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Facts
The assessee's appeal is against the order of the CIT(A) for AY 2011-12. The appeal was filed with a delay of 384 days, which was condoned. The assessee challenged the legality of the assessment order passed under Section 143(3) r.w.s. 147 of the Act.
Held
The Tribunal held that the reassessment proceedings cannot be continued on the basis of the original notice under Section 148 if the initial reason for reopening the assessment no longer holds valid. It followed the jurisdictional High Court's judgment and set aside the assessment order.
Key Issues
Whether reassessment proceedings initiated on one ground can be continued for other grounds not forming the basis of the original notice under Section 148, especially when the original ground ceases to be valid.
Sections Cited
143(3), 147, 148
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA
The captioned appeal filed by the assessee is directed against the order of the Ld. Ld. Commissioner of Income Tax (Appeals)(NFAC) Delhi [CIT(A)] dated 09.11.2023 for Assessment Year 2011-12.
The registry has noted delay of 384 days in filing the appeal. Considering the reasons stated in the affidavit by the Assessee, we condone the delay and treat the reasons as ‘sufficient cause’ and admit the appeal for adjudication.
The assessee objected the legality of the assessment order passed u/s.143(3) r.w.s. 147 of the Act on the following grounds:-
a) As could be seen from para 2 page 2 of the assessment order, the reasons recorded for reopening is purchase of property by the assessee for a consideration of Rs.43,29,500/-. As could be seen from the assessment order no addition has been made in respect of the above issue but addition has been made on other grounds. b) In the grounds of appeal filed in ground no. 5, the assessee has relied upon two judicial pronouncements to support the ground. c) Further reliance is placed upon the order of the decision of The Jurisdictional High Court in the case of Tractor and Farm equipment reported in 409 ITR 369. d) The First Appellate Authority in not accepting the decision of Bombay High court in the case of Jet Airways Private Limited reported in 331 ITR 236 has relied upon the decision of Karnataka High court and Punjab and Haryana High court. e) Further reliance is placed upon the decision of the Apex Court in the case of CIT vs. Vegetable Products Ltd reported in 88. ITR 192, wherein it has been held that when contrary views has been taken by two high courts when there is no jurisdictional high court decision, the decision favorable to the assessee has to be adapted.
4. Per contra the ld. DR Ms. Anitha, Addl. CIT for the revenue relied upon the impugned order and read out paras 9.1 and 9.2 of the ld. CIT(A) order to bolster her arguments.
We have heard the rival submissions and perused the record and case laws cited at the bar. We have also gone through the paras 9 to 9.2 of the ld . CIT(A) order.
On the similar issue, the Hon’ble jurisdictional High Court in the case of Martech Peripherals (P.) Ltd. v. Deputy Commissioner of Income-tax, Company Circle IV(1), Chennai [2017] 81 taxmann.com 73 (Madras)/[2017] 394 ITR 733 (Madras) has held as under:
The petitioner/assessee, however, challenges this action of the respondents/Revenue, on the ground that it was not permissible for the respondents/Revenue to tax the forfeited share application money, by taking recourse to provisions of Section 147 read with Section 148 of the Act, unless it assesses to tax that income with reference to which the Assessing Officer had formed reason to believe (within the meaning of Section 147), that it had escaped assessment.
21. To my mind, a careful reading of Section 147 of the Act would show that it empowers an Assessing Officer to reopen the assessment, if, he has reason to believe, that any income chargeable to tax has escaped assessment for the relevant year, ''and also bring to tax", any other income, which may attract assessment, though, it is brought to his notice, subsequently, albeit, in the course of the reassessment proceedings.
21.1 To put it plainly, the purported income discovered subsequently during the course of reassessment proceedings, can be brought to tax, only, if the escaped income, which caused, in the first instance, the issuance of notice under Section 148 of the Act, is assessed to tax.
Explanation 3, to my mind, supports this approach, which emerges upon a plain reading of the said provision, along with the main part of Section 147 of the Act. The emphasis in this behalf is on the expression ''and also bring to tax'' appearing in the main part of Section 147 in relation to the right of the Revenue to assess taxable income discovered during reassessment proceedings. In my view, Explanation its 3, clearly, expounds that the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment and such other issue, that comes to his notice subsequently, albeit, in the course of proceedings held under Section 147 of the Act. In other words, if, notice for reopening of the assessment was issued on one aspect, and in the course of reassessment proceedings another aspect was discovered, the reassessment order would be valid, only if, the aspect, which led to the reopening of assessment, continues to form part of the reassessed income.
