2017 (7) TMI 215 - HC - Income Tax

Assessment reopening criteria clarified by Gujarat High Court

Commissioner of Income Tax-Vadodara-2 Versus Ranbaxy Laboratories Limited

The case involved the validity of reopening an assessment for the assessment year 2001-2002 where adjustments were made on unrelated issues. The Tribunal ... Reopening of assessment - whether ITAT was justified in holding that AO had the jurisdiction to reassess issues other than issues in respect of which proceedings are initiated, but he was not justified when the reasons for the initiation of those proceedings ceased to survive? - Held that:- Identical issue came up for consideration before this Court in case of Commissioner of Incometax v. Mohmed Juned Dadani [2013 (2) TMI 292 - GUJARAT HIGH COURT] held that Explanation (3), Section 147 of the Act, however, by no stretch of imagination, can be construed as to provide that if the reason on which the assessment is reopened fails, the AO still can proceed to assess some other income which according to him had escaped assessment and which came to his light during the course of the assessment. For assuming jurisdiction to frame an assessment under Section 147 what is essential is a valid reopening of a previously closed assessment. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. Issues involved:1. Validity of reopening of assessment and jurisdiction of Assessing Officer to reassess unrelated issues.Detailed analysis:1. The appeal pertains to the validity of reopening the assessment for the assessment year 2001-2002. The Assessing Officer made no additions on the grounds recorded in the reasons for reopening but made adjustments on unrelated issues like deduction under section 80HHC and MAT provision of section 115JB. The assessee contended that reassessment was not justified since no additions were made on the recorded grounds. The Tribunal, following a Delhi High Court decision, accepted the assessee's contention. The Revenue appealed against the Tribunal's judgment.2. The Counsel for the Revenue mentioned a pending Special Leave Petition (SLP) before the Supreme Court against a judgment of Ranbaxy Laboratories Ltd. on a similar issue. However, the Gujarat High Court had previously considered a similar issue in the case of Commissioner of Income Tax v. Mohmed Juned Dadani. The Division Bench of the Gujarat High Court held that Explanation 3 to Section 147 of the Income Tax Act does not expand the powers of the Assessing Officer. The explanation clarifies ambiguities in the main provision and cannot interfere with statutory rights. The Court emphasized that if an assessment is reopened, the Assessing Officer can assess any income that escaped assessment, even if it was not mentioned in the reasons for reopening, provided the condition of nondisclosure of material facts is established.3. The Court highlighted that if the revenue's stand is accepted, it would lead to incongruent situations where the Assessing Officer could assess income that did not satisfy the requirement of nondisclosure of material facts. Various High Courts, except Punjab and Haryana High Court, have held that Explanation 3 to Section 147 does not change the situation. The Bombay High Court, in the case of CIT vs. Jet Airways (I) Ltd., ruled in favor of the assessee after considering statutory provisions and judicial pronouncements. The Punjab and Haryana High Court, in a different view, gave importance to Explanation 3 without considering the explanatory memorandum. Ultimately, the Tax Appeal was dismissed based on these considerations.