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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI S.S.GODARA, JM & SHRI DR. DIPAK P. RIPOTE, AM
आदेश / ORDER PER S. S. GODARA, JM :
This Revenue’s appeal for A.Y. 2012-13 is directed against the CIT(A) - 1, Aurangabad’s order dated 28/07/2017 passed in case No. ABD/CIT(A)-1 /278/2016-17 involving proceedings u/s. 143 (3) r.w.s. 147 of the Income Tax Act, 1961 ; in short “the Act”. Heard both the parties. Case file perused.
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The Revenue pleads the following substantive grounds in the instant appeal. “1. On the facts and in the circumstances of this case, the CIT(A) has erred in not upholding the addition at Rs. 35,00,000/- u/s 68 of the Income tax Act, 1961, whereas creditor company’s loan from Shri Sanjay Damodar More, at Rs. 35,00,000/- was proved by A.O as bogus loan and hence to the extent of such bogus loan creditworthiness of creditors was not proved;
On the facts and in the circumstances of this case, the CIT(A) has erred in deleting the addition of Rs. 35,00,000/- upholding that assessee company has received such amount from More and Patel, whereas finding of the CIT(A) is in contradiction to the details furnished by the assessee company, showing Shri Sanjay Damodar More had given loan to creditor companies and out of such loan fund creditor companies given loan to assessee company;
On the basis of facts and in the circumstances of this case, the CIT(A] has erred in deleting the addition at Rs. 1,47,28,143/-, without reasonable satisfaction of creditworthiness of creditor companies, whereas creditworthiness of creditor companies was an essential limb to accept such loan;
On the basis of facts and in the circumstances of this case, the CIT(A) has erred in deleting the addition at Rs. 1,47,28,143/-, whereas assessee company was unable to prove the creditworthiness of creditor companies in respect of such loan and also creditor companies were not approachable as it were already closed;
The appellant craves leave to add, alter, modify, delete, put forth additional grounds in respect of present appeal”.
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The assessee on the other has moved its application dated 14.06.2022 reading as under. “The Income Tax Appellate Tribunal-Pune Bench. 2nd Floor,Maharashtra Jeevan Pradhikaran Building, Near St. Mary High School, 463, Stavely Road, Pune - 411001, Maharashtra Reg: HASSAB REALTY PVT LTD. AY 2012-13 ITA ITA No. 2341/Pun/2017 DOH 15.06.2022 Application under Rule 27 of Income Tax Appellate Sub: Tribunal Rules, 1963 to support the decision of CIT(A)
Respected Sir, In captioned departmental appeal, Id. CIT(A) has given relief by deleting the addition made under section 68 of Income Tax Act, 1961. The appellant declares its intention to rely on Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 which allows the respondent to support the order of CIT(A) in department appeal. This letter has been filed with abundant caution and there is no requirement mandated in Rule 27 for filing of such letter. We want to support the order of CIT(A) on ground that “when no addition made on basis of reason recorded for reopening, then no other addition can be made in reassessment proceeding” CIT V/s Jet Airways (I) Ltd. [2010] 195 taxmann 117(Bom HC). This proposition was also mentioned in our bullet point filed on 12.04.2022.
We would further like to clarify that we are taking this proposition before the Hon’ble Income Tax Appellate Tribunal just to support the order of CIT(A) and not to claim any further relief. Hence, even this issue is not raised before CIT(A), can be taken under Rule 27 of Income Tax Appellate Tribunal just to support the order of the CIT(A) in view of decision of Hon’ble Bombay High Court in case of Peter Vaz V/s CIT [2021] 128 taxmann.com 180 (Bombay) (Relevant PARA 38).”
Mr. Desai vehemently argued that the assessee’s instant application under Rule 27 is not maintainable since the CIT(A) has nowhere “decided” the
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reopening issue against him. We find that hon’ble jurisdictional high court’s decision in Peter Vaz (supra) has already rejected Revenue’s identical pleas in para 38 thereof. We accordingly admit assessee’s foregoing Rule 27 petition.
Next comes the assessee’s challenge to validity of the impugned reopening first of all which goes to root of the matter. A perusal of the Assessing Officer’s reassessment herein dated 27.12.2016 suggest that he had initiated section 148/147 proceedings regarding the assessee’s time deposits, cash deposit in bank accounts and interest income having figures of Rs.1,55,00,000/-, Rs.2,37,500/- and Rs.1,19,448/-; respectively totaling to Rs.1,58,56,948 whereas he ended up in adding section 68 unexplained cash credits in the nature of unsecured loans/ land advances amounting to Rs.2,64,31,847/- only. The CIT(A) which has partly reversed the impugned additions in his lower appellate discussion.
