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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-9, Chennai dated 21.02.2017 for the assessment year 2007-08.
2. The grounds raised by the Revenue read as under:-
“1.The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case.
2. The CIT(A) failed to consider the facts that the AO can assess or re- assess any other income chargeable to tax which has escaped assessment and which comes to the notice of the AO during the course of proceedings u/s.147 as per the third proviso to section 147 of the IT Act, and Explanation 3 to section 147 of the IT Act 1961.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored.” 3. The appeal is filed by the Revenue with delay of four days. The Assessing Officer has given plausible reasons explaining the delay of 4 days in filing of appeal. After considering the reasons and period of delay, we condone the delay and admit the appeal for adjudication.
Briefly stated facts are as under:
The assessee is engaged in the business of manufacture and sale of IMFL products and filed its return of income for the relevant assessment year 2007-08, which was initially accepted by the Assessing Officer. Subsequently, the Assessing Officer has reopened the assessment recording reasons on claim of exempt income and non debit of any expenditure to earn exempt income. However, in final assessment order no addition has been made on the issue for which case was reopened.
The Assessing Officer in the assessment order has made addition on account of disallowance of sales promotion expenses of Rs. 1,22,99,285/- and deferred expenditure of Rs.41,56,086/-. The Ld.CIT(A) has held that the Assessing Officer has recorded reasons for charging income that escaped assessment, but in the end, such income was not charged to tax. In such circumstances Assessing Officer cannot also charge any other income that escaped assessment which comes to his notice subsequently. The Ld.CIT(A) has relied upon the following case laws laid down by various High Courts:-
Jet Airways India Ltd .- 331 ITR 236 (Bom)
Ranbaxi Laboratories Ltd. - 336 ITR 136 (Del)
Major Deepak Mehta – 344 ITR 641 (Chatisgarh HC)
4. Adhunik Niryat Ispat Ltd – 63 DTR 212 (Del)
During the course of hearing, Ld. DR fairly accepted the fact that addition has not been made on this issue on which the case was re-opened. The Ld. DR however argued that as per Explanation 3 to Section 147 of the Act the Assessing Officer has got power to assess/reassess income in respect of any issue in reopened of assessment. The Ld.AR, on the other hand, relied upon the order of the Ld.CIT(A).
We have heard rival submissions and considered materials available on record. The issue under consideration is where no addition is made on account of reasons recorded for reopening the assessment, whether the Assessing Officer can assess any other income that escaped assessment which comes to his notice subsequently, in view of the Explanation 3 to Section 147 of the Act. The Hon’ble Bombay High Court in the case of CIT vs. Jet Airways P.Ltd (331 ITR 236) has decided this issue observing as under:- “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 319. 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.
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). 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.” The above decision has been followed by Honorable Delhi High Court in the case of Ranbaxy Laboratories Ltd. 336 ITR 136 (Del). In view of above, we are of the considered view that there is no infirmity in the order of the Ld.CIT(A) and thus, appeal filed by the Revenue is liable to be dismissed.
In the result, appeal filed by the Revenue is dismissed. Order pronounced on 10th May, 2024.