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Facts
The assessee filed an appeal against the order of the Addl. CIT(A) for AY 2013-14. The primary ground was that the reassessment proceedings initiated under Section 147 were invalid as the Assessing Officer (AO) did not make any addition based on the reasons recorded for reopening, but instead made an addition based on disallowing loss on sale of shares. The assessee argued that if the original reason for reopening does not lead to an assessment, the AO cannot make an addition on other grounds without a fresh notice.
Held
The Tribunal noted that the AO recorded reasons to believe that income had escaped assessment on specific grounds (bogus LTCG, debentures, property sale). However, in the assessment order, the AO did not make any additions on these grounds but made an addition by disallowing loss on sale of shares. Relying on judicial precedents, the Tribunal held that if the AO, after issuing a notice under Section 148, accepts the assessee's contention that the income originally believed to have escaped assessment has not, in fact, escaped, it is not open for the AO to independently assess some other income without a fresh notice.
Key Issues
Whether reassessment proceedings initiated under Section 147 are valid when the Assessing Officer does not make additions on the grounds initially stated in the reasons for belief of escapement but proceeds to make additions on other grounds without a fresh notice.
Sections Cited
Section 147, Section 148
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Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘’SMC” JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No.823/JP/2024
ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. Addl. CIT(A)-10, Mumbai dated 19-02-2024 for the assessment year 2013-14 raising following grounds of appeal.
1. 1. Under the facts and circumstances of the case Ld. CITA(A) grossly erred in confirming the invalid and illegal action of Ld. AO while complete assessment proceeding is illegal, invalid and without jurisdiction and barred by limitation hence may kindly be quashed.
2. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO in making addition of Rs. 7,78,040/ on account of Commodity Loss alleged to be Unaccounted Income, during the year without evidence and without considering the AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR materials and explanations available on records in their true perspective and sense.
3. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO in making addition of Rs. 15,560/- on account of commission without appreciating the facts available on records and without considering them in their true perspective and sense therefore complete addition should be deleted.
4. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO in making addition on the basis of statement recorded of the persons which are not concern with the company which shares have been traded though the concerns persons.
5. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO by denying opportunity of cross examination of the persons (witness) on which recorded statements are the basis of addition though the Apex courts verdict in ANDMAN TIMBER strongly recommended such opportunity of cross examination, 6. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO in confirming the action of Ld AO for charging Interest U/s 134A, B and C of the Act.
2.1 At the outset of the hearing of the appeal, the Bench noticed that there is delay of 42 days in filing the appeal by the assessee for which the ld.AR of the assessee has filed an application for condonation of delay mentioning therein reason that main director of the company Shri Rohit Srivastava expired on 12-01- 2024 (death Certificate enclosed) who used to deal with income tax matter with the Advocate and in such a situation, the delay took place in filing the appeal. 2.2 On the other hand, the ld. DR submitted that the Court may decide the issue as deem fit and proper in the case.
AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR 2.3 After hearing both the parties and perusing the materials available on record, the Bench observed that there is sufficient cause in late filing of the appeal by the counsel of the assessee and the same is condoned. 2.4 Further, the Bench noticed that the appeal of the assessee has been dismissed by the ld.Addl.CIT(A) by observing as under:- ‘’5.3 Further, as discussed above, during the course of appellate proceedings despite having been granted sufficient time and opportunities of being heard, the appellant could not make any submission. From the fact of appellant’s non- response to various notices, it is clear that apparently appellant has no specific submissions and documentary evidences to file in respect of claims made in the grounds of appeal.
5.4 In view of the detailed reasons given above, the grounds of appeal taken by the appellant are dismissed.
6. In the result, the present appeal is dismissed.’’ 2.5 Although During the course of hearing, Ld. AR has drawn my attention to the fact that he has taken as much as 6 grounds of appeal while challenging the order of the ld. CIT(A) yet while raising Ground No. 1 ld. AR state forward taken my attention to the legal arguments that AO while passing the assessment order has not made any additions on account of the reasons recorded by him while reopening the assessment. It was submitted that the foundation issue as stated in the reasons recorded has not survived in this case as no additions towards them were made by the AO while passing the impugned order dated 22nd December 2018. In this AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR regard my attention was also drawn to the written submissions filed by the assessee and the relevant portion of the written submissions where in this ground has been raised is reproduced herein below.