It is in view of forgoing admitted factual position that we hold that the Assessing Officer had not made any addition pertaining to his three folded reasons of reopening. That being the case, we quote CIT Vs. Jet Airways India Ltd. (2010) 331 ITR 236 (Bom.) holding that such a reopening is not sustainable in law as under –
“14. 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
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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 s. 147 and following the issuance of a notice under s. 148, the AO 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 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 AO, upon the formation of a reason to believe under s. 147 and the issuance of a notice under s. 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 AO 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
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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 AO 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 s. 148(2), the AO 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 s. 147 w.e.f. 1st April, 1989 clearly stipulated that the AO 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.
In CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC), the Supreme Court dealt with the following question of law in the course of its judgment :
"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 s. 147, as they stood prior to the amendment on 1st April,
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1989. The Supreme Court held that the expression "escaped assessment" includes both "non-assessment" as well as "underassessment". 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 s. 147. The expression "reassess" refers to a situation where an assessment has already been made but the AO has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Expln. 1 to s. 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC), which held that once an assessment is validly reopened, the previous underassessment is set aside and the ITO 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 s. 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 vs. CIT (supra) dealt with the language of ss. 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P) Ltd. (supra) interprets the provisions of s. 147 as they stood prior to the amendment on 1st April, 1989.
The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the AO has formed a reason to believe that income has escaped assessment and has issued a notice under s. 148 on certain specific issues, it was not open to him during the course of the
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proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject-matter of the notice under s. 148. This view was adopted in the judgment of the Punjab & Haryana High Court in Vipan Khanna (supra) and in the judgment of the Kerala High Court in Travancore Cements Ltd. (supra). This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Expln. 3 to s. 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an AO has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under s. 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under s. 148(2).
The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT vs. Shri Ram Singh (2008) 217 CTR (Raj) 345 : (2008) 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in s. 147 particularly the words that the AO 'may 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 s. 147. The Rajasthan High Court held as follows :
"It is only when, in proceedings under s. 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 s. 147.
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To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under s. 147, the AO 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 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 s. 147."
Parliament, when it enacted the Expln. (3) to s. 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 Expln. 3 to s. 147,. Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain Courts that the AO 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 Expln. 3 consequently provides that the AO 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 s. 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd. (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), Expln. 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 vs. Atlas Cycle Industries (1989) 180 ITR 319 (P&H) : (1989)
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46 Taxman 315 (P&H). The decision in Atlas Cycle Industries (supra) held that the AO did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under s. 148 were incorrect or nonexistent. 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 Expln. 3 to s. 147.
Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under 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 AO 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 Expln. 3 by the Finance Act (No. 2) of 2009. However, Expln. 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s. 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. Sec. 147 has this effect that the AO 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 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
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income. If he intends to do so, a fresh notice under 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 s. 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 s. 147 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 AO 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 Expln. 3 to s. 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 s. 147 as they stood after the amendment of 1st 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.”
We adopt the foregoing detailed reasoning mutatis mutandis to quash the impugned reopening itself in light of assessee’s Rule 27 petition. It is
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however made clear that we have only rejected the Revenue’s main appeal ITA 2341/pun/2017 as a sequel to our detailed discussion quashing the impugned reopening. The CIT (A)’s findings under challenge at the Revenue’s behest are upheld in other words.
This Revenue’s appeal is dismissed in above terms.
Order pronounced in the Open Court on this 8th day of August, 2022.
Sd/- Sd/- (DR.DIPAK P.RIPOTE) (S.S. GODARA) लेखध सदस्य/ ACCOUNTANT MEMBER न्यधनयक सदस्य/JUDICIAL MEMBER पपणे / Pune; ददनधांक / Dated : 8th August, 2022. Ashwini
आदेश की प्रनतनलनप अग्रेनषत / Copy of the Order forwarded to : अपऩलधथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(A)-1, Aurangabad. 4. The Pr.CIT-1, Aurangabad. 5. नवभधगऩय प्रनतनननध, आयकर अपऩलऩय अनधकरण, “ए” बेंच, पपणे / DR, ITAT, “A” Bench, Pune. गधर्ा फ़धइल / Guard File. आदेशधनपसधर / BY ORDER, 6. // True Copy // Senior Private Secretary आयकर अपऩलऩय अनधकरण, पपणे / ITAT, Pune.
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S.No. Details Date Initials 1 Draft dictated on 15.06.2022 2 Draft placed before author 05.08.2022 Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement on 7 Date of uploading of Order 8 File sent to Bench Clerk 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order