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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’ NEW DELHI
Before: SHRI N.S.SAINI
PER N.S.SAINI, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee against the order of Commissioner of Income Tax (Appeals)-32, New Delhi dated 20.04.2018 for assessment year 2011-12. The assessee raised following grounds of appeal :-
“That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the action of learned Assessing Officer in computing the total income of the appellant at Rs.4,12,806/- u/s 147/144 of the Act.
That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the action of learned Assessing Officer in framing the
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impugned assessment order u/s 147/ 144 of the Act and that too without assuming jurisdiction as per law and without complying with the mandatory conditions of Section 147 to 151 of the Income Tax Act, 1961.
2.1. That in any case and in any view of the matter, order of learned CIT(A) in upholding the action of Ld. AO in framing the impugned assessment order u/s 147/144 of the Act is bad in law and against the facts and circumstances of the case.
2.2 That the learned CIT(A) has erred in not considering the fact that there was no escapement of income found by the learned Assessing Officer in relation to the reasons recorded as no addition/ disallowance is made in the assessment order based upon the reasons recorded.
2.3 The Ld. CIT(A) has erred grossly and acted in defiance of Hon’ble Delhi High Court judgment in the case of Ranbaxy Laboratories vs. CIT; 336 ITR 136 (Delhi) and Hon'ble Rajasthan High Court judgment in the case of CIT vs. Sh. Ram Singh; 306 ITR 343 (Rajasthan) whereby the issue as raised in ground no. 2.2 herein is squarely covered. 2.4 That reasons recorded are based upon presumption and guess work and these are not more than reason to suspect and thus are not valid in the eyes of law as no belief can be formed on the basis of the reasons recorded.
2.5 That the Ld. AO has not recorded any reason by using his independent application of mind to show that he has a “reason to believe” that the income has escaped
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assessment and as such the same are not valid in the eyes of law.
2.6 That impugned order upholding the action of learned Assessing Officer in passing an order u/s 147/ 144 of the Act is bad in law as no new fresh/tangible material has come to the knowledge of the Ld. A.O.
2.7 That the re-opening of the assessment is bad in law for the reason that the sanction granted u/s 151 of the Act is not valid in the eyes of the law and the same is mechanical and has been done without independent reasoning and application of mind by the sanctioning authority.
That having regards to the facts and circumstances of the case, the learned CIT(A) has erred in not considering the fact that the Ld. AO has erred in law and on facts in framing impugned assessment order without assuming jurisdiction as per law and without serving mandatory notice u/s 148 of the Income Tax Act, 1961.
That the learned CTT(A) has erred in law and on facts in upholding the action of learned AO in making a disallowance of deduction of Rs. 77,973/- under section 80C of the Act.
That the learned CIT(A) has erred in law and on facts in upholding the action of learned AO in making an addition of Rs. 1,25,000/- that are deposited in the bank by treating the same as income from undisclosed sources even though the same was capable of verification. 6. That the learned CIT(A) has erred in law and on facts
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in upholding the action of learned AO in making an addition of Rs. 8,967/- on account of interest income in the bank. 7. That the lerned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest which are not leviable on the facts and circumstances of the case of the appellant.”
The crux of the issue involved in ground nos. 2.2 and 2.3 of the assessee is that the Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in making disallowance under other heads of income and expenditure when no escapement of income was found by the Assessing Officer in relation to the reasons recorded.
The brief facts of the case are that the Assessing Officer issued notice u/s 148(2) of the Act to the assessee for reopening the assessment on the ground that the assessee sold property agriculture land of 4 Bighas and 14 Biswas in Aya Nagar, The H.K.Mehrauli, New Delhi of which he was 1/8 share holder for reconsideration of Rs. 53,00,000/- on 22.03.2011. The Assessee had not filed her return of income for assessment year 2011-12 although her income exceeded the maximum amount which is not chargeable to tax during the previous year relevant to the assessment year 2011-12. Therefore he had reasons to believe that income chargeable to tax has escaped assessment.
In the assessment framed u/s 147 r.w.s. 144 no addition was made to the income of the assessee by the Assessing Officer on account of sale of agriculture land. The Assessing Officer assessed income :
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“1)Income from Salary : Rs. 2,78,839/- 2) Income from undisclosed sources : Rs. 1,25,000/- 3) iIncome from other sources : Rs. 8,967/- Total income : Rs. 4,12,806/-
The contention of the assessee before the Commissioner of Income Tax (Appeals) was that the reason of sale of property for which action was taken u/s 148 of the Act did not survive as no addition thereof was made by the Assessing Officer. Hence, his jurisdiction to make assessment came to end and hence he could not have made any addition under other heads of income and for this he relied on the decision of Hon’ble Rajasthan High Court in the case of CIT vs. Sh. Ram Singh (2008) 306 ITR 343 (Raj.), on the decision of Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) and the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT. [2011] 336 ITR 136 (Delhi).
