Loading judgment…
Facts
The assessee filed a revised return for AY 2012-13. The Assessing Officer (AO) initiated reassessment proceedings under Section 147 of the Income Tax Act, 1961, based on information regarding investments. However, during the assessment, the AO disallowed a Section 54F exemption claim for INR 83,43,016, which was not part of the original reasons for reassessment.
Held
The Tribunal held that the AO's addition/disallowance regarding the Section 54F exemption was not sustainable because it was not included in the reasons recorded for reopening the assessment. The Tribunal relied on the judgments of the Hon'ble Bombay High Court in CIT vs. Jet Airways (I) Ltd. and Pr. CIT vs. Lark Chemicals Private Ltd., which state that an AO cannot assess other income if the originally suspected escaped income has not escaped assessment.
Key Issues
Whether the addition made by the AO by disallowing the Section 54F exemption is sustainable when it was not part of the reasons for reopening the assessment?
Sections Cited
143(3), 147, 10(38), 148, 151, Explanation 3 to Section 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
order : 08.01.2026 O R D E R [ Per Rahul Chaudhary, Judicial Member:
1. 1. The present appeal preferred by the Assessee is directed against the order, dated 05/08/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] whereby the Learned CIT(A) had dismissed the appeal against the Assessment Order, dated 11/12/2019, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2012-2013.
2. When the appeal was taken up for hearing the Learned Authorised Representative for the Assessee pressed into service Ground No.3 Assessment Year 2012-2013 raised in the appeal which read as under: “3. On the facts and circumstances of the case, the learned CIT(A) erred in denying the exemption claimed under section 54F without appreciating that there was no whisper about the said exemption claimed in the reason recorded and there was no addition made on the basis of reasons and therefore the only addition in regard to denial of exemption under Section.54F which is beyond the reasons is bad in law.”
3. The Learned Authorized Representative for the Assessee challenged the addition made by the Assessing Officer by denying exemption claimed by the Assessee under Section 54F of the Act and the validity of reassessment proceedings under Section 147 of the Act. It was submitted by the Learned Authorized Representative for the Assessee that the Assessing Officer had initiated reassessment proceedings for the issues/reasons recorded for reopening assessment which did not contain any reference to exemption claimed by the Assessee under Section 54F of the Act. Whereas, while passing the Assessment Order, dated 11/12/2019, under Section 143(3) read with Section 147 of the Act, the Assessing Officer has made solitary addition of INR.83,43,016/- by disallowing exemption claimed by the Assessee under Section 54F of the Act. No addition/disallowance was made by the Assessing Officer on any of the issues/reasons recorded for reopening assessment. Therefore, the Assessment Order passed by the Assessing Officer could not be sustained in view of the following judicial precedents: - Principal Commissioner of Income Tax Vs. Lark Chemicals Private Ltd. - reported in [2018] 99 taxmann.com 311 (Bom.) and confirmed in [2018] 99 taxmann.com 312 (SC) - Commissioner of Income Tax – 5, Mumbai Vs. Jet Airways (I) Ltd. [2010] 195 Taxman 117 (Bombay), 4. Per contra, the Learned Departmental Representative placed reliance upon the order passed by the Learned CIT(A). It was submitted that the CIT(A) had clearly held that the judgment of the Hon’ble Bombay High Court in the case of Jet Airways (I) Ltd. (Supra) was not 2 Assessment Year 2012-2013 applicable to the case of the Assessee. Placing reliance upon relevant extract of the order passed by the Learned CIT(A) dismissing ground number 4 raised by the Assessee in appeal before CIT(A), the Learned Departmental Representative submitted that as per the judgment of the Hon’ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. : 198 ITR 297 (SC), once reassessment proceedings are validly initiated, the Assessing Officer can assess any income that comes to light even if the same is not mentioned in the reasons recorded for reopening the assessment.
We have considered the rival submission and have perused the material on record.
