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Income Tax Appellate Tribunal, BANGALORE ‘A’ BENCH, BANGALORE
By way of this appeal, the assessee appellant has called into question correctness of the order dated 29th November, 2014, passed by the learned Commissioner of Income-tax(A), in the matter of assessment under section 143(3) r.w.s. 147 of the Income-tax Act, 1961, for assessment year 2007-08.
2 ITA 178/Bang/2014 Assessment year 2007-08
One of the grievances that the assessee has raised in this appeal, by way of an additional ground of appeal, is that when the Assessing Officer has not made any addition in respect of the items set out in reasons for reopening the assessment, the Commissioner of Income-tax(A) ought not to have confirmed additions in respect of other issues as well. This ground of appeal is reproduced below for ready reference:
“1. The CIT (A) erred in justifying the reasons for reopening of assessment when no addition was made on the ground on which reopening was made.”
As the issue so raised by the assessee is a purely legal issue arising out of facts already on record, we admit this ground of appeal and proceed to dispose of the same on merits.
To adjudicate on this appeal, only a few material facts need to be taken note of. The assessment in this case was reopened by recording the following reasons:
“REASONS FOR REOPENING THE CASE U/S 147 OF THE I T ACT, 1961
The assessee is a partnership firm engaged in the business of purchase and sale of land. A survey u/s 133A of I T Act, 1961 was conducted at assessee’s business premises on 21.10.2010. During the course of survey certain incriminating documents and loose papers were found which revealed transaction in immovable property including land.
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The return of income for A Y 2007-08 is filed on 31.3.2009 vide E-filing Ack No.68249770310309. As per the profit and loss account attached with the return of income for A Y 2007-08, the purchases are shown only to a tune of Rs.48,23,432.12. But as per the prima facie analysis of the impounded material, purchases during the F Y 2006-07 relevant to A Y 2007-08 is to a tune of Rs.95,45,200/-. Hence, there is a difference of Rs.47,21,767.88/-. Thus, there is excess of purchases as against the purchases shown in the return of income for A Y 2007-08.
Hence, I have reason to believe that income chargeable to tax has escaped assessment in the relevant A Y 2007-08. Therefore, notice u/s 148 of I T Act, 1961 is being issued for A Y 2007-08 within the meaning of section 147 of the I T Act, 1961.”
In the course of framing the assessment proceedings, as a result of this reopening, no additions were made in respect of the above. The Assessing Officer, howsoever, made some other additions. Aggrieved, inter alia, by the reopening of the reassessment, assessee carried the matter in appeal before the CIT (A) but without any success. The assessee is not satisfied and is in further appeal before us.
We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
It is well settled legal position that when no additions are made by the Assessing Officer, in the course of reopened assessment proceedings, in respect of the income for escapement of which the reassessment
4 ITA 178/Bang/2014 Assessment year 2007-08 proceedings are initiated, he cannot make any other additions either. In the case of CIT Vs. Jet Airways (331 ITR 236), Hon’ble Bombay High Court has, reiterating this legal position, observed as follows:-
”19. The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT vs. Shri Ram Singh (2008) 217 CTR (Raj) 345 : (2008) 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in s. 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 which comes to his notice subsequently in the course of the proceedings’ under s.147. The Rajasthan High Court held as follows:
“. It is only when, in proceedings under s.147 the Assessing Officer, assesses 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 s. 147.
To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under s. 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 AO 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 s.147.”
Parliament, when it enacted the Expln.(3) to s.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 5 ITA 178/Bang/2014 Assessment year 2007-08
bringing in Expln.3 to s.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 Expln.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 s.148(2). The decisions of the Kerala High Court in Travancore Cements Ltd. (supra) and of the Punjab & Haryana High Court in Vipan Khanna (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 (supra), Expln.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 vs. Atlas Cycle Industries (1989) 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 s.148 were incorrect or non-existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries (supra) and of the Rajasthan High Court in Shri Ram Singh (supra) would not be affected by the amendment brought in by the insertion of Expln.3 to s.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 s.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 Expln.3 by the finance Act (No.2) of 2009. However, Expln.3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s.147. An Explanation to a statutory provision is intended to explain its contents and 6 ITA 178/Bang/2014 Assessment year 2007-08
cannot be construed to override it or render the substance and core nugatory. Sec.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 s.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 nor escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under s.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 s.147(1) and on the basis of the precedent on the subject. We agree with the submissions which has been urged on behalf of the assessee that s. 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 Expln.3 to s.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 (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 s.147(1) as they stood after the amendment of 1st April, 1989 continue to hold the field.”
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When we asked the learned DR whether any additions have been made in respect of the items of income, for the alleged escapement of which assessment was reopened, he could not show such additions.
It is thus clear that the alleged items of income, for the escapement of which the assessment was reopened, were not brought to tax by the Assessing Officer In the impugned assessment order. Such being the factual position, the very exercise of reopening of assessment is rendered infructuous and unsustainable in law. As learned counsel for the assessee rightly contends, no other additions could have been made in this case.
For the reasons set out above, we uphold the plea of the assessee and quash the reassessment proceedings. As the reassessment itself is quashed, we see no need to deal with other issues raised in the appeal.
In the result, the appeal is allowed in terms indicated above. It was so pronounced in the open court immediately upon conclusion of hearing on 15th April 2015.