This view, as has been correctly submitted by the learned counsel for the petitioner/assessee, has found resonance with at least three (3) High Courts, i.e., the Bombay High Court, the Gujarat High Court and the Delhi High Court in the following cases:
(i) Jet Airways (I) Ltd.'s case (supra) (ii) Mohmed Juned Dadani's case (supra) (iii) Oriental Bank of Commerce's case (supra).
23.1 The only High Court, which has taken a contrary view, as it were, is the Punjab and Haryana High Court in the matter of : Majinder Singh Kang's case (supra).
23.2 In my opinion, with respect, the Court, in rendering the judgment in Majinder Singh Kang's case (supra), ignored the fact that the provisions of Explanation 3 had to be read in conjunction with the main provision, and that, the said explanation cannot override the main provision.
23.3 This aspect of the matter has also been brought to fore by the Bombay High Court in : Jet Airways (I) Ltd.'s case (supra).
23.4 The relevant observations made in this behalf are extracted hereafter :
". . . . . However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. . . . . "(Emphasis is mine)
In the case of Anand Cine Services (P.) Ltd. v. Assistant Commissioner of Income-tax [2024] 169 taxmann.com 236 (Madras) the jurisdictional High Court held as under: 8. The next question to be examined is whether the impugned notice and proceedings consequent thereto are liable to be interfered with. Section 147 of the Income Tax Act, which is central to this determination, as it stood then, in relevant part, is set out below: "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). 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."
The rival contentions pertain largely to the interpretation of Explanation 3. Section 147 and, in particular, Explanation 3 thereto was interpreted by the Division Bench of the Bombay High Court in Jet Airways (supra). Paragraphs 20 and 21 of the said judgment are set out below: "20. Parliament, when, it enacted Explanation 3 to section 147 by the Finance (No.2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd., [2009] 179 Taxman 117/305 ITR 170 (Kerala) and of the Punjab and Haryana High Court in Vipan Khanna, [2002] 122 Taxman 1/255 ITR 220 (Punjab & Haryana) would, therefore, no longer hold the field. However, in so far as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343 (Rajasthan), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab and Haryana High Court in CIT v. Atlas Cycle Industries, [1989] 46 Taxman 315/180 ITR 319 (Punjab & Haryana). The decision in Atlas Cycle Industries, [1989] 46 Taxman 315/180 ITR 319 (Punjab & Haryana) held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or nonexistent. The decisions of the Punjab and Haryana High Court in Atlas Cycle Industries, [1989] 46 Taxman 315/180 ITR 319 (Punjab & Haryana) and of the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343 (Rajasthan) would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.
Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No.2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147 and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343 (Rajasthan). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147 as they stood after the amendment of April 1, 1989, continue to hold the field."
10. When the same issue came up for consideration before the Division Bench of this Court in TAFE (supra), the Division Bench of this Court cited Jet Airways with approval and followed the ratio laid down therein. Paragraph 16 of the judgment of the Division Bench of this Court is as under: 16. The decision in the case of Jet Airways (cited supra) was referred to by the High Court of Delhi in the case of Ranbaxy Laboratories Limited v. CIT [2011] 12 taxmann.com 74/200 Taxman 242/336 ITR 136 (Delhi), wherein it was held that the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. Further, it was held that 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 of the Act. Thus, it was held that the Assessing Officer had jurisdiction to reassess the income other than the income in respect of which the proceedings under section 147 were initiated, but, he was not justified in doing so when the reasons for the initiation of those proceedings ceased to survive. Therefore, the argument advanced by the Revenue placing reliance on Explanation 3 to section 147 i of little avail."
In effect, both in Jet Airways and TAFE (supra), the Court held that Section 147 enables the assessing officer to travel beyond the reasons for initiating reassessment proceedings provided such reassessment is also carried out on the grounds or reasons on which reassessment was initiated. On the other hand, if the ground on which reassessment was initiated was no longer available to the assessing officer, the Court held that reassessment cannot be continued on the basis of the original notice under Section 148, and that a fresh notice is necessary.
In this present appeal, the case has been reopened for the reason that the assessee had purchased a property for a consideration of Rs.43,29,5000/- during FY 2010-11, which has been duly accounted for and hence no addition has been made in assessment in respect of the reasons recorded for reopening.
9. Therefore, in the light of the Hon’ble Jurisdictional High Court judgments referred supra, the ld. CIT(A) was not justified in relying upon the judgments of the other Hon’ble High Courts. Hence, respectfully following the judgment of the Jurisdictional High Court judgments referred supra we held that the reassessment cannot be continued on the basis of the original notice under Section 148. Consequently, we set aside the assessment order dated 31.12.2018 passed u/s 143(3) r.w.s 147 of the Act.
In result, appeal of the assessee is allowed.