‘’It is apposite to mention that the foundation issue as stated in the reason recorded has not been survived in this case as no addition towards them are made by the Ld. AO while passing the impugned order dated 22.12.2018. In Para 8 of the reasons recorded the Ld. AO stated the reasons to initiate the provision of section 147/151 of the act which are as follows For unaccounted money for bogus long term capital gain of Rs. 7,78,040/- For acquiring debenture/bounds of Rs. 10,00,000/- For sale of immovable property of Rs. 65,00,000/- However,in this case the Ld. AO while passing the assessment orderdid not made any additionon the foundation allegation recorded before issuing the notice u/s 148 of the act and made an addition by disallowing loss on sale of shares. Further, it is settled law that if Ld. AO 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.
Our aforesaid view is supported by the following decision of jurisdictional ITAT Jaipur in the matter of AVG Construction P Ltd. Vs ITO (ITA No. 90/JP/2020)wherein the court relied on the decision of 1.Hon’ble supreme court (Bankipur Club Ltd. vs. CIT (1971) 82 ITR 831 (SC)) 2. Hon’ble Rajasthan High Court in the case of Commissioner of Income-tax v. Shri Ram Singh (Raj-HC)2008, 306 ITR 343 3. Hon’ble Bombay High Court in the case of CIT Vs Jet airways (I.) Ltd. 331 ITR 236 (Bom)
2.6 On the other hand ld DR appearing on behalf of the revenue relied on the orders passed by the revenue authorities. It was submitted that no such objection was taken at any stage by the appellant before the AO or before It was also AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR submitted that assessee was also ex- parte before ld. CIT(A). Therefore at this stage, Assessee cannot be allowed to argue on merits and thus the Appeal filed by the appellant deserves to be dismissed.
2.7 I have heard the counsel for both the parties and I have also perused the material placed on record, judgement cited by the parties as well as orders passed by the revenue authorities. From the record I found that while recording reasons for reopening the assessment, the AO has categorically reached to the conclusion at the time of recording reasons to initiate the provisions of section 147 which are as follows:-
(i) For unaccounted money for bogus long term capital gain of Rs. 7,78,040/- (ii) For acquiring debenture/bounds of Rs. 10,00,000/- (iii) For sale of immovable property of Rs. 65,00,000/- Then thereafter while passing the assessment order , the AO did not make any addition on the allegations which were recorded before issuing the notice under section 148 of the Act and made an addition by disallowing loss on sale of shares. Therefore in such a scenario, I draw strength from the decision of the Co-ordinate Bench of ITAT Jaipur in the matter of AVG Construction Private Limited versus ITO in JP / 2020 wherein the Co-ordinate bench of ITAT while dealing with identical situation has reached to the conclusion after relying upon the “8. We also observed that no addition was made by the AO on the ground of reasons recorded and AO believed that income is escaped assessment. For ready reference, we reproduce Section 147 of the Act as under:
If the [Assessing] Officer, [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, 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 this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
The above provisions interprets the aspect of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under section 147 the AO, assess or reassess 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 of the Act.
From bare reading of the language of section 147 of the Act, rather makes it clear that of course the sine qua non for assumption of jurisdiction is, that the AO should have a reason to believe, that any income chargeable to tax, has escaped assessment, for any assessment year, and on such jurisdiction coming into existence, he is to proceed under that section, but then, he is to assess or reassess "such income", obviously the income, regarding which he has 'reason to believe" to have escaped assessment, for any assessment year, and while so assessing, such "income" of course may make assessment with respect to other income, which also may have escaped, and which comes to his notice subsequently, in the course of the proceedings, but then, if while exercising powers under section 147, the AO comes to conclusion that the income, with respect to which he has entertained "reason to believe" to have escaped assessment, did not escape, or that it was not liable to tax, then merely because he had initiated proceedings, would not confer on him the continued jurisdiction, to assess the other incomes, which have come to his notice subsequently, in the course of proceedings, to have escaped assessment. In the present case, since the "reason to believe" entertained by the AO was with respect to the assessee having assessee made immovable property AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR sale transaction wherein liability to pay capital gain u/s 50C arises. As per records, the assessee had sold immovable properties of Rs. 11,00,000/- and Rs. 19,51,000/-, which have been valued at Rs. 12,00,064/- and Rs. 21,83,258/- respectively for the purpose of stamp duty valuation by the Sub-Registrar, while it has been found that section 50C is not applicable in the present case and it was clearly established and the AO himself also found the same has been explained by the assessee, that being the position, the jurisdiction commenced, came to an end, at that point itself and did not confer any jurisdiction on the AO to further continue with the assessment proceedings, simply because, he was of the opinion, that other escaped income had come to his notice, subsequently, in the course of the proceedings. In this regard, we draw strength from the decision of the Hon’ble Supreme Court in the case of Bankipur Club Ltd. vs. CIT (1971) 82 ITR 831 (SC) wherein it was held that:
