TaxTMI 
TaxTMI 
2019 (3) TMI 679
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng a taxable income of Rs. 4,00,320/- and return was processed u/s 143(1) on 31.03.2011. According to AO, he got information from the director of Income tax (I & CI) New Delhi intimating that details of beneficiaries of accommodation entries in M/s. Mahasagar Group of cases has been sent to the AO and suitable measure to initiate proceedings for reopening of these cases wherever deemed fit need to be undertaken. Based on that the AO recorded the reasons for reopening which is found placed at page 8 of the Paper Book which is reproduced as under: "The captioned assessee is assessed to tax in this Ward-45(2), Kolkata and filed her last return of income for the A.Y 2010-11 on 22.07.2010 showing total income of Rs. 4,00,320/- as per records maintained by this office and the same was processed u/s.143(1) dated 31.03.2011. Information has been received from the Director of Income Tax (I & CI), New Delhi & forwarded through the CCIT, Kolkata VIII, vide letter No. CCIT-VIII/Action Plan/Kol/2013-14/1954 dated 05.12.2013 intimating that 'it may be recalled that data relate to beneficiaries of accommodation entries in M/s. Mahasagar Group of cases for assessment year 2006-07 onwards perta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5 wherein the AO made addition of Rs. 19,22,905/-, not accepting the claim of the share transactions which the assessee declared as exempt LTCG which was treated by the AO as STCG and made addition of Rs. 19,22,905/- and disallowed u/s 14A of the Act Rs. 53,751/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the order of the AO. Aggrieved the assessee is before us and has challenged the validity of the reopening as aforerstated in para 2 supra. 5. We have heard both the parties and perused the records. We note from the perusal of the reasons recorded that AO got information from Director of Income Tax (I&CI) that the assessee is one of the beneficiary of the accommodation entries provided by Shri Mukesh Choksi (Mahasagar Group of cases in Mumbai) and has taken accommodation entry for loss of Rs. 2,71,500/- during the F.Y. 2009-10 relevant to AY 2010-11. So, according to the AO, since the return of income of the assessee was processed only u/s 143(1), there was no occasion to verify the said transaction which, as per the statements/evidence gathered by the department from third parties was bogus in nature. This according to AO resulted....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, 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 this section". The proviso deals with reopening of an assessment upon the expiry of a period of four years from the end of the relevant assessment year and does not fall for interpretation in this appeal. Explanation 3 to section 147 was inserted by the Finance (No. 2) Act of 2009, with effect from 1-4-1989. Explanation 3 provides as follows : "Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148." 4. Prior to its amendment with effect from 1-4-1989, section 147 provided as foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll of 2009. The Memorandum treats the amendment to be clarificatory and contains the following Explanation : "Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 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 this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148." 7. In order to appreciate the reasons for the amendment inserting Explanation 3, it would be necessary to advert to some of the judgments of the High Courts, prior to the amendment. The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201 dealt with the question ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....items are unconnected and totally alien then the assessing authority has to follow sub-section (2) of section 148 with regard to the escaped income which comes to his knowledge during the course of the proceedings." Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment. 8. Parliament stepped in to correct what it regarded as an incorrect interpretation of the provisions of section 147. The Memorandum explain-ing the provisions of Finance (No. 2) Bill of 2009 states in this background that some courts had held that the Assessing Officer 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 Parl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fficer does not assess or reassess the income which he has reason to believe has escaped assessment and which formed the subject-matter of a notice under section 148(2), it is nonetheless open to him to assess any other income which, during the course of the proceedings is brought to his notice as having escaped assessment. 11. The rival submissions which have been urged on behalf of the revenue and the assessee can be dealt with, both as a matter of first principle, interpreting the section as it stands and on the basis of precedents on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income, 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. Parliamen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter. 12. In CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 2971 , the Supreme Court dealt with the following question of law in the course of its judgment:- "Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income?" The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income 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 section 147, as they stood prior to the amendment on 1-4-1989. The Supreme Court held that the expression "....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and in the judgment of the Kerala High Court in Travancore Cements Ltd.'s case (supra). This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2). 14. The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343 . The Rajasthan High Court construed the words used by Parliament in section 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 section 147. The Rajasthan High Court held as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d, 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 3191. 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.- 16. 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 judicia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....round 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. 18. In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall, accordingly, stand answered against the revenue and in favour of the assessee. The appeal is, accordingly, dismissed. There shall be no order as to costs. 6. We note that in the present case in hand, the facts on the basis of which the reasons were recorded by AO for invoking jurisdiction for reopening the assessment was that the assessee had taken accommodation entries for loss of Rs. 2,71,500/- from Mahasagar Group of Cases which fact led the AO to the belief that income has escaped assessment. Howev....