INCOME TAX OFFICER, WARD 3(1), DELHI, DELHI vs. ARTISTIC FINANCE PRIVATE LIMITED, DELHI

PER BRAJESH KUMAR SINGH, AM, I am unable to persuade myself with the findings of my Learned Vice President, regarding his decision in quashing the reopening in this case and (A.Y.2012-13) allowing the appeal of the assessee. My Learned Vice President quashed the reopening by allowing the additional ground no.3 of the appeal filed by the assessee vide letter dated 18.09.2024. The additional ground no.3 of the appeal filed by the assessee is as under:-

2. The assessee was a government employee during the year earning salary income from Municipal Corporation of Delhi. The assessee had filed his return of income for AY 2012-13 on 18.06.2012 declaring income at Rs.2,07,380/-, which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’). According to the AO, no regular assessment u/s 143(3) of the Act was made in this case. The assessment in this case was reopened by the AO vide notice u/s 148 of the Act dated 28.03.2019.

2.1. As per the facts mentioned by the AO in para no.2 and 2.1 of the assessment order, the AO had received information from ITO(Inv.) Unit-7, New Delhi, about the assessee having received accommodation entries amounting to Rs.9,60,000/- on different dates during FY 2011-12 pertaining to AY 2012-13 in the form of Long Term Capital Gains(hereinafter referred as ‘LTCG’) on which exemption u/s 10(38) of the Act was claimed. The AO further noted that during investigations, it was found that the assessee was one of the beneficiaries of accommodation entries received in the form of LTCG through (A.Y.2012-13) an entry operator, who was involved in manipulation of prices of various scrips by rigging them and laundering money in the garb of LTCG. The AO further noted that on examination of the return of income filed by the assessee, it was found that the assessee had not shown the amount of LTCG of Rs.9,60,000/- at all and thus the AO concluded that the assessee had concealed the particulars of his income. Accordingly, the AO held that the same being found undisclosed/unexplained and therefore he issued a notice u/s 148 of the Act dated 28.03.2019 after obtaining prior approval of the competent authority. The assessment order in this case was passed on 25.11.2019.

3.1. The AO noted that further detailed analysis of evidences available on record i.e. bank statements and statement of affairs filed by the assessee revealed that the assessee had deposited cash amounting to Rs.1,48,000/- and cheques from businessmen amounting to Rs.14 lakhs and further that the assessee had purchased property amounting to Rs.20,62,375/-. The AO asked the assessee to produce the intimation/prior intimation given by him to his employer being the government in respect of the above transactions which (A.Y.2012-13) according to the AO was not provided. The AO in view of this fact and in view of the facts mentioned in the assessment order, added a sum of Rs.15,48,000/- (Rs.1,48,000/- + Rs.14,00,000/-) and Rs.20,62,375/- u/s 68 and u/s 69 of the Act respectively. The relevant discussion by the AO in para no.11 and 12 of the assessment order is reproduced as under:-

“11. Further, detailed analysis of evidences available on record i.e. bank statements and statement of affair filed it reveals that the assessee has deposited cash amounting to Rs.1,48,000/- and cheques from businessmen amounting to Rs.14,00,000/-. No source of income from cash or cheque has been explained. He was also asked to produce the intimation given by him to his employer being the Govt. employee he has to give prior intimation to the head of department under CCS conduct Rules which was not provided. Moreover assessee has not provided logical reason alongwith confirmation with documentary evidence in the light of section 68 of 11 let 1961 from the concerned person, hence remains unexplained and added back to the income of the assessee u/s 68 of the IT Act 1901. Penalty proceedings u/s 271(1)(e) are being initiated separately for furnishing inaccurate particulars and thereby concealment of income.

