TaxTMI 
TaxTMI 
2024 (1) TMI 1188
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.... by the assessee in ITA No. 369/RPR/2023 for assessment year 2013-14, wherein, the assessee company has assailed the impugned order on the following grounds of appeal: "1) In the facts and circumstances of the case and in law, the action of ld. Commissioner of Income-tax (Appeals) is not justified for he wrongly decided the ground that since the primary ground for which re-assessment proceedings were initiated ceased to survive, the additions on other grounds is illegal and without jurisdiction. 2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 91,16,214/- as deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961 in the hands of the assessee company. 3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 1,23,312/- u/s. 40(a)(ia) of the Income-tax Act, 1961. 4) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 82,208/- out of interest expenses on estimate basis. 5) The....
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....hen the A.O had not made any addition as regards the issue, based on which, the case of the assessee company was reopened, i.e., receipt of interest income of Rs. 7,21,147/-; therefore, he had wrongly assumed jurisdiction and made independent additions/disallowances while assessing the income of the assessee company vide his order passed u/ss. 143(3)/147 of the Act dated 28.12.2017. The Ld. AR in support of his aforesaid contention placed reliance on the following judicial pronouncements: (i) Commissioner of Income Tax-5, Mumbai Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.) (ii) Assistant Commissioner of Income Tax Vs. Major Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh). (iii) Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax (2011) 12 taxmann.com 74 (Delhi) (iv) Ajay Kumar Agrawal Vs. ITO, Ambikapur, ITA Nos. 260 & 261/RPR/2016 dated 14.03.2022. (v) Shri Surendra K Sheth (HUF) Vs. ITO-17(3)(4), Mumbai, ITA No.4861/Mum/2019 dated 25.02.2021. 8. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. 9. We have heard the ld. authorized representatives of both the p....
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....ovided as follows: "147. Income escaping assessment.-If- (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that 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 of recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)." 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 charg....
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....n in Vipan Khanna v. CIT, [2002] 255 ITR 220 dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer 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. v. Asst. CIT, [2008] 305 ITR 170, that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to relieve 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,....
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....er may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147 though the reasons for such issue were not included in the reasons recorded in the notice under section 148(2). 9. The effect of section 147 as it now stands after the amendment of 2009 can therefore, be summarised 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 under sub-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 none the less assess or reassess the i....
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.... 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 Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) such income; and also (ii) 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. The words "such income" refer to the income chargeable to tax which has escaped assessment, and in respect of which the Assessing: Officer has formed a reason to believe that it ....
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.... 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 section 147. The expression "reassess" refers to a situation where, an assessment has already been made but the Assessing Officer has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao v. CIT/EPT, [1970] 75 ITR 373, which held that once an assessment is validly reopened, the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The court held that the object of section 147 ensures to the benefit of the Revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected....
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...., in proceedings under section 147 the Assessing Officer, 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 add-on, 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 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." 15. Parliament, when, it enacte....
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....ns had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer 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 Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 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. Section 147 has this effect that the Assessing Officer 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 section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason t....
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....in the present case before us, had wrongly assumed jurisdiction and made the impugned additions vide his order passed u/s. 143(3)/147 dated 28.12.2017, we herein quash the same. 12. As we have quashed the assessment for want of valid assumption of jurisdiction by the A.O, therefore, we refrain from adverting to and therein, adjudicating the other contentions advanced by the Ld. AR as regards the merits of the case, which, thus are left open. 13. In the result, appeal of the assessee in ITA No.369/RPR/2023 for A.Y.2013- 14 is allowed in terms of our aforesaid observations. ITA No.370/RPR/2023 A.Y. 2015-16 14. We shall now take up the appeal filed by the assessee company in ITA No.370/RPR/2023 for A.Y.2015-16, wherein, the assessee company has assailed the impugned order on the following grounds of appeal: "1) In the facts and circumstances of the case and in law, the action of Id. Commissioner of Income-tax (Appeals) is not justified in confirming additions made by ld. Assessing Officer on items not covered under scope of limited scrutiny and travelled beyond her jurisdiction is illegal and without jurisdiction. 2) In the facts and circumstances o....
