TaxTMI 
TaxTMI 
2013 (5) TMI 304
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....on similar ground rectification proceedings under section 154, were initiated and dropped, therefore, notice under section 148 on the same ground vitiates the said re-opening and thirdly, there is a "change of opinion". On merits, the assessee has challenged the addition on account of long term capital gains on treating the assets sold as commercial asset and re-working the written down value (WDV) and thereby denying the indexed cost of acquisition. 3. Facts in brief:- The assessee is an individual having income mainly under the heads "Income From Business", "Capital Gains" and "Income From Other Sources". The return of income was filed at an income of Rs. 12,90,380, on 29th October 2005, wherein the capital gain was shown from sale of gala situated at Mahim and exemption under section 54EC was claimed on account of investment of the capital gain so arisen in the Nabard bonds. Such a return of income was subject to scrutiny under section 143(2) and the assessment was completed under section 143(3) vide order dated 2nd November 2007, at an income of Rs. 14,38,530, after including the agricultural income for the rate purpose. By and large, the return of income was accepted. There....
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....f this proposition, he relied on the judgment of the Hon'ble Supreme Court in Jaganmohan Rao v/s CIT, [1970] 75 ITR 373 (SC). After rejecting the assessee's objections, the Assessing Officer, from the details furnished before him, observed that the property in question which was sold, was exploited by the assessee for commercial purpose as it was used by the firm in which he is a partner. Accordingly, he held that the capital gain of the property needs to be revalued by considering WDV of the property and not by taking the index cost of acquisition. Accordingly, he re- worked the long term capital gains in the following manner:- Sale consideration Rs. 29,00,001 Capital Gain : = Sale Consideration WDV Rs. 29,00,001 - 5,31,441 L.T.C.G. = 23,68,560 5. The Commissioner (Appeals) confirmed the entire action of the Assessing Officer and dismissed the entire contentions of the assessee. 6. Before us, the learned Counsel for the assessee submitted that the proceedings initiated under section 147 is bad-in-law on various counts - firstly, in the return of income and in the original assessment proceedings, the Assessing Officer made necessary enquiry about the sale of....
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....WDV of Rs. 5,31,441 on notional depreciation and also denying the benefit of the indexation. 10. On other hand, the learned Departmental Representative submitted that it is not a case of "change of opinion" as in the assessment order, there is no mention about examining of the assessee's working of the capital gain and applicability of provisions of section 50C. Thus, there cannot be a case of "change of opinion" because the Assessing Officer has not expressed any of his opinion in the assessment order. Secondly, he submitted that once the Assessing Officer has reopened the assessment under section 147, he can assess any other income which comes during the course of assessment proceedings and this aspect of the matter has been specifically provided in the statute by insertion of Explanation 3, brought in statute by Finance Act, 2009, with retrospective effect from 1st April 1999. On merits, he relied upon the reasoning and the findings given by the Assessing Officer and the learned Commissioner (Appeals). 11. We have heard the rival contentions, perused the findings given by the Assessing Officer & the learned Commissioner (Appeals) as well as the material placed on record. W....
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....d that the Assessee's claim under section 54EC is absolutely correct and no addition was made. Thus, on both the counts on which the Assessing Officer has entertained the reason to belief for the "reasons recorded" has been found to be no ground for re-opening the assessment and there was no income chargeable to tax which can be said to have escaped assessment. 13. On these facts, whether the addition on account of long term capital gain which has been made by the Assessing Officer and which were not forming part of the "reasons recorded" can be sustained or not. This aspect of the matter has been dealt in detail by the Jurisdictional High Court in Jet Airways (supra), wherein the Jurisdictional High Court have also analysed the provisions contained in Explanation 3 to section 147 which has been referred to before us by the learned Departmental Representative and have concluded 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 reason for such issue were not included in the notice, however, I,f after issuing the notice under section 148, the Assessing Officer acce....