12. Further detailed analysis of evidences available on record i.e. bank statements and statement of affair filed it reveals that the assessee has purchased property for Rs.20,62,375/-. Again being the Govt. employee he has to give prior intimation to the head of department under CCS conduct Rules which was not provided hence remains unexplained. Moreover on perusal of ITR filed it is noticed that he is showing his annual income below Rs.3 lakhs so investment in property remains unexplained and added back to the income of the assessee as unexplained expenditure u/s 69 of the IT Act 1961. Penalty proceedings us 271(1(c) are being initiated separately for furnishing inaccurate particulars and thereby concealment of income.” 3.2. Against the above order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) unit-3, Coimbatore, deleted the addition made by the AO under section 68 of the Act in respect of LTCG claimed exempt by the (A.Y.2012-13) assessee which as discussed earlier was the basis of reopening of the assessment in this case. The relevant finding of the Ld. CIT(A) are reproduced once again for ready reference:-

“a. The shares were never purchased in the year 2009-10 or any earlier year as claimed. The contract notes furnished are fabricated and bogus. The shares are received in the demat account of the beneficiary by way of off market transfer from conduit accounts. In the conduit account, shares were received from another conduit account by way of off market transaction. In this second or end conduit account, these shares were received by way of purchase through current stock market transaction. This clearly establishes that the shares were actually acquired immediately (very few days) before the day as it has been shown to be credited in the demat account of beneficiary and not long back (years) earlier as claimed by the subject. Unaccounted money, in cash, was utilized for these arranged purchase of shares from market. These shares were transferred through one or a series of layers to the demat account of the beneficiary assessee. The beneficiary assessee sold the shares market paying STT and received sales consideration through banking channel. The entry providers arranged/furnished bogus contract notes, showing the purchases long time back on a fictitious date. The sales consideration was reduced by concerned cost of acquisition and the gains claimed as exempt. In case of loss, such loss is set off against the taxable profits. Thus unaccounted money was brought into the books by fictitious and sham transactions and evading due taxes. This argument of the assessee cannot be accepted in toto. Because the STATEMENT OF ACCOUNTS is filed. A cheque of Rs 1145491 is received and an STT of Rs 1435 is paid and other charges of Rs 115 is also paid. Since these details are clearly there the credit for the share transaction has to be given. This is treated as genuine transaction and the addition on account of Rs 1145490 is deleted.” 3.3. On perusal of the above order of the ld. CIT(A), it is seen that his findings are a little abrupt with respect to the discussion made by him in the order while dealing with this issue and the conclusion reached by him in deleting the (A.Y.2012-13) addition of the claim of LTCG u/s 68 of the Act. Be that as may be, the fact is that the addition of claim of LTCG u/s 68 of the Act which was the basis for the reopening of the assessment in the case of the assessee was deleted by the Ld. CIT(A). In view of this deletion, my Learned Vice President has held that since the very basis of reasons recorded for issuance notice for reopening of assessment u/s 147 r.w.s. 148 of the Act does not survive and therefore the reopening was bad in law and quashed the reopening and allowed the appeal of the assessee. For this decision, my Learned Vice President has relied upon the following decisions. i. ATS Infrastructure Ltd. vs ACIT (2024)166 taxmann.com 61(Del.) ii. CIT(Exemption) vs B.P. Poddar Foundation For Education [2023] 148 taxmann.com 125 (Calcutta) iii. CIT vs Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom.) 3.4. On perusal of the above decisions, it is seen that in the case of CIT(Exemption) vs B.P. Poddar Foundation For Education (Supra), the facts are identical in as much as that in this cited case also the only reason recorded by the AO for issuing the notice u/s 148 of the Act dated 22.03.2016 for AY 2009- 10 was that income amounting to Rs.59,42,709/- had escaped assessment on the ground that the assessee had deposited money with M/s Nissan Developers and Properties Ltd. which was a specified person of the assessee and was hit by both the sections 13(1)(c)(ii) and 13(1)(d) of the Act. The same was added by the AO in the assessment order dated 28.12.2016 u/s 1417 r.w.s. 143(3) of the Act.

(A.Y.2012-13) 3.5. On appeal by the assessee, the ld. CIT(A) deleted the addition of Rs.59,42,709/-. However, the Ld. CIT(A) had confirmed the following additions made by AO, which were not part of the reasons recorded by the Assessing Officer.