6. The Assessing Officer has recorded following reasons for re-opening the assessment for the Assessment Year 2012-2013: “ The assessee is an individual. As per ITD system, it is seen that the assessee has filed revised return of income for A.Y 2012-13 on 29.10.2012 declaring total income of Rs.24,04,600/-. The return has been processed u/s 143(1) of the Act. 2. In this case, information was received from the DDIT(Inv) 4(2), Mumbai vide letter dtd. DDIT(Inv)-4(2)/ Information/ KMS/127/2018-19 dtd. 15.3.2019. The information states asunder: "Information has been received that the total investments of Rs. 1.83lakhs from September 2004 onwards and out this Rs. 1.22 lakhs inveted in August 2011 and rest of theinestments are in 2004 and 2007. Out of the above investment of Rs. 1.83 lakhs, Rs. 4.42laksh is invested in the name of Kevin M Shsh wherein Smt Devi M Shah/ Rupali K Shah is joint holder. Rs. 41 lakhs has been invested in the name of Devi M Shah/ Rupali K Shah wherin Devi M Shah is joint holder and the address is same for all investors. The investment of Rs. 1.42 lakhs is in the name of Kevin Shah though CITIBANK SB A/c 5529353008, Fort,Mumbai. The investment of Rs. 30 lakhs is in the name of Devi M Shah thorugh CITIBANK SB A/c 5529270005, Fort Branch. The investment of Rs 11 lakhs is in the name of Rupali K Shah through CITIBANK, 3 Assessment Year 2012-2013 Fort SB A/с 5529354004. During investigation, it was found that the assessee is having income from Salary,House Property, Income from Capital Gains and Income from other Sources for A.Y 2012-13 and returned income is Rs. 39,11,667/-. On further perusal of bank statement of a/c 5529353008 with CITI Bank, it is noticed that Kevin Shah is holding joint a/c with Devi Shah and Rupali Shah. A number of transctions related to investments are notices from the bank statement including Rs. 50 lakhs invested on 12/10/2011 and Rs. 72 lakhs invested on 16/08/2011 in TATA Floater Fund Growth. It is seen from the submissions that Kevin Shah is Managing Director of Company M/s Kevin Enterprises P Ltd and holds 30% shareholding. He is also joint holder in bank accounts 5529270005 and 5529354004 with Devi Shah and Rupali Shah. It is observed that the investments reported in STR were made out of redemptions received from various investments made since 2004. Also, M/s Kevin Enterprises P Ltd had passed a resolution on 30.11.2011 for accepting the buyback of 8480 equity shares of the company @ 2635.50 per share. The amount paid for the shares bought back is tabulated as under: Sr. Name of No. of Amount No. shareholder shares paid 1. Kevin Shah 2544 67,04,712/- 2. Devi M. Shah 3392 89,39,616/- 3. Rupali K. Shah 2544 67,04,712/- 3. On analysis of the above information, it is observed that the high value of Rs. 2635.50 for buy back of the shares appears to be irregular and requires to be verified. As per the information, the assessee, Smt Deviм Shah is joint holder in three accounts 5529270005, 5529353008 and 5529354004, However, as per return of income for A.Y 2012-13, only account no. 5529270005 is declared. The assessee has claimed exemption of Long term capital gain u/s 10(38) of the Act to the tune of Rs. 819915/-. It is to be verified as to whether the assessee has fully and truly declared the income of Rs.89,39,616/-received from buy back of shares.
The AIR details show investment of Rs. 9,75,50,000/- and the 26AS details show receipts of Rs. 24,63,563/-.The assessee has declared Rs. 2,52,000/-as House Property income and Rs. 4 Assessment Year 2012-2013 22,72,602/-as income from other sources. The source of income for making the investment of Rs. 9,75,50,000/- is not commensurate with the income declared by the assessee and needs to be verified.
5. Thus, it is evident from the above facts that the assessee has failed to offer the income from the above transaction to tax for the assessment year under consideration. Therefore, on the basis of the above information and findings, I have reason to believe that income of more than Rs. 1,00,000/-has escaped assessment for A.Y 2012-13 within the meaning of Explanation 2 (b) to sec section 147 of the Act.
It is pertinent to mention that the assessee has filed return of income for year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of only processed u/s 143(1) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to Sec 147 of the I.T Act, 1961 are applicable to the facts of this case and the assessment year in consideration is deemed to be a case where income chargeable to tax has escaped assessment.
In this case, more than four years have lapsed from the end of the assessment year under consideration. Hence necessary sanction to issue notice u/s 148 of the Act has been obtained separately from the Pr. Commissioner of Income Tax as per the provisions of sec 151 of the Act.”
7. On perusal of the reasons recorded we find that the same do not make any reference to the exemption claimed by the Assessee under Section 54F of the Act. In Paragraph 4 of the reasons recorded a reference has been made to the income of INR.2,52,000/- declared by the Assessee under the head ‘Income from House Property’ and that too in the context of sufficiency of source of income for making investment of INR.9,75,50,000/-. Therefore, we accept the contention of the Assessee and hold that the Assessing Officer had made addition/disallowance in respect of exemption claimed by the Assessee under Section 54F of the Act even though the same was not one of the issues/reasons for reopening the assessment. It is admitted position that the aforesaid addition/disallowance was the solitary addition/disallowance made by the Assessing Officer and that 5 Assessment Year 2012-2013 no other addition/disallowance was made in respect of any of the issues/reasons recorded for reopening the assessment for the Assessment Year 2012-2013.
