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PER PAWAN SINGH, JUDICIAL MEMBER;
This set of three appeals out of which two cross appeal and one cross objection by assessee are directed against the order of ld. CIT(A)-33, ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah Mumbai dated 29.03.2016, which in turn arises from the assessment order passed by Assessing Officer under section 143(3) r.w.s 147 dated 28.02.2014 for Assessment Year 2010-11. The assessee has raised the following grounds of appeal:
As regards validity of reopening of assessment proceedings u/s 147 of Income Tax Act, 1961 ('the Act'):
1. 1. The Learned Commissioner (Appeals) erred in -confirming the validity of action of the Learned Assessing Officer of reopening of assessment proceedings under section 147 of the Act.
2. The learned Commissioner (Appeals) failed to appreciate the fact that the reasons recorded for reopening the assessment were incorrect and hence the entire reassessment proceedings were invalid. As regards disallowance of Rs 42,50,000 paid as compensation for alternate accommodation to encroachers 3. The learned Commissioner (Appeals) was not justified in confirming the Assessing Officers action of disallowance of Rs. 42,50,000 paid as compensation for alternate accommodation to encroachers.
4. The learned Commissioner (Appeals) failed to appreciate the fact that the sum paid was not towards commission but towards compensation. As regards agricultural income 5. The learned Commissioner (Appeals) erred in confirming the addition made by the Assessing Officer to the extent of Rs 21,61,412 in relation to the agricultural income earned by the appellant under section 68 of the Act. Relief Sought Your appellants pray that the order of the learned Commissioner (Appeals) be modified by - i. The reassessment proceedings initiated under section 147 of the Income Tax Act, 1961 be held as invalid in law and be annulled; a. Alternatively, addition of Rs. 42,50,000 made in relation to compensation for alternate accommodation to encroachers be deleted and b. Addition of Rs 21,61,412 made in relation to agricultural income be deleted.
ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah
The Revenue in its cross appeal has raised the following grounds of appeal:
(1) "On the facts and in the circumstances of the case and in law, the Learned CIT(A)-33 Mumbai has erred in directing to delete the addition of Rs.2,26,70,314/- made by the Assessing Officer on account of long Term Capital Gain of the Income Tax Act solely relying on the submission made by the assessee during the course of appellate proceeding ignoring the facts," (2) "On the facts and in the circumstances of the case and in law, the Ld. CIT (A)-33 Mumbai has erred in directing to treat Agriculture Income as income from Other Sources and restricted the addition of Rs 21,61,412/-made by the Assessing officer on account of Income from Other Sources instead of Agriculture Income during the course of appellate proceeding ignoring the facts." (3) "On the facts and in the circumstances of the case and in law, the Learned CIT(A)-33 Mumbai has erred in allowing the claim of Agriculture income of Rs 12,63,588/- solely relying on the submission made by the assessee during the course of appellate proceeding ignoring the facts." (4) "The Appellant prays that the order of the C.I.T(A)-33, Mumbai on the above ground be set aside and that of the A.O be restored."
On service of notice of appeal of revenue, the assessee has filed cross objection raising the following grounds of appeal:
This cross objection petition is being submitted on the following grounds , which it is prayed may be considered independently without prejudice to one another
1. On the facts & circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in reopening the assessment of the appellant u/s 147 of the Act.
2. Without prejudice to the above, the Ld. CIT(A) erred in not appreciating that the reasons recorded for reopening the assessment were incorrect and demonstrated complete non-application of mind by the Ld. AO and therefore, the entire reassessment proceedings were bad in law. Relief ought Your appellants pray that the order of the learned Commissioner (Appeals) be modified by- The reassessment proceedings initiated under section 147 of the Income Tax Act, 1961 be held as invalid in law and be annulled.
Brief facts of the case are that the assessee filed return of income for Assessment Year 2010-11 declaring total income at Rs. 76,15,694/- on 20th 3 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah September 2010. Subsequently, the assessment was re-opened under section 147 on 15.03.2013. Notice under section 148 was served upon the assessee on 18.04.2013. The following reasons of re-opening were recorded by Assessing Officer.
From the ITD System, it is evident that, the assessee has entered into financial transactions by which he has purchased 3 immovable properties for Rs. 2,90,00,000/- on 31.12.2009, Rs. 50,46,00/- on 13.07.2009 and Rs. 48,00,000/- on 13.07.2009 as reported by the sub Registrar Andheri-I (Bandra) and Thane. It is further evident from 26AS that assessee is in contract receipts of Rs. 1,10,85,515/- from M/s. Shah Publicity, Interest of Rs. 22,338/- from union bank of India, Commission of Rs. 1,80,000/- from Yusuf S. Baltiwala and professional fees of Rs. 11,500,000/- from M/s. Monarch & Qureshi Builders. As per the information available in this office, it appears that no return of income for A.Y. 2010-11 has been filed by the assessee. In views of the above facts, it is clear that there is failure on the part of the assessee to make a return of income u/s. 139 disclosing fully and truly all material facts necessary for his assessment for the year under consideration. In the circumstances, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the I.T. Act 1961.