(i) An amount of Rs.3,64,97,000/- invested with Poddar Projects Ltd. (ii) Fee amounting to Rs.37,50,000/- received from students in cash. (iii)Corpus Fund Rs.9,95,000/- (iv)Development Fund Rs.1,07,74,500/- 3.6. In the cited case, the Co-ordinate Bench of Kolkata Tribunal, vide its order dated 13.11.2019 in for AY 2009-10had quashed the reassessment proceedings on the ground that since the addition of Rs.59,42,709/-, which was the basis for reopening of the case, was deleted by the Ld. CIT(A) and that the AO had not issued a fresh notice u/s 148 of the Act to reassess the other income the reassessment proceeding had become null & void in the eyes of law. The relevant finding of the Tribunal in para no.13 in this case is reproduced as under:-

“We note that in the assessee`s case under consideration, the assessment for A.Y. 2009-10 was completed u/s. 143(3)/11 of the Act on 01/03/2011. A notice under section 148 of the Act was issued on 22.03.2016 to reopen the assessment u/s. 147 of the Act. The only reason for issuing the said 148 notice as per Reasons Recorded dated 17.08.2016 was that income of Rs.59,42,709/- has escaped assessment for having deposited money with the specified person M/s. Nissan Developers &Properties Pvt. Ltd. We note that addition of Rs. 59,42,709/- was deleted by ld CIT(A) and since AO has not issued a fresh notice under section 148 of the Act to reassess the other income therefore, the reassessment proceedings (A.Y.2012-13) initiated by the assessing officer to reassess other income (as noted by us above) is null and void in the eye of law, hence we quash the reassessment proceedings under section 147/148 of the Act.” 3.7. In reaching the above conclusion, the Kolkata Tribunal relied upon the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (2011) 336 ITR 136(Del), where it discussed 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; however, if after issuing a notice under section 148 of the Act, the AO accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, but as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. The relevant discussion of the Tribunal in para no.12 and 13 of its order is reproduced as under:-

12. We note that it is abundantly clear that the addition of Rs.59,42,709/- made in the assessment order u/s. 143(3)/l47 of the Act dated 28.12.2016,on the basis of the above reasons recorded was deleted by the Ld. C.I.T.(A), vide order dated 30.07.2019. In that view of the matter, the other additions made in the said reassessment order which were not part of the reasons recorded for reopening the assessment are not sustainable in the eyes of law even after insertion of Explanation 3 to section 147 of the Act by Finance Act, 2009. We note that 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; however, if after issuing a notice under section 148 of (A.Y.2012-13) the Act, the AO 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, for that we rely on the judgment of Hon`ble Bombay High Court in the case of Jet Airways (I) limited 331 ITR 236 (Bom), wherein it was held as follows: “21. 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.

(A.Y.2012-13) We may also note that the heading of s. 147 is "Income escaping assessment" and that of s. 148 "Issue of notice where income escaped assessment". Sec. 148 is supplementary and complimentary to s.

147. Subs. (2) of s. 148 mandates reasons for issuance of notice by the AO and sub-s. (1) thereof mandates service of notice to the assessee before the AO proceeds to assess, reassess or recompute escaped income. Sec. 147 mandates recording of reasons to believe by the AO that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Expln. 3 if during the course of these proceedings the AO comes to 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. However, the legislature could not be presumed to have intended to give blanket powers to the AO that on assuming jurisdiction under s. 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before AO 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 s. 148.” 3.8. The discussion about the order of the Hon’ble Calcutta High Court confirming the relief granted to the assessee by the Tribunal in the cited case is discussed later in this order wherein it is discussed that the decision of the Hon’ble Calcutta High Court in agreeing with the findings of the Tribunal is distinguishable with the facts of the present case.

3.9. In the case of ATS Infrastructure Ltd. vs ACIT(Supra), the facts are distinguishable from the case of the assessee in as much as that in the said case, the AO had issued notice u/s 148A(b) of the Act on the basis of information that assessee had received loan from its 100% subsidiary and the (A.Y.2012-13) said issue was not examined during assessment proceedings. In response, the assessee submitted that it had received no loans during the year rather repayment had been made of advance received earlier. The AO passed an order u/s 148A(b) of the Act holding that the reply of the assessee was not tenable and observed that assessee had not provided any evidence with regard to the source of fund utilized for making payment of loan and thus treated loan repayment amount as income and made addition to the income of the assessee. The Hon’ble Court held that repayments of the loan were clearly not the edifice on which notice u/s 148A(b) of the Act was based and the AO could not supplement or improve upon reason, which formed the basis for initiating action u/s 148A and therefore held that since foundational material alone would be relevant for purposes of evaluating whether reassessment powers were justifiably invoked and since it was not and therefore, the reassessment proceedings were quashed and set-aside. However, in the case of the present assessee, the AO had disallowed the claim of the assessee of LTCG of Rs.9,60,000/- being claimed as exempt u/s 10(38) of the Act on the basis of which the assessment was reopened and was added u/s 68 of the Act unlike the case relied upon in which no addition was made by the AO in respect of the loan received by the assessee from its 100% subsidiary, which was the basis of reopening of the assessment.