We note that the Assessee had challenged the validity of the reassessment proceedings before the Learned CIT(A) and had placed reliance upon the judgment of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax-5, Mumbai vs. Jet Airways (I) Ltd. 331 ITR 236 (Bombay)/[2011]. The Learned CIT(A) rejected ground number 4 raised by the Assessee challenging the validity of the reassessment proceedings observing as under:
Ground 4: Jurisdiction for Addition The Appellant argues that the addition of Rs. 83,43,016 by denying section 54F exemption is beyond the Assessing Officer‟s jurisdiction, as it was not part of the reasons recorded, and no addition was made for the buyback income. The Respondent submits that Explanation 3 to section 147 permits assessment of other escaped incomes discovered during reassessment. In CIT v. Sun Engineering Works (P) Ltd. [198 ITR 297 (SC)], the Supreme Court held that once reassessment proceedings are validly initiated, the Assessing Officer can assess any income that comes to light, even if not mentioned in the reasons, provided there is a live link to escapement. Here, the reassessment was validly initiated based on investment information, and the examination of the section 54F claim was within the Assessing Officer‟s jurisdiction. The reliance on Jet Airways [331 ITR 236 (Bombay HC)] is misplaced, as Explanation 3 allows such additions without requiring assessment of the original items. Ground 4 is dismissed.
(Emphasis Supplied) 9. On perusal of above, we find that the Learned CIT(A) has not disputed the position that no addition was made by the Assessing Officer in relation to issue/reason recorded for reopening assessment. The Learned CIT(A) had placed reliance upon Explanation 3 to Section 147 of the Act to hold that the Assessing Officer was allowed to make addition by disallowing the exemption claimed by the Assessee under Section 54F of the Act without making any addition in respect of the 6 Assessment Year 2012-2013 „original items‟ stated in the reasons recorded for reopening the assessment. During the course of hearing the Learned Departmental Representative had relied upon the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Sun Engineering Works (P) Ltd. [198 ITR 297 (SC)] relied upon by the Learned CIT(A) and Explanation 3 to Section 147 of the Act.
On perusal of judgment of Hon’ble Bombay High Court in the case of Commissioner of Income-tax-5, Mumbai vs. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bombay) we find that the Hon’ble High Court has taken into consideration the judgment of Hon’ble Supreme Court in the case of Sun Engineering Works (P) Ltd. (Supra) [in paragraph 12 of said judgment] as well as Explanation 3 to Section 147 of the Act, while decided the issue raised for consideration in favour of the Assessee holding as under:
16. 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 section 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 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 7 Assessment Year 2012-2013 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.
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's case (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 1-4-1989 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.” (Emphasis Supplied) 11. By way of the above judgment, it was held by the Hon’ble High Court that in case after issuing a notice under Section 148 of the Act, assessing officer accepts the contention of assessee and holds that the income which the assessing officer had initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped 8 Assessment Year 2012-2013 assessment, it shall not be open to him to independently assess some other income in the hands of such assessee. This is the situation in the present case also. Having not made any addition/disallowance on any of the issues/reasons recorded for reopening the assessment for the Assessment Year 2012-2013, the Assessing Officer did not have jurisdiction to make some other addition/disallowance in the hands of the Assessee.
We note that the judgment of Hon’ble Bombay High Court in the case of Jet Airways (I) Ltd. (supra) was followed by the Hon’ble Bombay High Court in the case of Pr. Commissioner of Income-tax- 1 v. Lark Chemicals Private Ltd. : [2018] 99 taxmann.com 311 (Bom.). In that case the Jurisdiction High Court held as under:
“4. In the above view, the question as formulated becomes academic as our Court in CIT v. Jet Airways (I) Ltd.[2011] 331 ITR 236/[2010] 195 Taxman 117 (Bom.) while examining Explanation 3 to Section 147 of the Act has held that the Assessing Officer has to necessarily assess/re-assess the income which escaped assessment on the basis of the formation of the reasonable belief for opening the assessment. It is only on assessing/reassessing such income which has escaped assessment in the reasons recorded, would it be open to the Assessing Officer to assess/reassess any other income, which came to his notice during the reassessment proceedings. However, in the absence of reassessing the income which escaped assessment and which was the basis for formation of belief in issuing the notice, the order passed on reassessment is bad in law.
5. In the above view, the question does not give rise to any substantial question of law. Thus, not entertained.” (Emphasis Supplied) 13. In view of the above judgments of the Jurisdictional High Court are squarely applicable to the facts of the present case. Respectfully following the same we hold that addition of INR.83,43,016/- made by the Assessing Officer by disallowing exemption claimed by the Assessee under Section 54F of the Act cannot be sustained and is 9 Assessment Year 2012-2013 hereby quashed. In terms of aforesaid Ground No.3 raised by the Assessee is allowed and all the other ground raised by the Assessee are dismissed as having been rendered infructuous.
In terms of paragraph 13 above, the present appeal preferred by the Assessee is allowed.