2015 (8) TMI 614 - HC - Income Tax

Court upholds reassessment under Section 147 allowing assessment of 'any other income.' Revenue prevails in dispute over disallowed compensation.

The Commissioner of Income Tax, The Assistant Commissioner of Income Tax Versus M/s Mookambika Developers

The High Court upheld the validity of the reassessment proceedings under Section 147 of the Income Tax Act, allowing for the assessment of 'any other ... Reopening of assessment - disallowing the genuineness of the compensation u/s 40A(3) alleged to have been paid by the assessee to certain parties for vacating the property - whether the Tribunal would be correct in upholding reassessment proceedings when the reasons recorded for reopening of proceedings under Section 148 of the Act itself does not survive? - Held that:- Considering the provision of Section 147 as well as its Explanation 3, and also keeping in view that Section 147 is for the benefit of the Revenue and not assessee and is aimed at garnering the escaped income of the assessee {viz. Sun Engineering ([1992 (9) TMI 1 - SUPREME Court] )} and also keeping in view that it is the constitutional obligation of every assessee to disclose his total income on which it is to pay tax, we are of the clear opinion that the two parts of Section 147 (one relating to 'such income' and the other to 'any other income') are to be read independently. The phrase 'such income' used in the first part of Section 147 is with regard to which reasons have been recorded. Under Section 148(2) of the Act, and the phrase 'any other income' used in the second part of the Section is with regard to where no reasons have been recorded before issuing notice and has come to the notice of the Assessing Officer subsequently during the course of the proceedings, which can be assessed independent of the first part, even when no addition can be made with regard to 'such income', but the notice on the basis of which proceedings have commenced, is found to be valid. No reason to differ with the view taken by the Coordinate Bench of this Court in the case of Govindaraju - vs - Income Tax Officer [2015 (8) TMI 271 - KARNATAKA HIGH COURT] and thus we answer the first question in favour of the Revenue and against the assessee. Issues:1. Validity of reopening of assessment under Section 147 of the Income Tax Act.2. Merits of the case regarding disallowance of compensation paid for vacating the premises.3. Appeal against the Tribunal's decision on the reopening of assessment.Analysis:1. The case involved a partnership firm engaged in real estate business, which filed its income tax return for the assessment year 2006-07. Subsequently, a survey was conducted, and a notice for reopening the assessment under Section 148 of the Act was issued. The Assessing Officer made an addition of Rs. 53,00,000 after disallowing the genuineness of compensation paid to certain parties for vacating the property. The Appellate Commissioner confirmed the validity of reopening under Section 147 but disallowed only 20% of the total payment under Section 40A(3) of the Act.2. The assessee appealed before the Tribunal challenging the reopening of assessment, while the Revenue filed a separate appeal contesting the disallowance made by the Appellate Commissioner. The Tribunal held that the reopening of assessment was invalid as no addition was made by the Assessing Officer on the issue for which satisfaction was recorded. The Revenue filed appeals against this decision.3. The High Court considered the issue of the validity of reassessment proceedings under Section 147 in light of previous judgments and the provisions of the Income Tax Act. Referring to a Division Bench decision, the Court held that the two parts of Section 147 are to be read independently, and the phrase 'any other income' can be assessed even when no addition is made with regard to 'such income'. The Court agreed with the view taken in the previous case and answered in favor of the Revenue. Consequently, the matter was remanded back to the Tribunal for fresh consideration on merits.This detailed analysis covers the issues of the validity of reopening the assessment, the merits of the case regarding disallowance of compensation, and the Tribunal's decision, providing a comprehensive understanding of the legal judgment.