3.10. Similarly, in the case of CIT vs Jet Airways (I) Ltd.(supra), Hon’ble Bombay High Court had framed the following substantial question of law.

(A.Y.2012-13) “Where upon the issuance of a notice under section 148 of the Income Tax Act, 1961 read with section 147, the Assessing Officer does not assess or, as the case may be, reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject matter of the notice.” 3.11. On perusal of the above substantial question of law, it emerges that the AO had not made addition on the issue in this case on which the assessment was reopened and had made additions of other issues not mentioned in the reasons recorded. This is further evident from the findings of the order of the Hon’ble Bombay High Court in para no.21 and 22 in this case and therefore the facts of the said case are distinguishable in the case of the present assessee in as much as in the case of the present assessee the AO had disallowed the claim of the assessee of LTCG of Rs.9,60,000/- being claimed as exempt u/s 10(38) of the Act on the basis of which the assessment was reopened and was added u/s 68 of the Act. The relevant extract of the decision of the Hon’ble Bombay High Court in para no.21 and 22 are reproduced as under:-

“21. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a notice was issued under section148. 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 (No. 2) Act 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 (A.Y.2012-13) 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. 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 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 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 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 to 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, (2008] 306 ITR 343. 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 as they stood after the amendment of April 1, 1989, continue to hold the field.

Whether on facts the Tribunal was right in law in holding that the Assessing Officer had jurisdiction to re-assess issues other than the issues in respect of which proceedings were initiated especially when the reasons for the latter ceased to survive?

18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra). We may also note that the heading of Section 147 is "income escaping assessment" and that of Section 148 "issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to Section 147. Sub-section (2) of Section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof 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 has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per explanation (3) if during the course of these proceedings the Assessing Officer comes to 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. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before 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.

(A.Y.2012-13) 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under Section 80 HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under Section 80HH and 80- I and accordingly reduced the claim on these accounts.

4.2 Therefore, in view of the above discussion, the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of ATS Infrastructure Ltd. vs ACIT (supra) will not be applicable to the facts of the present case.

(i) Whether on the facts and circumstances as well as in law the Income Tax Appellate Tribunal was correct in law in holding that the other additions made in the order under Section 147/ 143(3) of the Income Tax act, 1961, which were not part of the reasons recorded for reopening the assessment were not sustainable in the eyes of law even after insertion of Explanation 3 to Section 147 of the Act by Finance Act, 2009 when addition was made by the Assessing Officer on the ground of reopening? (ii) Whether on the facts and circumstances of the case the Learned Income Tax Appellate Tribunal correctly interpret the decision (A.Y.2012-13) reported in the case of Jet Airways (1) Limited reported 331 ITR 236 (Bom) and Ranbaxy Laboratories Ltd. reported in 336 ITR 136 (Del) on facts in the instant case? 5.1. As discussed earlier in para no.3.6 of this order, the Kolkata Tribunal had granted relief to the assessee by quashing the reassessment proceedings u/s 147/148 of the Act on the ground that the issue on which reopening was done was deleted by the ld. CIT(A) and the AO had not issued separate notices u/s 148 of the Act in respect of the issues, which according to the AO had escaped assessment during the course of reassessment proceedings and which were added by the AO in the reassessment proceedings. The Hon’ble Calcutta High Court in para-15 of its order held that for all the reasons discussed in its order, the Hon’ble Court was of the considered view that the Tribunal was right in granting relief to the assessee.