In response to the notice under section 148, the assessee furnished the copy of return of income declaring the same income as declared while filing of original return of income on 20th September 2010. The Assessing Officer proceeded for re-assessment and passed the order under section 143(3) r.w.s 147 on 28.02.2014. The Assessing Officer while passing the assessment order made the disallowance of compensation payment of Rs. 42,77,000/-(wrongly mentioned as commission by AO), disallowed agriculture income of Rs. 34,25,000/- and deduction under section 54 of the Act of Rs. 2,26,70,314/-. No addition was made on the issues on which the assessment was reopened. On appeal before the ld. CIT(A), the re- opening and disallowance of commission (compensation) was upheld, the 4 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah disallowance of agriculture income was restricted to Rs. 21,61,412/- and disallowance under section 54 was deleted. Thus, further aggrieved, the assessee has filed the present appeal before us the assessee has also filed Cross Objections in Revenue’s appeal .
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. We have also deliberated on various case laws referred and relied by lower authorities.
7. Ground No. 1 & 2 relates to validity of re-opening. The ld. AR of the assessee submits that the reasons recorded by Assessing Officer are not valid reasons. The Assessing Officer re-opened the assessment for verification of fact which is not permissible under the law. The assessee filed return of income on 20.09.2010 declaring taxable income of Rs. 76,15,690/- comprising the Income from Business, share of profit of a Firm, interest income and commission income. The assessee paid entire tax of Rs. 23,40,144/-. The Assessing Officer has not recorded that there was any tangible material in his possession to make the belief for re-opening.
No material particulars of information received by the Assessing Officer qua the addition made in the re-assessment. In the reasons recorded the Assessing Officer recorded that the assessee has not filed return of income, however the return of income was filed by assessee within due date. In support of his submission, the ld. AR of the assessee relied upon the 5 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah decision of Hon’ble Karnataka High Court in CIT vs. Topline Credits Ltd. [2014] 42 taxmann.com 256(Kar), Gujarat High Court in Vijay Harishchandra Patel vs. ITO [2018] 400 ITR 167 (Guj.), Vithalbhai G.
Prajapati vs. ITO [2017] 85 taxmann.com 249 (Guj.), In Sagar Enterprises vs. ACIT (257 ITR 335 (Guj.), Hon’ble Bombay High Court in CIT vs. ICICI Bank Ltd. [2012] 349 ITR 482 (Bom.) & CIT vs. Jet Airways (I)
Ltd. [2011] 331 ITR 236 (Bom.).
8. On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld. DR for the Revenue submits that the manual return was filed by assessee, though as per Rule 12(3) the assessee was required to file electronically. The Assessing Officer relied on the information received from ITD System. The Assessing Officer formed his opinion for reasons of re-opening on credible information about the purchase of properties during the relevant Financial Year. Therefore, the Assessing Officer has sufficient material to make his belief for re-opening of the assessment. The ld. DR for the Revenue further submits that as per Rule 12(3), the assessee was required to file the return of income electronically. Admittedly, no return of income was filed by assessee complying the condition of Rule 12(3). The assessment was re-opened to verify the fact.
9. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that the assessment 6 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah was re-opened by Assessing Officer on 15.03.2013. In the reasons of re- opening the Assessing Officer recorded from ITD System, it was noted that assessee has purchased three immovable properties of Rs. 2.90 crore on 31.12.2009, Rs. 50.46 lakhs on 13.07.2009 and Rs. 48 lakhs on 13.07.2009 as reported by Sub-Registrar, Andheri, Bandra and Thane. The Assessing Officer also recorded that from Form 26AS, the assessee has receipt of Rs. 1.10 crore from M/s Shah Publicity as contract receipt and interest of Rs. 22,338/- from Union Bank of India and commission of Rs. 1.80 lakhs from Yusuf S. Batliwala and professional fees of Rs. 1.15 crore from M/s Monarch & Qureshi Builders. However, while passing the re-assessment order no addition in respect of any receipt/expenses recorded in the reasons of re-opening was made or disallowed. The Assessing Officer nowhere recorded about the verification of facts on reasons recorded. Rather, the Assessing Officer made addition on account of addition/disallowance on compensation of Rs. 42.77 lakh, agriculture income and disallowance under 54. Besides that we have noted that the Assessing Officer has also recorded that no return of income for Assessment Year under consideration has been filed. The ld. CIT(A) while confirming the re-opening concluded that no verbal or written submission explaining as to how the action of Assessing Officer in re-opening the assessment is bad-in-law or the reasons of belief are invalid filed by assessee. The ld. CIT(A) further concluded ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah that at the time of re-opening the accuracy of reason is not important than the sufficiency of reason.
10. The Hon’ble jurisdictional High Court in CIT vs. Jet Airways (supra) held as under:
5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 section 147.
6. The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 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. The reasons for the insertion of Explanation 3 are to be found in the Memorandum explaining the provisions of Finance (No. 2) Bill of 2009. The Memorandum treats the amendment to be clarificatory and contains the following Explanation : "Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148."