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....s. 147 to provide that the AO may assess or reassess income in respect of any issue which comes to his 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-s. (2) of s. 148." In order to appreciate the reasons for the amendment inserting Expln. 3, it would be necessary to advert to some of the judgments of the High Courts, prior to the amendment. The Punjab & Haryana High Court, in its decision, in Vipan Khanna vs. Asstt. CIT (2002) 175 CTR (P&H) 335 : (2002) 122 Taxman 1 (P&H) dealt with the question as to whether, after initiating proceedings under s. 147 on the ground that the petitioner had claimed depreciation at a higher rate, the AO would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative. A Division Bench of the Kerala High Court held in Travancore Cements Ltd. vs. Asstt. CIT (2008) 219 CTR (Ker) 359 : (2008) 305 ITR 170 (Ker) : (2009) 179 Taxman 117 (Ker), that upon the issuance of a notice under s. 148(2), when proceedings were initiated by the AO on issue....
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.... what it regarded as an incorrect interpretation of the provisions of s. 147. The Memorandum Explaining the Provisions of Finance (No. 2) Bill of 2009 states in this background that some Courts had held that the AO has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment and that it was not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by Parliament as being contrary to legislative intent. Hence, Expln. 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under s. 147 though the reasons for such issue were not included in the reasons recorded in the notice under s. 148(2). The effect of s. 147 as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) The AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) Upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomput....
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....ome, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction. The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too'. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the AO, upon the formation of a reason to believe under s. 147 and the issuance of a ....
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....ncome could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of s. 147, as they stood prior to the amendment on 1st April, 1989. The Supreme Court held that the expression "escaped assessment" includes both "nonassessment" as well as "underassess- ment". Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of s. 147. The expression "reassess" refers to a situation where an assessment has already been made but the AO has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Expln. 1 to s. 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC), which held that once an assessment is validly reopened, the previous underassessment is set aside and the ITO has the jurisdiction and duty to levy tax on the ent....
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....hich 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 AO, assesses or reassesses 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 AO 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 AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of pr....
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....escaped assessment on a certain issue, the AO 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 cannot be construed to override it or render the substance and core nugatory. Sec. 147 has this effect that the AO 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 not escaped assessment, it is not open to him independently to assess some other income....
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....th retrospective effect and has further observed and held as under:- "27. From the above, it can be seen that the explanation was meant to be clarificatory in nature and to put the issue beyond any legal controversy. When the Legislature found that in face of the provisions contained in Section 147 of the Act post 01.04.1989 some of the courts had taken a view that the Assessing Officer is restricted to the reassessment proceedings only on issues in respect of which the reasons were recorded for reopening the assessment, such explanation was introduced in the statute. Thus, the explanation was meant to be merely clarificatory in nature and was introduced with the purpose of putting at rest the legal controversy regarding the true interpretation of Section 147 of the Act which had arisen on account of certain judicial pronouncements. We have noticed that prior to enactment of Explanation 3 to Section 147, Punjab and Haryana High Court in case of Commissioner of Income Tax Vs. Atlas Cycle Industries reported in 180 ITR 319 (supra) had taken a restricted view of the power of the Assessing Officer to make any addition on the grounds not mentioned in the reasons recorded for reopenin....
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.... which comes to his light during the course of his assessment proceedings which was not mentioned in the reason for issuing notice under Section 148 of the Act. In a notice for reassessment which has been issued beyond a period of four years from the end of relevant assessment year, the condition that income chargeable to tax has escaped assessment for the reason of the failure on the part of the assessee to disclose truly and fully all material facts for the purpose of assessment must also be established unless ofcourse some other ground viz, non-filing of the return at all etc. is available to the Assessing Officer. If such non-disclosure of material facts is established with respect to the reason recorded for issuing notice for reopening the assessment, it would be open for the Assessing Officer to thereafter even assess other income which might have escaped assessment but which may not necessarily satisfy the requirement of non-disclosure of true and full material facts. If in such a situation, the stand of the revenue is accepted, a very incongruent situation would come about if ultimately the Assessing Officer were to drop the ground on which notice for reopening had been iss....