5.2. However, on perusal of para-4 of this order, it is noted by the Hon’ble Calcutta High Court that the assessee had contended before the Kolkata Tribunal that the CIT(A) failed to take note of the material irregularity committed by the Assessing Officer while initiating proceedings under Section 148 of the Act for reopening of the assessment under Section 147 without noting the vital fact that the basis of issuing notice under Section 148 was on a wrong assumption of fact that the assessee had invested money with its specified persons. It was contended before the Ld. CIT(A) that there was no failure on the part of the assessee to disclose material facts necessary for completing the assessment and initiating proceedings u/s 147 of the Act was illegal and (A.Y.2012-13) unjustified. It was further contended that the notice u/s 148 of the Act was issued after a lapse of five years and further that the assessee had filed detailed objections to the reasons for reopening which was never disposed by the AO as per the law laid down by the Hon’ble Supreme Court in GKN Driveshaft (I) Ltd. vs ITO (2002) 125 taxman 963(SC). It was further submitted that in the original assessment u/s 143(3) of the Act which was completed on 01.03.2011, the AO issued notice to the assessee and called for documents and details, which were furnished and the AO had recorded his satisfaction in the assessment order dated 01.03.2011. It was therefore contended that on the very same facts, the reopening could not be done and the reassessment proceedings was a case of change of opinion in view of the decision of the Hon’ble Supreme Court in the case of CIT vs Kelvinator India Ltd. (2010) 187 taxman 312(SC).

5.3. Further, it was contended that the solitary reason recorded by the Assessing Officer for reopening of the assessment was deleted by the CIT(A) and in such circumstances, the assessment under the other heads done by the Assessing Officer which were not shown as reasons for reopening ought to have been held to be illegal.

5.4. On perusal of this order, it is seen that the Hon’ble High Court decided the appeal in favour of the assessee on the ground that there was no valid notice u/s 148 of the Act in this case. This is evident from the observation of the Hon’ble Court in para no.13 and 14 of its order. The para no.13 and 14 of the said order are reproduced as under:-

(A.Y.2012-13) “13. The decisions in Jet Airways and Ranbaxy Laboratories were also followed and the appeal in favour of the assessee was allowed in the case of M/s. Tractors and Farm Equipment Limited. The decision in N.Govindaraju was considered in Anil Nagpal and it was held that if the notice issued under Section 148 is invalid the assessing officer cannot reopen the assessment. Further it was held that even if the reasons recorded do not refer to a particular issue, the assessing officer would be entitled to assess the income or reassess the computation of income with regard thereto, if the same comes to his notice during the course of the proceedings for reassessment, however this can be done provided there is a valid notice under Section 148 that the assessing officer the jurisdiction to adopt proceedings under Section 147 of the Act and if the notice is illegal, the reassessment proceedings are invalid.

14. While on this issue, we should bear in mind the decision in the case of GKN Driveshafts (India) Limited wherein it was held that the assessing officer is bound to furnish reasons within a reasonable time and the noticee is entitled to file their objection to such notice and the assessing officer is bound to dispose of the same by passing a speaking order. Though the Explanation 3 inserted by the amendment empowers the assessing officer to assess 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 under Section 147 notwithstanding that the reasons for such issue have not been included in the reasons recorded under Sub-Section 2 of Section 148, the prerequisite is there should be a valid notice. Admittedly, in the case on hand, the notice was held to be not sustainable. If that be so, the assessing officer cannot be stated to be empowered to make a roving enquiry into other issues which according to him came to his notice during the reassessment proceedings. The foundation of a reassessment proceedingis a valid notice and if this notice is held to be invalid the entire edifice sought to be raised on such foundation has to collapse.