The Commissioner of Income Tax (Appeals) has not adjudicated this ground of the assessee.
Before me the Authorised Representative of the assessee Shri Shantanu Jain and Shri Deepanshu Jain, Adv. Reiterated the submissions made before the Commissioner of Income Tax (Appeals) and submitted that following the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories (supra) the reassessment order passed by the Assessing Officer should be cancelled.
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On the other hand the Departmental Representative Shri P.S.Thuinguleny, Sr. DR supported the order of the Commissioner of Income Tax (Appeals).
I find that it is not in dispute that the reopening of the assessment was made by the Assessing Officer by recording reasons that income chargeable to tax has escaped assessment on sale of agriculture land by the assessee. It is observed from the re- assessment order passed by the Assessing Officer u/s 147 r.w.s. 144 of the Act on 26/03/2015 no addition was made to the income of the assessee on account of sale of agriculture land by the Assessee. The addition was made to the income of the assessee under the head ‘salary, income from undisclosed sources and income from other sources’ which were not the grounds for reopening of the assessment. The Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. (supra) has held as under : “Held, that section 148 was supplementary and complementary to section 147. Sub-section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax had escaped assessment. All these conditions were required to be fulfilled to assess or reassess the escaped income chargeable to tax. Under Explanation 3 if during the course of the proceedings the Assessing Officer comes to the conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. 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 . The Assessing Officer
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was satisfied with the justifications given by the assessee regarding the items of club fees, gifts and presents and provision for leave encashment, but during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He consequently proceeded to make deductions under sections 80HH and 80-I and accordingly reduced the claim on these accounts. The very basis of initiation of proceedings for which reasons to believe were recorded was income escaping assessment in respect of items of club fees, gifts and presents, etc., but while these items were not disturbed, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which was not permissible. The Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not justified when the reasons for the initiation of those proceedings ceased to survive.”
The Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (supra) has held as under : “Explanation 3 to section 147 of the Income-tax Act, 1961, was inserted by the Finance (No. 2) Act of 2009, with effect from April 1, 1989. The effect of the Explanation is that even though the notice that has been issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. 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. Evi-dently, what Parliament intends by use of the words “and also” is that
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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. 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 accepts 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 notice under section 148 would be necessary in the event of challenge by the assessee. 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 none the less, 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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The Hon’ble Rajasthan High Court in the case of of CIT vs. Sh. Ram Singh (supra) has held as under :
“Pursuant to search operations, the Assessing Officer issued a notice to the assessee under section 148 of the Income-tax Act, 1961, on the ground that the assessee had purchased a plot of land from undisclosed sources of income. The assessee explained that he had purchased the land from his agricultural income which was lying deposited with a company and filed the return accordingly. The Assessing Officer made an addition to the income of the assessee on the ground of unexplained investment. The Commissioner of Income-tax (Appeals) upheld the addition made by the Assessing Officer on the ground that the assessee had failed to prove the source of the deposits. The Tribunal held that the proceedings for reassessment under section 148 of the Act were initiated by the Assessing Officer based on non-existing facts. On appeal : Held, dismissing the appeal, that the Tribunal was justified in holding that the proceedings for reassessment under section 148 of the Act were initiated by the Assessing Officer based on non-existing facts, because ultimately the assessee had been able to explain the income, which the Assessing Officer believed to have escaped assessment. The Assessing Officer was justified in initiating the proceedings under section 147 of the Act. But once the Assessing Officer reached the conclusion that the income which he believed to have escaped investment had been explained, the Assessing Officer did not continue to possess jurisdiction to tax any other income, which came to his notice subsequently in the course of the proceedings.” 12. Thus, it is observed that the Hon’ble High Courts including the Delhi High Court has held that where the Assessing Officer makes addition to the income of the assessee for which reasons were recorded by the Assessing Officer for re-opening of the assessment, then he has jurisdiction to make assessment of other income which has escaped assessment. Where the Assesing Officer does not make addition to the income of the assessee on
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the ground on which reopening of assessment was made, he ceases to have jurisdiction for making assessment u/s 147 of the Act and therefore no addition can be made by him under other heads of income which he comes across for escapement of income. In the instant case also as no addition was made for escapement of income on the ground of sale of agriculture land by the assessee. Therefore the jurisdiction of the Assessing Officer ceased and he could not have made assessment of income under other heads. Thus, the re-assessment order dated 26.03.2015 passed by the Assessing Officer u/s 147 r.w.s. 144 is bad in law and accordingly we cancel the same. Thus, these grounds of appeal of the assessee are allowed.
As I have cancelled the reassessment order passed u/s 147 of the Act, the other grounds raised in this appeal on the merits of the addition have become infructuous and hence not adjudicated upon.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 18th December, 2018 at New Delhi.
Sd/- (N.S.SAINI) ACCOUNTANT MEMBER
Dated: 18.12.2018 *BR*