TaxTMI 
TaxTMI 
2023 (6) TMI 920
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....only on the basis of report of Investigation Wing and mechanical opinion of higher authorities. 3. Because the Ld. CIT (Appeal) has erred in law and on facts in confirming ex - parte assessment Oder u/s 144 of the Act without service of proper notice u/s 142(1 )/144 of the Act and any show cause notice. 4. Because the Ld. CIT (A) has erred in law and on facts in confirming an addition of Rs. 1,7500,000/- even though no addition has been made in respect of alleged transaction with M/s While Collar Management Pvt. Ltd. which was the subject matter of initiation of reassessment proceedings. 5. Because the ld. CIT (A) has erred in law and on facts in making an addition of Rs. 1,75,00,000/- without appreciation of the evidences produced on record and non- admission of evidences without proper opportunity to the assessee company. 6. Such other relief as may crave in during the appellate proceedings." 3. Representatives of both the sides were heard at length. Case records carefully perused and relevant documentary evidences duly considered in light of Rule 18(6) of the ITAT Rules. 4. Reasons recorded for reopening the assessment read as under: ....
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....ed for kind perusal and approval." 5. In compliance to the aforestated notice, the assessee raised objections which are exhibited at pages 23 to 27 of the Paper Book wherein the assessee had very specifically mentioned as under: "(a) Your good self without verifying the fact whether the assessee has actually taken any accommodation entries amounting to Rs. 2.65 crores from White Collar Management Ltd., has, merely on suspicion, reopen the assessment proceedings. Whereas the facts remain that the assessee has not entered into any transaction of whatsoever nature with White Collar Management Ltd. during the year under consideration. (b) We state that the report of the investigation wing is based on the wrong fact and confirm that we have not entered into any transaction with White Collar Management Ltd. during the year under consideration and the transaction of receipts of money aggregating to Rs. 2.65 crores from the above mentioned party as alleged by you is wrong as no such money was received by us from the party during the year under consideration." 6. These specific objections being part of the objections raised by the assessee against the said noti....
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....tly 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." 12. This insertion of Explanation 3 to Section 147 of the Act has been examined and interpreted by the Hon'ble High Court of Bombay in the case of CIT Vs. Jet Airways [I] Ltd 331 ITR 236. The relevant part of the judgment is extracted as under: "5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 procee....
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....iated by the Assessing Officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows: "....The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his kn....
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....as follows : (i) The Assessing Officer 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 recomputation, the Assessing Officer has to serve on the assessee a notice undersub- section (1) of section 148; (iii) The Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 the section and (iv) Though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. 10. XXX 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....
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....having escaped assessment. If the income, the escapement of which was the basis of the formation of the season to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 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." 13. If the above judgment is applied on the facts of the case in hand, we find that the Assessing Officer has accepted the objections of th....
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....income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 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 Assessing Officer 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 section 147." 12. The Division Bench in Ranbaxy Laboratories Limited (supra)considered the judgment of the Supreme Court in the case of V. Jagmohan Rao versus CIT and EPT, (1970) 75 ITR 373(SC) and CIT versus Sun Engineering Works Private Limited, (1992) 198 ITR 297 (SC) and has then elucidated: "18. We ar....
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....tions 80HH and 80-I and accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80- I which as per our discussion was not permissible. Had the Assessing Officer proceeded to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-I as well." 16. Considering the facts of the case in totality, in light of the judgment of the Hon'ble Jurisdictional High Court and Hon'ble High Court of Bombay [supra], we do not find any merit in the re assessment proceedings initiated by the Assessing Officer on wrong facts and therefore, the said assessment order deserves to be quashed. We accordingly, quash the assessment order and since the assessment has been quashed, we do not find it necessary to dwell into t....