(emphasis supplied by me) 5.5. Further, the Hon’ble Court in para no.12 of its order held that the different judicial pronouncements and the explanatory memorandum for introduction of Explanation-3 to Section 147 of the Act rules in favour of the “12. xxxxxx As already noted, except for the Punjab and Haryana High Court in the case of Majinder Singh Kang Versus CIT [2012] 344 ITR 358 (P & H) all courts have uniformly taken a view that Explanation 3 to Section 147 of the Act does not change the situation in so far as the present controversy is concerned. The leading decision of the Bombay High Court in the case of CIT Versus Jet Airways (I) Ltd. Has been followed by different High Courts. In the case of CIT Versus Jet Airways (I) Ltd., the High Court, in its elaborate decision considering the statutory provisions, different judicial pronouncements and the explanatory memorandum for introduction of Explanation 3 to Section 147 of the Act, rules in favour of the assessee. The Punjab and Haryana High Court in the case of Majinder Singh Kang Versus CIT [2012] 344 ITR 358 (P & H) of course has sounded a different note. We may, however, notice that the explanatory memorandum to Explanation 3 to Section 147 of the Act was not brought to the notice of the High Court in the said decision. The High Court gave considerable importance on such Explanation 3 to section 147 of the Act and the language used therein. xxxxxxxxx 15. Thus, for all the above reasons, we are of the considered view that the Tribunal was right in granting relief to the assessee.” (Emphasis supplied by me) 5.6. From the above discussion, it is seen that the Hon’ble Calcutta High Court in allowing relief to the assessee relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (supra). However, the facts in the present case are distinguishable from the case of CIT vs Jet (A.Y.2012-13) Airways (I) Limited, where the AO had not made addition on the issue on which the assessment was reopened whereas in the present case the AO had disallowed the claim of the assessee of LTCG of Rs.9,60,000/- being claimed as exempt u/s 10(38) of the Act on the basis of which the assessment was reopened and was added u/s 68 of the Act and had also made additionsof Rs.15,48,000/- (Rs.1,48,000/-+Rs.14,00,000/-) and Rs.20,62,375/- u/s 68 and u/s 69 of the Act respectively.

5.7. Further, as discussed above, the reliance placed by the Kolkata Tribunal upon the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra) to hold that once the addition which was the basis of reopening of the assessment has been deleted in appeal and no separate notice u/s 148 of the Act is issued to reopen and assess the new issue, which came across the reassessment proceedings, then the reassessment proceedings would become null and void in the eyes of law is not acceptable because the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra) was on not on the said proposition but was on the proposition that if the AO accepts or does not make any addition in respect of the issue on which the assessment is reopened then he is precluded from making additions in respect of other items, which comes to his notice during the reassessment proceedings, unless the AO has issued a 5.8. However, as discussed above, in the present case, the AO had made addition in respect of the issue on which the assessment was reopened and also in respect of two other issues which came to his notice during the assessment proceedings on the basis of materials available on record. In the present case, it is not the case that the AO did not make the addition on the issue on which the assessment was reopened u/s 148 of the Act but the said addition was deleted by the Ld. CIT(A). Therefore, the reliance placed by the Kolkata Tribunal on the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra) to hold that if the addition on the basis of which the reassessment was made was deleted in appeal, then the AO could not make addition in respect of other issues which came to his notice during the reassessment proceedings, unless the AO has issued a separate notice u/s 148 of the Act to assess each of the said new issue coming to the notice of the AO during the reassessment proceedings is not acceptable because no such proposition was laid down in the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra).

5.9. In the decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of (A.Y.2012-13) Ranbaxy Laboratories Ltd. vs CIT (supra), it was the AO who had accepted the explanation of the assessee and did not make the addition on the issue on which the assessment was reopened and it was not a case in which the Ld. CIT(A) had deleted the addition on the issue which was the basis of reopening the assessment. Therefore, in the said decisions of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd.(supra) and of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra), the issue was not what will the fate of the other additions, which was made by the AO in the reassessment order and its survival in further appellate proceedings, when the issue which was the basis of reopening of the assessment was added by the AO in the reassessment proceedings but which was subsequently deleted by the Ld. CIT(A).

5.10. Therefore, in view of the above discussion, the decision of the Tribunal and affirmed by the Hon’ble Calcutta High Court in the aforesaid case is not applicable to the facts of the present case.

7. Therefore, in view of the above discussion, I do not agree with the finding given by my Learned Vice President that reopening is bad in law in this case (A.Y.2012-13) and consequently in quashing the re-opening proceedings. In my view, the assessment was validly reopened and the AO made addition on the issue which was the basis of the reopening. Therefore, it is held that once the AO assumed the jurisdiction u/s 147/148 of the Act as per law and completed the reassessment as per law, then the reassessment order is a valid assessment order and the surviving additions in appeal has to be adjudicated on merits notwithstanding the fact that the issue on which the proceedings u/s 147/148 of the Act was initiated and added in the reassessment order was deleted by the Ld. CIT(A) as in the case of the present assessee.

