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows :
". . .The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or
reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings. But if both the items are unconnected and totally alien then the assessing authority has to follow sub-section (2)of section 148 with regard to the escaped income which comes to his knowledge during the course of the proceedings."
Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.
Parliament stepped in to correct what it regarded as an incorrect interpretation of the provisions of section147. The Memorandum explain-ing the provisions of Finance (No. 2) Bill of 2009 states in this background that some courts had held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment and that it was not open to him to touch upon any other issue for which no
reasons have been recorded. This interpretation was regarded by Parliament as being contrary to legislative intent. Hence, Explanation 3 came to be inserted 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 section 147 though the reasons for such issue were not included in the reasons recorded in the notice under section 148(2).
The effect of section 147 as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) The Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) Upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice undersub-section (1) of section 148; (iii) The Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 section and (iv) Though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section.
XXX
The rival submissions which have been urged on behalf of the revenue and the assessee can be dealt with ,both as a matter of first principle, interpreting the section as it stands and on the basis of precedents on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose .Parliament having used the words "assess or reassess such income and also any other income chargeable totax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It isof some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction.
The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too'. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section147 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii)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 section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the season to believe isnot assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to
assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.
If the above judgment is applied on the facts of the case in hand,
we find that the Assessing Officer has accepted the objections of the
assessee, and has not assessed or reassessed the income, which was the
basis of the notice. Therefore, in light of the judgment of the Hon'ble
High Court of Bombay [supra] it would not be open to the Assessing
Officer to assess income under some other issue independently.
Considering the facts of the case in totality, in light of the
judgment of the Hon'ble High Court of Bombay [supra] we quash the
assessment order dated 26.03.2015 framed u/s 147 r.w.s 143(3) of the
Act. Since we have quashed the assessment order, we do not find it
necessary to dwell into the merits of the case.
The Hon'ble Jurisdictional High Court of Delhi in the case of
Ranbaxy Laboratories 336 ITR 136 had occasion to consider an identical
issue wherein it has been held as under:
“The crux of section 147 is the escapement of income which may be assessed or reassessed as well as any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Explanation 3 makes it clear that the Assessing Officer may assess or reassess the income in respect of issue which has escaped assessment, if such issue comes to his notice in the course of proceedings under this section even though said issue did not find mention in the reasons recorded and the notice issued under section 148. Since there was confusion prevailing with regard to the powers of the Assessing Officer to assess or reassess on the issues for which no reasons were recorded, this Explanation came to be inserted as clarificatory. [Para 8]
After the insertion of Explanation 3, the position is 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 section 147,though the reasons for such issue were not included in the reasons recorded in the notice under section 148(2) onthe basis of which he had initiated proceedings under section 147. [Para 11]
The heading of section 147 is "income escaping assessment" and that of section 148 is "issue of notice where income escaped assessment". Section 148 is supplementary and complimentary to section 147. Sub- section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recomputed escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess he escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby would include different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. [Para 18].
In the instant case, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He, consequently, while not making additions on those items of club fees, gifts and presents, etc., reduced deductions under sections 80HH and 80-I. [Para 19]
The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which was not permissible. Had the Assessing Officer proceeded to make disallowance in respect of the items of club fees, gifts and presents, etc., then he would have been justified as per Explanation 3 to section 147 to reduce the claim of deduction under sections 80HH and 80-I as well. [Para 20]
In view of above discussion, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive.
The Hon'ble Rajasthan High Court [Jodhpur Bench] in the case of Dr
Devendra Gupta 336 ITR 59 was seized with the following substantial
question of law:
“i) Whether on the facts and circumstances of the case, the Tribunal was justified in adjudicating the validity of reasons accorded by the AO at the time of assuming jurisdiction under Section 147 with reference to the ultimate finding reached by the AO notwithstanding holding that the information received from DDI constitutes valid material on the basis of which required satisfaction can be reached by the AO 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) r/w Section 147 assessing the other income based on assessees alleged statement before the Dy. Director of IT because it did not form part of reasons recorded under Section 148?”
The findings given by the Hon'ble Rajasthan High Court in the case
of Dr Devendra Gupta [supra] read as under:
“2. 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 reassessment 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, reassessment 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 escapement of certain income from assessment, in the reassessment proceedings where such income is not found to have escaped assessment, it is open to the AO to complete the reassessment proceedings, by finding some other income, to be liable to be subjected to tax, which is found by the AO, in the reassessment 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. 20th May, 2008, rendered In IT Appeal No. 65 of 2006, CIT v. Shri Ram Singh reported at . wherein the judgment of Punjab & Haryana High Court in CIT v. Atlas Cycle Industries 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 AO, 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.”
To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under Section 147, the AO 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 AO 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 AO 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 Shri Ram Singh’s case (supra), the questions are answered against the Revenue, and in favour of the assessee.”
Considering the facts of the case in hand as mentioned elsewhere,
in light of the decision of the Hon'ble High Court of Delhi [supra] we
quash the assessment order dated 26.03.2015 and allow the issue raised
in the application of Rule 27 of the ITAT Rules. Since we have quashed
the assessment order, we do not find it necessary to dwell into the merits
of the case in the revenue’s appeal and the same becomes otiose.
In the result, the appeal filed by the Revenue in ITA No.
5739/DEL/2016 is dismissed on application of Rule 27 invoked by the
assessee.
The order is pronounced in the open court on 15.11.2021.
Sd/- Sd/-
[SUDHANSHU SRIVASTAVA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 15th November, 2021
VL/