ACIT, NAGERCOIL vs. SHRI J. RAJ PRABHU, NAGERCOIL

आदेश /O R D E R

PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The Revenue filed an appeal against the order of Commissioner of

Income Tax (Appeals)-3, Madurai, in ITA No. 0012/2015-16 dated 13.06.2016

passed u/s. 143(3) r.w.s. 147 of the Income Tax Act.

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2.1 The CIT(A) has erred in holding that the AO is barred from initiating re-

assessment proceedings u/s. 147 of the Income Tax Act, 1961 when the

time limit for issuance of notice u/s. 143(2) of the Income Tax Act 1961

had not expired.

2.2 The CIT(A) ought to have seen that the Income Tax Act, 1961 has no

provision barring the Assessing Officer from issuing notice u/s. 148 of the

Income Tax Act, 1961 when time for issue of notices u/s. 143(2) of the

Income Tax Act, 1961 has not expired and hence ought to have held the

re-opening of assessment as valid.

2.3 The CIT(A) ought to have considered the fact that when the capital gains

is computed, the relevant claims of deductions and exemptions are also to

be considered.

business of electronic work services and filed the Return of income for the

assessment year 2011-12 on 30.03.2013 with total income of Rs. 12,94,190/-.

The Return of income was processed u/s. 143(1) on 25.04.2013. The Ld. AO

based on AIR information found that the assessee has transferred the property in

the financial year 2010-11 for Rs. 2,13,62,400/- and worked out the capital gains

of Rs. 54,34,807/- further the assessee has claimed exemption u/s. 54F of the

Act to the extent of Rs. 43,01,975/- without any supporting proof and the Ld. AO

having the Reason to believe that the income has escaped assessment and

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issued notice u/s. 148 of the Act dated 20.08.2013. The assessee filed letter

dated 22.05.2014 to treat the original Return of income filed on 30.03.2013 as

due compliance of notice and subsequently, the assessee was served with notice

u/s. 143(2) of the Act The Ld. AR appeared from time to time and filed the

details. The Assessing Officer considered the financial statements and found that

the assessee could not substantiate the claim of exemption u/s. 54F of the Act

nor produced any evidence to the extent of Rs. 4,09,239/- and in respect of

second claim of exemption of Rs. 66,95,823/-. The Assessing Officer dealt on

the disputed issue at Page 3 of the order and observed that the assessee could

not produce the evidence of construction or purchase of Residential house and

brought to tax long term and Assessed income of Rs. 74,84,961/- and passed

order u/s. 143(3) r.w.s. 147 on 27.02.2015.

the appellate proceedings, the Ld. AR of the assessee argued the grounds and

reiterated the submissions made before the Assessing Officer and also raised

grounds on the validity of re-opening of assessment u/s. 147 of the Act, where

Ld. AO has issued notice u/s. 148 of the Act irrespective of the time period for

issue of notice u/s. 143(2) of the Act notice has not been expired under the

provisions of section 143(2) of the Act notice has to be issued within a period of

6 months from the end of the financial year in which the Return of income was

filed. Whereas, the Ld. AO has issued notice u/s. 148 on 20.08.2013,

irrespective of the fact that the Return of income was filed by the assessee

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Belatedly on 30.03.2013. With these observations, the Assessing Officer has

erred in issuing notice u/s. 148 of the Act though the time limit of six months

was available from the date of end of the financial year in which Return of

income was filed. The Ld AR relied on the jurisdictional of the Hon'ble High

Court of Madras in the case of CIT vs Qatalys Software Technologies Ltd., 308

ITR 249 (Mds) held that the Tribunal was right in coming to the conclusion that

the Assessing Officer was barred from initiating re-assessment proceedings u/s.