PER: JUSTICE (RETD.) C.V. BHADANG, PRESIDENT AS THIRD MEMBER: This reference under Section 255(4) of the Income Tax Act, 1961 (‘Act’ for short) arises on account of difference of opinion between two learned Members of the Division Bench. By an order dated 14.02.2025, the following question has been formulated for being decided by the Third Member :

(A.Y.2012-13) "Whether, in the given facts and circumstances of the case, the reopening under Section 147 read with Section 148 of the Act is valid or not where the Assessing Officer made addition independently of other income which does not form the subject matter of reopening and where addition made by the Assessing Officer on the basis of reasons recorded for reopening were deleted by the CIT(A) and no addition of that income on the basis of reasons recorded survives which has reason to believe had escaped assessment and which formed the basis of reopening."

i) Rs.9,60,000/- under Section 68 of the Act on account of bogus LTCG; ii) Rs.15,48,000/- (Rs.1,48,000/- cash deposit and Rs.14,00,000/- received by cheque) as unexplained cash credit under Section 68 of the Act; and, It appears that during the assessment proceedings, the Assessing Officer had called upon the assessee to produce the copy of intimation/prior intimation about the purchase of property given by him to the employer, which was not produced.

3. Be that as it may, the assessee, feeling aggrieved, challenged the same before the learned CIT(A). The learned CIT(A) by an order dated 30.03.2024 has partly allowed the appeal to the extent of deleting the addition towards alleged bogus share transaction. The rest of the additions have been confirmed. It is this order which is the subject matter of challenge in the appeal.

“3. That the reassessment order passed u/s 147 of the Act is further not tenable under the law because the additions made on the basis of reasons recorded for reopening were deleted by Ld. CIT(A) and thus, no additions on the basis of reasons recorded for reopening survives in case of assessee.”

The difference of opinion between the learned Members has arisen in the context of the aforesaid ground.

5. The learned Vice President (Judicial Member) placing reliance on the decision of Bombay High Court in CIT vs Jet Airways (I) Ltd., 331 ITR 236 (Bom) and jurisdictional Delhi High Court decision in ATS Infrastructure Ltd. vs ACIT, 473 ITR 595 (Delhi) has found that once the addition made on account of original reasons recorded (in this case, the addition on account of alleged bogus LTCG is deleted, the other two additions, which were not part of original reasons recorded, cannot be sustained. The learned (A.Y.2012-13) Accountant Member, by his dissenting order, has found that the decision in Jet Airways (I) Ltd. (supra) and ATS Infrastructure Ltd. (supra) are distinguishable on facts and cannot be called into aid to delete the balance additions.

6. It is submitted by the learned counsel for assessee that once the addition made by the Assessing Officer relying on the reasons recorded is deleted, no other addition can be sustained as held by the Bombay High Court in Jet Airways (I) Ltd. (supra) and Delhi High Court in ATS Infrastructure Ltd. (supra) and Ranbaxy Laboratories Ltd. vs CIT, 336 ITR 136 (Delhi). It is submitted that the Kolkata Bench of the Tribunal has also taken a similar view in B.P. Poddar Foundation for Education vs ACIT (ITA No. 1863/Kol/2019 decided on 13.11.2019) which has been confirmed by the Calcutta High Court by order dated 13.09.2022 reported in 448 ITR 695 (Calcutta). It is submitted that the learned Accountant Member was not justified in distinguishing these decisions on the ground that in these cases the Assessing Officer had accepted the explanation and had not made any addition. It is submitted that a situation where the Assessing Officer does not make any addition on the basis of the reasons recorded and a situation where such addition is made alongwith some others and the addition made on the basis of the reasons recorded is deleted by the learned CIT(A) cannot be distinguished as the net result is the same.

8. I have carefully considered the rival circumstances and the submissions made and I am inclined to agree with the findings recorded by the learned Judicial Member that the reassessment deservers to be quashed and consequently, the appeal is required to be allowed. Here are the reasons.