In order to appreciate the reasons for the amendment inserting Explanation 3, it would be necessary to advert to some of the judgments of the High Courts, prior to the amendment. The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201 dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah claimed depreciation at a higher rate, the Assessing Officer would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative. A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 , that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows : ". . .The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads, income has escaped assessment and those two heads are inter- linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings. But if both the items are unconnected and totally alien then the assessing authority has to follow sub-section (2) of section 148 with regard to the escaped income which comes to his knowledge during the course of the proceedings." Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.
Parliament stepped in to correct what it regarded as an incorrect interpretation of the provisions of section 147. The Memorandum explain-ing the provisions of Finance (No. 2) Bill of 2009 states in this background that some courts had held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment and that it was not open to him to touch upon any other issue for which no reasons have been recorded. This 9 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah interpretation was regarded by Parliament as being contrary to legislative intent. Hence, Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147 though the reasons for such issue were not included in the reasons recorded in the notice under section 148(2).
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 nonetheless, 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.
Now the submission of the learned counsel appearing on behalf of the assessee in the present case is that the words "and also" in section 147 postulate that the Assessing Officer may assess or reassess the income which he has reason to believe has escaped assessment together with any other income chargeable to tax which has escaped assessment and which comes to his notice during the course of the proceedings. In other words, unless the Assessing Officer assesses the income with reference to which he had formed a reason to believe within the meaning of section 147, it would not be open to him to assess or reassess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. On the other hand, it has been urged on behalf of the revenue that even if, during the course of assessment or, as the case may be reassessment, the Assessing Officer does not assess or reassess the income which he has reason to believe has escaped assessment and which formed the subject-matter of a notice under section 148(2), it is nonetheless open to him to assess any other income which, during the course of the proceedings is brought to his notice as having escaped assessment.
11. 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 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 section 147 and following the issuance of a notice under section 148, the Assessing Officer 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 10 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah 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 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. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer 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 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 season to believe is not assessed or reassessed, it would not be open to the Assessing Officer 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 section 148(2), the Assessing Officer 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 section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer 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 v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 2971 , 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 section 147, as 11 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah they stood prior to the amendment on 1-4-1989. The Supreme Court held that the expression "escaped assessment" includes both "non-assessment" as well as "under assessment". 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 section 147. The expression "reassess" refers to a situation where an assessment has already been made but the Assessing Officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the Judgment in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 , which held that once an assessment is validly reopened, the previous under assessment is set aside and the Income-tax Officer 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 section 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's case (supra) dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P.) Ltd.'s case (supra) interprets the provisions of section 147 as they stood prior to the amendment on 1-4-1989.
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 Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the 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 section 148. This view was adopted in the Judgment of the Punjab and Haryana High Court in Vipan Khanna's case (supra) and in the judgment of the Kerala High Court in Travancore Cements Ltd.'s case (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 Explanation 3 to section 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 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 section 148(2).
The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343 . The Rajasthan High Court construed the words used by Parliament in section 147 particularly the words that the Assessing Officer 'may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah which comes to his notice subsequently in the course of the proceedings' under section 147. The Rajasthan High Court held as follows : ". . . if is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then, only in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."
15. Parliament, when it enacted the Explanation (3) to section 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 Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer 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 Explanation 3 consequently provides that the Assessing Officer 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 section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd.'s case (supra) and of the Punjab & Haryana High Court in Vipan Khanna's case (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's case (supra), Explanation 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 v. Atlas Cycle Industries [1989] 180 ITR 3191. The decision in Atlas Cycle Industries' case (supra) held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or non- existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries' case (supra) and of the Rajasthan High Court in Shri Ram Singh's case (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.- ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah
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 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.
17. 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. 18. 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.
ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah
Therefore, considering the decision of Hon’ble Jurisdictional High Court in Jet Airway (supra), wherein it is clearly held 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 Assessing Officer 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 section 148(2), the Assessing Officer 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.
We have already noted that the additions in the re-assessment order is completely different from the reasons recorded for the re-opening of the assessment. Considering the above factual and legal discussion, we are of the view that additions in re-assessment order passed under section 143(3)/147 dated 28.02.2014 are without jurisdiction and is not sustainable in law. Hence, grounds No. 1 & 2 of the appeal raised by assessee are allowed.
12. As we have allowed the grounds no. 1 & 2 of the appeal raised by assessee holding the additions in re-assessment order are without jurisdiction, therefore, the discussion submissions of the ld. AR for the assessee and on other grounds of appeal
on merit have become academic.
13. In the result, appeal of the assessee is allowed. 15 ITA 3880, 3938 Mum 2016 & CO 10 Mum 2018 -Mustafa Javed Aninullah Shah by Revenue
14. Considering the fact that we have declared the additions in the re- assessment order are without jurisdiction and invalid. Therefore, the appeal filed by Revenue has become infructuous.
In the result, appeal of the Revenue is dismissed.
C.O. No. 10/Mum/2018 16. Consequent of our order on additions in re-assessment the grounds of cross objection raised by assessee are also become academic.
In the result, cross objection of assessee is dismissed.
Order pronounced in the open court on 26/09/2018.