Loading judgment…
Facts
The Revenue challenged the CIT(A)'s deletion of an addition of Rs. 65.40 crores made under section 68 of the IT Act. The assessment was reopened based on a reason to believe income of Rs. 24.00 crores had escaped assessment. During reassessment, the Assessing Officer (AO) accepted the assessee's explanation for the original reason but then made an addition under section 68 for Rs. 65.40 crores based on a different transaction that came to his notice.
Held
The tribunal, relying on Explanation 3 to Section 147 as interpreted by the Bombay High Court (CIT Vs. Jet Airways), held that if the AO does not proceed to assess or reassess income based on the original reasons for reopening, he cannot independently assess other issues that merely come to notice during the proceedings. As the AO accepted the assessee's objections to the original reason and did not make an addition on that ground, the subsequent addition of Rs. 65.40 crores on a new issue was deemed invalid. The assessment order dated 28.06.2021 was quashed.
Key Issues
Whether the Assessing Officer can make an addition on a new ground discovered during reassessment proceedings, when the original reason for reopening the assessment is not sustained and no addition is made on that basis, in light of Explanation 3 to Section 147 of the Income Tax Act, 1961.
Sections Cited
Section 68, Section 147, Explanation 3 to Section 147, Section 148, Section 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI YOGESH KUMAR U.S
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the ld. CIT(A) - 24, New Delhi dated 28.06.2021 pertaining to A.Y. 2012-13.
2. The grievance of the Revenue read as under:
“1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 65,40,00,000/- u/s 68 of the Act on concluding that when on the ground on which the reopening of assessment was based, no additions are made by the Assessing Officer in the order of assessment, he cannot make additions on some other grounds which did not form part of the reasons recorded by him.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in not appreciating explanation 3 of Section 147
of the IT Act, 1961 in which it is provided that the Assessing
Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”
3. Representatives of both the sides were heard at length. Case records carefully perused.
On perusal of the record, we find that assessment u/s 147 was framed pursuant to an information received regarding the assessee from the DDIT [INV]/ Unit – 7(2), New Delhi. Accordingly, after obtaining approval of the competent authority, assessment proceedings u/s 147 of the Act were initiated pursuant to which the assessee filed reply stating that the return filed on 31.07.2019 may be considered wherein the income of Rs. 52,49,05,150/- was declared.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that there are credit entries worth Rs. 139.4 crores in the bank account of the assessee. Accordingly, reasons were recorded before issuance of notice u/s 148 of the Act. The reasons for reopening assessment read as under:
6. On the strength of the aforementioned reasons, the Assessing Officer issued the following questionnaire:
"1. In your profit and loss account you have shown income of Rs. 52, 50,00,000/- against the head Revenue from operations-sale of property. In this regard you are required to furnish the details of sale of property. You are also required to furnish the copy of purchase deed, sale deed and stamp duty paid Also mentioned the complete source of the funds for purchase of the property.
Perusal of balance sheet reveals that long term loans and advances for F.Y. 2011- 12 is Nil and that of for A.Y. 2010-11 was Rs.62,90,00,0001-. You are required to explain the same and submit party wise detail along with name, PAN and address in this regard Also submit agreements, if any.
Please furnish the details non-current investments made during the relevant assessment year along with supporting documents.
4. You are also required to furnish all the pending details in respect of earlier notices issued to you in connection to re- assessment proceedings for A.Y. 2012-13."
7. The assessee filed a detailed reply which was duly considered by the Assessing Officer.
8. After analyzing the reply of the assessee with the facts, the Assessing Officer was satisfied with the explanation of the assessee in so far as reasons for reopening the assessment are concerned.
However, the Assessing Officer noticed that the assessee had some transaction with Super Alliance Marketing Pvt Ltd with credit entry of Rs. 65.4 crores received from Super Alliance Marketing Pvt Ltd.
9. Invoking the provisions of section 68 of the Act, the Assessing Officer concluded by holding that the assessee has failed to establish the genuineness and credit worthiness of the transactions in light of provisions of section 68 of the assessee Act and went on to make addition of Rs. 65.40 crores.
10. The assessee challenged the addition before the ld. CIT(A) and vehemently contended that the entire assessment is bad in law in as much as no addition has been made for the reasons for reopening the assessment. Strong reliance was placed on Explanation 3 to section 147 of the Act which was inserted by the Finance Act No. 2, 2009 w.e.f. 01.04.1989 and also on the decision of the Hon'ble Bombay High Court in the case of Jet Airways 331 ITR 236 and Ranbaxy Laboratories Limited 336 ITR 136 [Del].
11. The ld. CIT(A) was convinced with the contention of the assessee and drawing support from the decision relied upon by the assessee, the ld. CIT(A) deleted the impugned addition.
We have given thoughtful consideration to the orders of the authorities below. In our considered view, the Assessing Officer has drawn support from Explanation 3 to section 147 of the Act which was inserted by the Finance [No. 2] Act, 2009 w.r.e. 01.04.1989 and the same reads as under:
“For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”
This insertion of Explanation 3 to Section 147 of the Act has been examined and interpreted by the Hon'ble High Court of Bombay in the case of CIT Vs. Jet Airways [I] Ltd [supra]. The relevant part of the judgment is extracted 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.
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 section147 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 2201dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had 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 section147. 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 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 undersub- 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.
XXX
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 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 section147 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.”
If the above judgment is applied on the facts of the case in hand, we find that the Assessing Officer has accepted the objections of the assessee, and has not assessed or reassessed the income, which was the basis of the notice. Therefore, in light of the judgment of the Hon'ble High Court of Bombay [supra] it would not be open to the Assessing Officer to assess income under some other issue independently.
Similar view was taken by the Hon'ble Jurisdictional High Court of Delhi in the case of Ranbaxy Laboratories [supra].
Considering the facts of the case in totality, in light of the judgment of the Hon'ble High Court of Bombay [supra] we quash the assessment order dated 28.06.2021 framed u/s 147 r.w.s 143(3) of the Act. Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case.
In the result, the appeal of the Revenue in is dismissed.
The order is pronounced in the open court on 22.01.2024.