“Where upon the issuance of a notice under section 148 of the Income-tax Act, 1961 read with section 147, the Assessing Officer does not assess or, as the case may be reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject- matter of the notice?”

"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 or 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 (A.Y.2012-13) 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, afresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.”

13. Thus, the distinction sought to be made out by the learned Accountant Member, in my considered opinion, cannot be accepted.

(i) Whether on the facts and circumstances as well as in law the Income-tax Appellate Tribunal was correct in law in holding that the other additions made in the order under section 147/143(3) of the Income-tax act, 1961, which were not part of the reasons recorded for reopening the assessment were not sustainable in the eyes of law even after insertion of Explanation 3 to section 147 of the Act by Finance Act, 2009 when addition was made by the Assessing Officer on the ground of reopening? (ii) Whether on the facts and circumstances of the case the Learned Income-tax Appellate Tribunal correctly interpret the decision reported in the case of Jet Airways (I) Limited reported 331 ITR 236 (Bom) and Ranbaxy Laboratories Ltd. reported in 336 ITR 136 (Del) on facts in the instant case?”

“5.8 However, as discussed above, in the present case, the AO had made addition in respect of the issue on which the assessment was reopened and also in respect of two other issues which came to his notice during the assessment proceedings on the basis of materials available on record. In the present case, it is not the case that the AO did not make the addition on the issue on which the assessment was reopened u/s 148 of the Act but the said addition was deleted by the Ld. CIT(A). Therefore, the reliance placed by the Kolkata Tribunal on the decisions of Hon'ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (supra) and of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra) to hold that if the addition on the basis of which the reassessment was made was deleted in appeal, then the AO could not make addition in respect of other issues which came to his notice during the reassessment proceedings, unless the AO has issued a separate notice u/s 148 of the Act to assess each of the said new issue coming to the notice of the AO during the reassessment proceedings is not acceptable because no such proposition was laid down in the decisions of Hon'ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (supra) and of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT (supra).”

17. The learned Accountant Member has also reproduced in para 3.2 of the order the observations of learned CIT(A) while deleting the addition in respect to bogus LTCG. The learned Accountant Member found that the findings are “a little abrupt”. Although the reasons given by the learned CIT(A) could have been more specific and clear, the said (A.Y.2012-13) aspect cannot be gone into for the reason that ultimately the learned CIT(A) has partly allowed the appeal and deleted the addition and that order has not been challenged by the Revenue and has thus attained finality.

PER MAHAVIR SINGH, VP :

This appeal was fixed for giving effect to the order of the Ld. Third Member in which the Ld. Third Member concurred with the view of Ld. Vice President (Judicial Member) with regard to the following question framed :-

“Whether, in the given facts and circumstances of the case, the reopening under Section 147 read with Section 148 of the Act is valid or not where the Assessing Officer made addition independently of other income which does not form the subject matter of reopening and where addition made by the Assessing Officer on the basis of reasons recorded for reopening were deleted by the CIT(A) and no addition of that income on the basis of reasons recorded survives which has reason to believe had escaped assessment and which formed the basis of reopening.”

(A.Y.2012-13) 2. The Ld. Third Member has answered the above question vide para no. 18 of his order dated 22.07.2025, which reads as under: - “18. In the result, Ground no. 3 as raised by the assessee deserves to be allowed and the impugned addition cannot be sustained. The question as referred to is answered accordingly, holding that the reopening u/s 147 r.w.s 148 of the Act, in this case, is not valid. The appeal, therefore, deserves to be allowed as proposed by the learned Vice President (Judicial Member).”

3. Since, the Ld. Third Member concurred with the view of Ld. Vice President (Judicial Member) by holding that reopening u/s. 147 r.w.s. 148 of the Act, in this case, is not valid. Accordingly, consequent to the opinion of Ld. Third Member, appeal of the Assessee stands allowed. Order pronounced in the open court on 06th August, 2025. Sd/- Sd/- (BRAJESH KUMAR SINGH) (MAHAVIR SINGH) ACCOUNTANT MEMBER VICE PRESIDENT Dated 06/08/2025 Copy of the Order forwarded to :