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....1. In the facts and circumstances of the case and in law the Id. Assessing Officer has erred in making additions on items not covered under s cope of limited scrutiny thus travelled beyond her jurisdiction consequently the assessment is bad in law and without jurisdiction. After perusal of the facts of the case it is observed that the assessment order passed by AO after obtaining the prior the prior approval of the competent authority. Hence, these grounds of the appellant is hereby dismissed. Ground of appeal no. 2 2. The Id. Assessing Officer has erred in making addition of Rs. 91,16,214 as deemed dividend u/s. 2(22) (e) of the Income-tax Act, 1961 in appellant's own case. As per Section 2(22(e) (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not l....
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....ant case it is not disputed that the appellant assessee is a 40% shareholder in the company. Thus the appellant has a substantial interest in the company. There has also been an advance in this case from the company in which the appellant has substantial interest. Reliance are placed on following case laws. 1. [2019] 106 taxmann.com67(madras)High Court of Madras Bhagvathy Velan Vs. Dy. Commissioner of Income Tax, Corporate Circle-6(1), Chennai. 2. [2018]98 taxmann.com 543 (Bombay) High Court of Bombay Shri Sahir Sami Khatib Vs. Income Tax Officer, Mumbai. 3. [2021] 127 taxmann. Com 820 (Gujarat) High Court of Gujarat, Principal Commissioner of Income Tax Vs. Gladder Ceramics Ltd. The conditions prescribed u/s 2(22)(e) satisfied in this case and the appellant is covered under the provision of section 2(22)(e) and is to be taxed accordingly. The ground of appeal is dismissed. 8. Ground of appeal no. 3 & 4 3. The Id. Assessing Officer has erred in making disallowance of Rs. 1,23,312 u/s. 40(a)(ia) of the Income-tax Act, 1961. 4. The Id. Assessing Officer has erred in making disallowance of Rs. 82,208 out ....
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.... the previous year or in the subsequent year before expiry of the prescribed time) in the manner that the amount of such interest, commission, brokerage or fees shall not be deducted in computing the income chargeable under "profits and gains of business or profession". In other words, it shall be computed as income of the assessee because of his default in not deducting the tax at source. In the overall scheme of the provisions relating to collection and recovery of tax, it is evident that the object of legislature in introduction of the provisions like sub-clause (ia) of clause (a) of Section 40 had been to ensure strict and punctual compliance of the requirement of deducting tax at source. In other words, the consequences, as provided therein, had the underlying objective of ensuring compliance of the requirements of TDS. It is also noteworthy that in the proviso added to clause (ia) of Section 40(a) of the Act, it was provided that where in respect of the sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid in any subsequent year after the expiry of the time prescribed in Section 200(1), ....
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....ance under Section 40(a)(ia) of the Income-tax Act shall be made in respect of the expenditure incurred in the month of March if the tax deducted at source on such expenditure has been paid before the due date of filing of the return. It is important to mention here that the amendment was given retrospective operation from the date of April 1,2005, i.e., from the very date of substitution of the provision. Therefore, the assesses were, after the said amendment in 2008, classified in two categories namely: one, those who have deducted that tax during the last month of the previous year and two, those who have deducted the tax in the remaining eleven months of the previous year. It was provided that in the case of assessees falling under the first category, no disallowance under Section 40(a)(ia) of the Income-tax Act shall be made if the tax deducted by them during the last month of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of section 139(1) of the Income-tax Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under Section 40(a)(ia) of Income-tax ....
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.... "rent and commission ". The appellant assessee not having deducted TDS payments in question was rightly disallowed deduction while computing the total income of the appellant assessee by the A.O. Reliance is placed on the following case laws:- 1. [2017] 84 taxmann.com 233 (Jammu & Kashmir) HIGH COURT OF JAMMU AND KASHMIR Principal Commissioner of Income-tax v. Manzoor Ahmed Walvir* 2. [2018] 91 taxmann.com 293 (Kerala)/[2018] 254 Taxman 419 (Kerala)/[2018] 403 ITR 74 (Kerala)HIGH COURT OF KERALA Academy of Medical Sciences vs. Commissioner of Income-tax. 3. [2017] 81 taxmann.com 43 (SC)/[2017] 247Taxman379 (SC)42017] 394 ITR 300 (SC) 42017] 295 CTR 1 (SC)) SUPREME COURT OF INDIA Palam Gas Service v. Commissioner of Income-tax 4. [2020] 118 taxmann.com 47 (SC){2020] 272 Taxman 472 (SC) SUPREME COURT OF INDIA Shree Choudhary Transport Company vs. income Tax Officer. 10. Ground of appeal No. 5 & 6 are general in nature no needs adjudication. 11. As a result, the appeal is hereby dismissed." 19. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 20. We have hea....
