DESIGNARCH INFRASTRUCTURE P.LTD,NEW DELHI vs. ITO, WARD-7(1), NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

The present appeal has been filed by the assessee against the order of the ld. CIT(A)-15, New Delhi dated 16.09.2019.

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on borrowed satisfaction, and on wrong facts, thus unwarranted in law as well as on merits.

6.1 That under the facts and circumstances Ld. CIT(A) erred in law as well as on merits in not admitting the additional evidences U/R-46A filed before him.

6.2 That in the absence of providing cross examination of relevant persons and also in the absence of confronting with all alleged adverse material, no cognize thereof can be taken for taking an adverse view.

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7.1 That in the absence of providing cross examination of relevant persons and also in the absence of confronting with all alleged adverse material, no cognize thereof can be taken for taking an adverse view.

7.2 That without prejudice, issue of Rs.2,20,00,000/- since not a part of reasons and further no such material found during examination to justify the addition for the same, therefore this issue is outside the scope of these proceedings, therefore the A.O. exceeded his jurisdiction in examining and in making addition of Rs.2,20,00,000/-.

7.3 That without prejudice, in case the addition of Rs.5,00,000/- for which the proceedings have been initiated, stands deleted, no other issue including of Rs.2,20,00,000/- can be examined and adjudicated in impugned proceedings u/s. 147 / 148.

7.4 That Ld. CIT(A) committed grave error of law and facts in confirming the addition of Rs.2,20,00,000/- by treating the same as also being reed, from the companies related to Sh. S. K. Jain and Sh. V. K. Jain, which is incorrect, thus the addition confirmed on wrong premises cannot be sustained.”

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Cheque From To Name of Cheque/ Amount Name of Annexur Page Book date company company/ the RTGS/ PO (Rs.) the e No No. name person issuing No./ Middle name Bank Cheque Man Date Mediator 30.11.2009 Aasheesh Designarch Axis PO No. 5,00,000 GL Gupta A-17 Back Capital Infrastruct 030971 Page- Services ure Pvt. 47 Pvt. Ltd. Ltd.

S. Particulars A.Y. 2009-10 A.Y. 2010-11 Increase (+)/ No. Decrease (-) 1. Authorised Share Rs.2,00,00,000 Rs.3,00,00,000 Rs.1,00,00,000(+) capital 2. Issued, Rs.1,78,76,000 Rs.1,96,36,000 Rs.17,60,000 (+) Subscribed and Paid up Capital 3. Securities Rs.5,75,00,000 Rs.7,77,40,000 Rs.2,02,40,000(+) premium Account

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4.2 From the above it is evident that the assessee company has increased its share capital/share premium by total amount of Rs.2,02,40,000/-. Thus the information received from the investigation wing is corroborated by the particulars shown by the assessee company in its return of income.

4.3 The company was incorporated on 13.03.2006. The assessee company in F.Y. 2009-10 relatable to A.Y. 2010-11 has received Rs.1,96,36,000/- as share capital and Rs.7,77,40,000/- as securities premium. The financial figures of the company are tabulated below:

S.No. Particulars A.Y. 2009-10 A.Y. 2010-11 1. Authorized Share Capital Rs.2,00,00,000 Rs.3,00,00,000 2. Issued, Subscribed and Paid Rs.1,78,76,000 Rs.1,96,36,000 up Capital 3. Securities premium Rs.5,75,00,000 Rs.7,77,40,000 Account/Share Application Money 4. Share application Money Rs. NIL Rs. NIL

(i) Particulars of all investing companies are found recorded in the diary maintained in the regulate course, at the premises under control of Sh. S.K Jam.

(ii) The pass books/cheque books of all the investing companies who have made investments in the assessee company have been found at the premises 0j Jain arid Sh. Virender Jain when these persons are not directors/shareholders of these companies.

(iii) Perusal of various seized documents, as, discussed at para 3.2 clearly shows that the name of the assessee company i.e. M/s Aasheesh Capital Services Pvt. Ltd. appears on this document has taken accommodation entry amounting to Rs.5,00,000/- from S.K. Jain group companies.

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iv) The assessee has declared, m its return, of income that it has increased its share application money of such huge amounting to Rs.2,02,40,000/- which confirms the information received from Investigation Wing. It is most improbable for any investor to apply in share application money. It can be fairly concluded from the above facts that the assessee company has given its own fund to Sh. S.K. Jain to introduce it in the form of share capital and share premium through the companies being controlled by Sh. S.K. Jain Group.

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“7. Besides as per information furnished by the Investigation Wing of the department on the basis of amount of Rs.5,00,000/- received from M/s Asheesh Capital Services Pvt. Ltd. obtained through Sh. G.L. Gupta as per reasons recorded in the form of accommodation entry and the same is fully corroborated with cheque No. and bank details, the same is also added u/s 68 of the I.T. Act.”

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judgment of the Hon’ble Jurisdictional High Court in the case of Ranbaxy Laboratories ltd. Vs CIT 336 ITR 136. The Hon’ble High Court held as under: “11. Now, after the insertion of Explanation 3, as noted above, 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) on the basis of which he had initiated proceedings under section 147. Similar question came for consideration before the Division Bench of Bombay High Court in CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236/[2010] 195 Taxman 117. The Court held as under :—

"9. 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 under sub-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."

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Taxman 442 and V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373. On the other hand learned counsel for the assessee submitted that the words, 'and also' in section 147 signify that unless the Assessing Officer assesses the income with respect to which he has formed reason to believe within the meaning of section 147, it would not be open for him to assess or reassess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings. Learned counsel relied upon the case of Jet Airways (I) Ltd. (supra) and also CIT v. Shri Ram Singh[2008] 306 ITR 343 (Raj.) and CIT v. Dr. Devender Gupta [2008] 174 Taxman 438 (Raj.). Reliance was also placed in the case of C.J. International Hotels Ltd. v. ITO being IT Appeal No. 2736/Del./2006 dated 24- 10-2008.

".... 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.

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 the 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."

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coming to the notice of the Assessing Officer subsequently, in the course of the proceedings. Thus, unless and until such income, as giving rise to form belief, for escaping assessment, continues to exist, and constitutes a subject-matter of assessment, under section 147 "no other income" coming to the notice of the Assessing Officer, during the course of the proceedings, can be roped in.

"11. ... 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 to tax 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 is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the

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word "and". The words "and" as well as "also" have been used together and in conjunction."

** ** ** 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 section 147 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 reason to believe is not 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 the former, he cannot independently assess the latter."

Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income")

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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."

"Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income?"

The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of section 147, as they stood prior to the amendment on 1-4-1989. The Supreme Court held that the expression "escaped assessment" includes both "non-assessment" as well as "under assessment". Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147. The expression "reassess" refers to a situation where an assessment has already been made but the Assessing

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Officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the Judgment in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 , which held that once an assessment is validly reopened, the previous under assessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of section 147 enures to the benefit of the revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings.

The judgment in V. Jaganmohan Rao's case (supra) dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P.) Ltd.'s case (supra) interprets the provisions of section 147 as they stood prior to the amendment on 1-4-1989.

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reasons for such issue had not been included in the reasons recorded under section 148(2).

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 the 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."

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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.'s case (supra) and of the Punjab & Haryana High Court in Vipan Khanna's case (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's case (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 CIT v. Atlas Cycle Industries [1989] 180 ITR 319. The decision in Atlas Cycle Industries' case (supra) 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 non-existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries' case (supra) and of the Rajasthan High Court in Shri Ram Singh's case (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.

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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.

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Sd/- Sd/- (K. N. Chary) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 21/10/2020 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR