M/S LORGAN LIFESTYLE LTD.,PUNE vs. ITO, WARD14(4), PUNE, PUNE

After hearing both the sides and perusing the averments made in the affidavit, we are satisfied that due to ‘reasonable cause’ assessee failed to file the appeal within the stipulated time. We therefore in light of judgments of Hon’ble Apex Court Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. reported in (1987) 2 SCC 107 and in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382) condone the delay of 84 days in filing the appeal before this Tribunal.

Assessee has raised following grounds of appeal :

Brief facts of the case are that the assessee is a Limited Company engaged in the business of Marketing of goods. Ld. Assessing Officer based on his observation that the assessee has not filed the return and that substantial cash has been deposited in the bank account and purchased more than one vehicle and interest received as per Form No.26AS, invoked section 147 of the Act and issued notice u/s.148 of the Act after taking prior approval of the competent authority. Subsequently, notice u/s.142(1) of the Act was issued and the assessee filed the return in compliance to notice u/s.148 of the Act on 07.12.2019 declaring loss of (-) Rs.12,41,39,343/-. Ld. AO during the course of scrutiny proceedings observed that assessee has claimed bad debts and when the assessee was asked to justify the claim of bad debts assessee made submission and stated that major amount of bad debts is on account of amount not received against the export sales made to Rohit General Trading LLC and HGM General Trading LLC based at Dubai. Ld. AO concluded the re-assessment proceedings by only disallowing the claim of bad debts of the above referred two companies based at Dubai and assessed the income accordingly. Ld. AO made no additions for the issues referred in the reasons recorded for issuing notice u/s.148 of the Act. Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed.

Now the assessee is in appeal before this Tribunal assailing the impugned order passed by ld.CIT(A).

Before us, ld. Counsel for the assessee has raised the legal issue placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of Jet Airways (I) Ltd. (supra) (2011) 331 ITR 236 and has submitted that since no addition on account of reasons to believe for reopening of assessment was made and the alleged disallowance of bad debts is not part of the reasons to believe, therefore, in light of the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) the impugned assessment order is bad in law and deserves to be quashed. On this legal issue, Ld. Counsel for the assessee also placed reliance on the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs. Double Dot Finance Ltd. (2013) 331 Taxman.com 352, judgment of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. Vs. CIT (2011) 336 ITR 136, judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Mohmed Juned Dadani (2013) 30 Taxman.com 1.

Ld. Departmental Representative vehemently argued supporting the order of ld.CIT(A) but failed to controvert the contentions made by ld. Counsel for the assessee by filing any binding precedents in its favour.

We have heard the rival contentions and perused the record placed before us. The main contention of ld. Counsel for the assessee is that ld. AO has not made addition for the reasons mentioned in the reasons recorded for reopening the assessment proceedings. By way of legal issue raised in the additional ground, validity of re-assessment proceedings have been challenged. In light of the judgment of Hon’ble Apex Court in the case of National Thermal Power Company Ltd. Vs. CIT (supra), we admit this legal issue. From the record, we observe that the assessee is a Limited Company. Ld. AO based on the information about substantial cash deposit in the bank account of the assessee company, purchase of more than one vehicle and interest income as per Form No.26AS and there being no return of income filed by the assessee, notice u/s.148 of the Act dated 20.08.2018 duly served upon the assessee. Thereafter, re-assessment proceedings were carried out and various details as called for were furnished and also the submissions were made for the various reasons based on which the re-assessment proceedings were initiated. Ld. AO after carrying out the re-assessment proceedings firstly made no addition for the reasons referred in the show cause notice and the reasons recorded annexed thereto issued for the purpose of carrying out the re-assessment proceedings. However, ld. AO has made addition on some other issue which was never forming part of the reasons recorded for issuing notice u/s.148 of the Act. Ld. AO while concluding the assessment has only made one addition and that too disallowing bad debts written off in the profit and loss account. Before us, ld. DR failed to controvert the facts stated hereinabove.

Under the given facts and circumstances, we would first like to refer to the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) where ld. AO has not made any addition for the issues referred in the reasons recorded for carrying out the re-assessment proceedings but had made addition on some other ground for which fresh notice u/s.148 of the Act was not issued to the assessee. For better understanding, the relevant part of the above judgment is reproduced below :

Parliament, when it enacted the 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 u/s 148(2). The decisions of the Kerala High Court in Travancore Cements Limited (Supra) and of the Punjab & Haryana High Court in Vipan Khanna (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh (supra), 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 & Haryana High Court in Commissioner of Income Tax Vs. Atlas Cycle Industries, . The decision in Atlas Cycle Industries 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 u/s 148 were incorrect or non existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries (supra) and of the Rajasthan High Court in Shri Ram Singh (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to Section 147.- 16. 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 u/s 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 Act (No 2) 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 assessee 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 u/s 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 u/s 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(1) 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(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped 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 of 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 (supra). 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(1) as they stood after the amendment of 1 April 1989 continue to hold the field.

In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall accordingly stand answered against the Revenue and in favour of the assessee. The appeal is accordingly dismissed. There shall be no order as to costs.”

Similar issue has also been dealt recently by this Tribunal in the case of Rajya Rakhiv Police Karmachari Sahakari Patsanstha Maryaditand Vs. ITO in order dated, 16.06.2025. Relevant finding of this Tribunal reads as under :

In light of above settled judicial precedents and examining the facts of the instant case, we find that since ld. AO has not made the addition for the reasons recorded for carrying out the re-assessment proceedings and has made addition in the re-assessment proceedings on some other ground without issuing fresh notice u/s.148 of the Act. The facts and issue are squarely covered by the judgment referred supra. Therefore, such re-assessment proceedings are held to be invalid and hereby quashed. Finding of ld.CIT(A) is set aside and the legal issue raised in Additional Ground of appeal is hereby allowed.

In the result, appeal of the assessee is allowed as per terms indicated above.