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.... Vs. ITO-17(3)(4), Mumbai 2021 (2) TMI 1148- ITAT Mumbai. 22. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. 23. We have thoughtfully considered the aforesaid issue in the backdrop of the contentions of the Ld. authorized representatives of both the parties. As is discernible from the assessment order the case of the assessee company was selected for "limited scrutiny" for the following reason: "(i) Large share premium received during the year (verify applicability of Section 56(2)(viib)" Admittedly, it is a matter of fact borne from record which has not been rebutted by the Ld. DR that the A.O at no stage of the assessment proceedings had obtained approval of the Pr. CIT for converting the "limited scrutiny" into "complete scrutiny" as provided by the CBDT Circular No. 20/2015 [F. No.225/269/2015-ITA-II], dated 29.12.2015. Considering the aforesaid facts, we find, that as stated by the Ld. AR, and rightly so, the scope of jurisdiction of the A.O while framing the "limited scrutiny" was circumscribed by the very purpose/reason, for which, the case of the assessee company was selected for scrutiny ass....
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.... of the assessee's case for limited scrutiny under CASS the jurisdiction of the Assessing Officer was circumscribed qua only those issues which had formed the reason for picking up of its case for such scrutiny, therefore, the failure on his part in not making verification or examination of any other extraneous issue by no means could have justifiably formed a reason for holding the order passed by him as erroneous in so far it was prejudicial to the interest of the revenue u/s 263 of the Act. As per CBDT Instruction No. 20/2015, dated 29.12.2015, scrutiny in cases which are selected through CASS has to be confined only to the specific reasons and issues for which the case has been picked up for scrutiny. Accordingly, now when the Assessing Officer pursuant to the selection of the case of the assessee for limited scrutiny through CASS was not vested with any jurisdiction for adverting to and therein dealing with issues which did not form part of the reasons for which the case was picked up for limited scrutiny assessment under CASS, thereupon, the Pr. CIT could not have justifiably stepped in to hold the order passed by the Assessing Officer u/s. 143(3) of the Act, dated 21.04.2016....
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....s have been sought regarding the scope and applicability of the aforesaid instruction to cases being scrutinized. 2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameters) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said instruction would not apply. iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in....
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.... make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show- cause notice. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance. Now, the case of the assessee before us was selected for limited scrutiny through CASS, for the reasons, that there were viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares.. Accordingly, it can safely be concluded that the assessment framed by the A.O fell within the realm of the limited purpose for which its case was selected for scrutiny assessment viz. viz. (i). L....
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....n as regards the issue of valuation of the "closing stock as reflected in the audited accounts of the assessee. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the ....
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....lanation furnished by the assessee accepted the same, therefore, the Pr. CIT in exercise of his revisional jurisdiction could not have substituted his view as as against the possible and plausible view that was arrived at by the AO as regards the aforesaid issue under consideration, we are unable to persuade ourselves to subscribe to the same. Ostensibly, the Pr. CIT on a perusal of the assessment records noticed that the assessee company had during the year under consideration made substantial investment in unquoted equity shares. Observing, that the AO had not made any enquiry as regards the investments made by the assessee in unquoted equity shares during the year, the Pr. CIT held the assessment framed by the AO vide his order passed u/s 143(3), dated 21.04.2017, to the said extent, as erroneous in so far it was prejudicial to the interest of the revenue under Sec. 263 of the Act, observing as under : " 1. The case of the assessee was selected for the reason 'Low income in comparison to very high investment' and 'Large increase in investment in unlisted equities during the year'. From the balance sheet of the assessee it is seen that as at 31st March, 2015, the total i....
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.... "Explanation 2 - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, - (a). the order is passed without making inquiries or verification which should have been made. (b) to (d)..........................................................................." We, thus, in terms of our aforesaid observations are principally in agreement with the view taken by the Pr. CIT that the order passed by the AO under Sec. 143(3), dated 21.04.2017 is erroneous in so far it is prejudicial to the interest of the revenue under Sec. 263, on the said count i.e, failure on the part of the AO in carrying out verifications as regards the substantial investments made in equity shares by the assessee during the year under consideration. Although, we have principally concurred with the Pr. CIT on the aforesaid issue, but at the same time find some substance in the claim of the ld. AR, that as stated by the assessee before the AO in the course of the assessment proceeding....