This court has repeatedly ruled that the information referred to in section 34(1)(b) must be what the Income-tax Officer receives after he makes the original order of assessment. It must come to his knowledge subsequent to the assessment sought to be reopened. In these cases it is submitted that all the facts were placed before the Income-tax Officer when he passed the original orders of assessment. The fact that the club had received certain amounts as guest charges from its members had been placed before the Income-tax Officer. It is not the case of the Income-tax Officer that he did not come to know all the relevant facts when he made the original orders of assessment. It is also not his case that at the time he made those orders he was not aware of the true legal position. It was for the Income-tax Officer to show that he had received some information subsequent to his passing the original orders of assessment. No such material was placed before the Tribunal. That being so, the Tribunal, in our opinion, was right in holding that the Income-tax Officer was incompetent to initiate proceedings under section 34(1)(b). The High Court has given no reason to come to the conclusion that there was any subsequent information, on the basis of which the Income-tax Officer could have reassessed the assessee under section 34(1)(b).
The Hon’ble Jurisdictional Rajasthan High Court in the case of Commissioner of Income-tax v. Shri Ram Singh (Raj-HC)2008, 306 ITR 343 wherein it was held that:
32. The result of the aforesaid discussion is that the question framed, in the order dated 23rd May, 2006, is required to be, and is, answered in the manner, that the Tribunal was not justified in holding, that the proceedings for reassessment under section 148/147 were initiated by the AO, on non-existing facts because ultimately the assessee has been able to explain the income, which was believed to have been escaped assessment, was explainable. It is further held, that the AO was justified in initiating the proceedings under section 147/148, but then, once he came to the conclusion, that the income, with respect to which he had entertained reason to believe" to have escaped assessment, was found to have been explained, his jurisdiction came to a stop at that, and he did not continue to AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR possess jurisdiction, to put to tax, any other income, which subsequently came to his notice, in the course of the proceedings, which were found by him, to have escaped assessment.
We also draw strength from the decision of Hon’ble Bombay High Court in the case of CIT Vs Jet airways (I.) Ltd. 331 ITR 236 (Bom) wherein the Hon’ble Court has held as under:
16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ( such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.
We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra).
AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR 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.”
Considering the totality of facts and circumstances of the case, submissions of the parties as well as the judicial pronouncements referred in this regard, we are of the view that 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. Therefore, we found merit in the contention of the ld. AR and the case laws relied upon by the ld DR are not applicable in the case of the assessee, therefore, we quash the proceedings initiated U/s 147 of the Act.
In the result, this appeal of the assessee stands allowed partly. “
Therefore after analysing the entire facts and circumstances of the case and as well as taking into consideration the legal preposition as discussed by me above I am also of the view that the language used in section 147(1) and on the basis of the precedent on the subject I am of the view that section 147 (1) as it stands AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR postulated 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 1-04-1989 continue to hold the field. Considering the totality of facts and circumstances of the case, submissions of the parties as well as the judicial pronouncements referred in this regard, I am of the view that 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 AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR 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. Therefore on the basis of my above discussion I am of the view if after issuing a notice under section 148, the AO 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, then in that eventuality it is not open to him independently AMROS ENGINEERING PVT LTD VS ITO, WARD 4(4), JAIPUR to assess some other income. In case he intends to do so then a fresh notice under section 148 would be necessary. However, admittedly the said exercise has not been carried out in the present case. Therefore I quash the proceedings initiated under section 147 of the Act. Therefore this ground raised by the assessee stands allowed.
2.8 Since I have quashed the entire proceedings initiated under section 147 of the Act, therefore now there is no need to deal with other Grounds raised by the appellant. Consequently the appeal filed by the appellant stands allowed.
3.0 In the result, the appeal of the assesee is allowed with no orders as to cost.
Order pronounced in the open court on 09/09/2024.