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Income Tax Appellate Tribunal, KOLKATA BENCH ‘(SMC
Before: SHRI P.M. JAGTAP(KZ)]
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘(SMC)’, KOLKATA [BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ)] [THROUGH VIRTUAL COURT] I.T.A. No. 1999/Kol/2019 Assessment Year: 2013-14 M/S. MERLINS......................................…………………………..................................................Appellant 22, Prince Anwar Shah Road, Kolkata – 700 033. [PAN: AATFM 9672 P] Vs ACIT, Circle – 31, Kolkata...................…………………………………………………..............Respondent Kolkata. Appearances by: Shri Rakesh Jain, AR appearing on behalf of the Assessee. Shri Jayanta Khanra, JCIT, Sr. DR appearing on behalf of the Revenue. Date of concluding the hearing : May 13, 2021 Date of pronouncing the order : June 23, 2021 ORDER
This appeal filed by the assessee is directed against the order of Ld. CIT(A) – 9, Kolkata dated 24.06.2019.
The relevant facts of the case giving rise to this appeal are that the assessee is a partnership firm which is engaged in the business of trading of shares & securities, real estate business and registration services. The return of income for the year under consideration was filed by it on 29.09.2013 declaring a total income of Rs. 94,620/-. Although the said return was initially processed by the AO u/s 143(1) of the Act, the assessment was reopened by him for the reason that the capital gain arising from the sale of shares was not declared by the assessee in its return of income and there was thus escapement of income of assessee from the assessment on account of capital gain. The AO accordingly issued a notice u/s 148 of the Act to the assessee on 10.06.2014 and completed the assessment u/s 143(3) / 147 of the
2 I.T.A. No. 1999/Kol/2019 Assessment Year: 2013-14 M/S. MERLINS Act vide an order dated 24.06.2019. In the assessment so completed, the AO did not make any addition on account of capital gain arisen to the assessee on sale of shares as alleged in the reasons recorded. He however made the following two additions: “i. Advances received from the customers and balance amount receivable by the assessee towards work allegedly completed Rs. 1,43,14,605/-. ii. Disallowance u/s 14A read with Rule 8D Rs. 2,25,121/-.”
Against the order passed by the AO u/s 143(3)/147 of the Act, an appeal was preferred by the assessee before the Ld. CIT(A) challenging the validity of the assessment made by the AO as well as disputing both the additions made on merit. During the course of appellate proceedings before the Ld. CIT(A), it was inter alia contended on behalf of the assessee that there being no additions made by the AO in the assessment completed u/s 143(3) / 147 on the issue of capital gain which formed the reasons for reopening, other two additions made by him were not sustainable. Reliance was placed on behalf of the assessee on certain judicial pronouncements in support of this contention. The Ld. CIT(A) however found that the said decisions relied upon by the assessee were rendered prior to insertion of Explanation 3 to Section 147 introduced with effect from April 1, 1989 by the Finance No. 2 Act 2009 which was clearly applicable in assessee’s case. By relying on the said explanation, he rejected the contention raised on behalf of the assessee on this issue. He also did not find merit in the submissions made on behalf of the assessee in support of the other issues relating to two additions made by the AO and rejecting the same, he confirmed both the additions made by the AO. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
3 I.T.A. No. 1999/Kol/2019 Assessment Year: 2013-14 M/S. MERLINS 4. I have heard the arguments of both the sides and also perused the relevant material available on record. In the support of the preliminary issue raised by the assessee in this appeal, the learned counsel for the assessee has submitted that no addition having been made by the AO in the assessment completed u/s 143(3) / 147 on the issue of capital gain arising from the sale of shares as raised in the reasons recorded, he had no jurisdiction to make the additions on other two issues and the additions so made by him and confirmed by the Ld. CIT(A) are not sustainable in law. He has relied inter alia on the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Limited vs CIT (ITA No. 148/2008 dated 3rd June, 2011) in support of his contention. In the said case, the very basis of initiation of reassessment proceedings for which reasons to believe recorded were income escaping assessment in respect of items of club fees, gifts and presents etc. In the reassessment completed by the AO, no addition however was made in respect of these items but the claim of the assessee for deduction u/s 80HH and 80I was reduced. The Tribunal held that the Assessing Officer had jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated even when the reasons for the latter ceased to survive. The question before the Hon’ble Delhi High Court was whether the Tribunal was right in holding so or not and the same was answered by the Hon’ble Delhi High Court in favour of the assessee holding that the Assessing Officer had no jurisdiction to reassess issues other than issues in respect of which proceedings were initiated when the reasons for initiation of those proceedings had ceased to survive. To arrive at this conclusion, Hon’ble Delhi High Court relied on the decision of Hon’ble Rajasthan High Court in the case of CIT vs Shri
4 I.T.A. No. 1999/Kol/2019 Assessment Year: 2013-14 M/S. MERLINS Ram Singh 306 ITR 343 wherein after considering the effect of Explanation 3 to Section 147 inserted with effect from 01.04.1989 by the Finance No. 2 Act, 2009 it was held as under: “... 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.”
Reliance was also placed by the Hon’ble Delhi High Court on the decision of Hon’ble Punjab & Haryana High Court in the case of Atlas Cycle Industries Ltd. wherein it was held that even after insertion of Explanation 3 to Section 147 by the Finance No. 2 Act, 2009, existence of the income, for which the AO formed belief, to have escaped assessment, is a precondition, for including any other income chargeable to tax which had escaped assessment and came to the notice of the AO subsequently in the course of the reassessment proceedings. Explaining further, it was held by their Lordships that 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
5 I.T.A. No. 1999/Kol/2019 Assessment Year: 2013-14 M/S. MERLINS the notice of the AO during the course of the proceedings, can be roped in.
In the present case, the assessment was reopened, as is evident from the reasons recorded by the AO, on the issue of capital gain arisen to the assessee from sale of shares which according to the AO had escaped assessment and since no addition on account of such capital gain was made by the AO in the assessment completed u/s 143(3) / 147, I find merit in the contention of the learned counsel for the assessee that the AO had no jurisdiction to make the additions on two other issues and the additions so made are not sustainable as held by the Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. (supra). Even the ld. DR has not been able to dispute this legal position emanating from the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. (supra) as well as the other judicial pronouncements relied upon therein as discussed above. He has also not been able to bring to my notice any judicial pronouncement which is in favour of the revenue on this issue. I accordingly delete both the additions made by the AO in the assessment completed u/s 143(3) / 147 of the Act and allow this appeal of the assessee.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 23rd June, 2021.
Sd/- (P.M. JAGTAP) VICE PRESIDENT Dated: 23/06/2021 Biswajit, Sr. PS
6 I.T.A. No. 1999/Kol/2019 Assessment Year: 2013-14 M/S. MERLINS
Copy of order forwarded to: 1. M/s. Merlins, 22, Prince Anwar Shah Road, Kolkata – 700 033. 2. ACIT, Circle – 31, Kolkata. 3. The CIT(A) 4. The CIT 5. DR True Copy, By order,
Sr. Private Secretary / D.D.O. ITAT, Kolkata