147 of the Act when the time limit of issue of notice u/s. 143(2) of the Act had

not expired. The Ld. CIT(A) observed the findings at Page 3 to 7 of the order

and concluded at Para 3.4 in cancelling the impugned order and allowed the

appeal which is read as under:

"3.4 have considered the submissions of the representative. It is seen from the reasons recorded that the assessment was reopened for the purpose of taxing the alleged difference in the sale consideration admitted and as per the AIR information. However, during the course of scrutiny assessment proceedings the Assessing Officer was satisfied with the reply of the appellant and accepted the fact that the share of appellant was only as admitted in the return of income and thereby did not make any addition. In the light of the above facts, the validity of addition made by the Assessing Officer on other issues have to be considered. Sec. 147 provides that while completing the reassessment, the Assessing Officer has to assess the escaped income and any other income which comes to his notice subsequently. The important word here is "and" in sec. 147. When the Assessing Officer has not made any addition in respect of issues for which he reopened the assessment, he has no power to make any other addition which comes to his notice subsequently. Even after

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introduction of Explanation-3, the position is the same as Explanation -3 only explains the scope of sec.147 and it does not extend the scope of main section. Explanation - 3 was inserted because some judicial authorities were taking the view that the Assessing Officer could not make addition other than the issues for which the assessment was reopened even though addition was made in respect .of issues mentioned in the reasons recorded for reopening. To overcome such decisions, Explanation-3 was inserted providing that if the Assessing Officer makes any addition in respect of issues for which the assessment was reopened, he can make addition in respect of other issues for which the reasons have not been recorded and the condition is that he has to necessarily make addition in respect of issues for which the assessment was reopened. This is clear from the Explanatory Notes for Finance Act (No.2) of 2009 as per Circular NO.05/2010 dated 03.06.2010 which reads as under:-

"47.1 The existing provisions of section 147 provides that 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 section 148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further, Assessing Officer may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Assessing Officer is required to record the reasons for reopening the assessment before issuing notice under section 148 with a view to reassess the income of assessee.

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47.2 Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to the reasons recorded for reopening of the assessment and 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. 47.3 Therefore, to articulate the legislative intention clearly Explanation 3 - have been inserted in section 147 to provide that the assessing officer may examine, assess or reassess any issue relevant to income which comes to is 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. 47.4 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 1989 and will apply accordingly in relation to assessment year 1989-90 and subsequent years."

In the case of the appellant, the Assessing Officer has not made any addition in respect of reasons recorded by him and, therefore, no other addition can be made. In view of the above, I find that the Assessing Officer was not justified in restricting the claim of deduction u/s.54F for which he had not recorded the reasons while reopening the assessment.

3.5 In view of the above discussion, the impugned order is cancelled. As I have cancelled the irnpugned order, I do not find it necessary to deal with the other grounds raised by the appellant on merits.

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Tribunal. Before us, the Ld. DR argued that the Ld. CIT(A) has erred in

observing that the AO is barred from initiating re-assessment proceedings when

the time limit for issue of notice u/s. 143(2) has not expired. The Ld. CIT(A)

should have considered the merits of the case before cancelling the impugned

order u/s. 143(3) r.w.s. 147 of the Act and prayed for resorting the order of the

Assessing Officer. Contra, the Ld. AR relied on the orders of CIT(A) and

supported with the decision of the jurisdictional High Court.

judicial decisions. The sole substantive dispute alleged by the Ld. DR that the

Ld. CIT(A) has quashed the re-assessment proceedings as the Ld. AO has issued

notice u/s. 148 of the Act when the time limit has not expired for issuance of

notice u/s. 143(2) of the Act was available for the said assessment year. We find

the issue is squarely covered by the jurisdictional High Court decision CIT vs

Qatalys Software Technologies, 308 ITR 249 (Mds) held as under:

"3. We have heard the argument of the learned counsel for the revenue, who submitted that the issue has already been decided against the revenue by the above cited Judgement of the Division Bench of this Court.

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a pendency of the Return before the Assessing Officer. The reasons given by the Tribunal are based on valid materials and evidence and we do not find any error or illegality in the order of the Tribunal so as to warrant interference".

We respectfully following the jurisdictional High Court decision and Apparent

facts, found the Ld. CIT(A) has dealt exhaustively on the provisions of law and

facts vis-a-vis explanations of the assessee and allowed the appeal. Accordingly,

we are not inclined to interfere with the order of the CIT(A) and uphold the

decision and dismiss the grounds of the Revenue.

Order pronounced on Tuesday, the 28th day of March, 2017 at Chennai.

Sd/- Sd/- (ए. मोहन अलंकामणी ) (जी. पवन कुमार) (A. MOHAN ALANKAMONY) (G. PAVAN KUMAR) लेखा सद�य /ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai, �दनांक/Dated: 28th March, 2017 JPV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF