TaxTMI 
TaxTMI 
2024 (7) TMI 1441
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in our order of 27 March 2023 and which reads thus: "WP(C) 3804/2023 2. This writ petition concerns Assessment Year (AY) 2015-16. 3. Mr. Ved Jain, who appears on behalf of the petitioner, says that in the notice issued under Section 148A (b) of the Income Tax Act, 1961 [in short, "Act"], the allegation made against the petitioner was, that it had received loan from its 100% subsidiary i.e., Gul Properties Pvt. Ltd. 3.1 In response to this notice, Mr. Jain says, that a reply was filed, to demonstrate that the petitioner, in the period in issue, had not received loan from its subsidiary, but had, in fact, repaid the loan/advance. 4. It is pointed out by Mr. Jain, that although in the order dated 23.07.2022 passed under Section 148A(d) of the Act, this explanation was accepted, the Assessing Officer (AO) has now embarked on a different course altogether i.e., that the petitioner has not been able to completely explain the source of the money, which was used to repay a part of the loan. 5. It is in this context, that amount paid towards loan to the tune of Rs.25,53,42,435/- is sought to be treated as income chargeable to tax, whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alysis of information collected, inquiries made and findings of AO:- 3.1 Detailed perusal of information shows that the M/s. Gul properties Pvt. Ltd. had given loans/advance amounting to Rs. 170 crore to a related party/company M/s. ATS Infrastructure Ltd. (PAN:AADCA0609B). 3.2 Further, as per the balance sheet dated 31.03.2015 and 31.03.2016 of M/s. Gul Properties Pvt. Ltd. the shareholding pattern was such that its 100% equity shares were held by M/s ATS Infrastructure Ltd. as on 31.03.2014, 31.03.2015 as well as 31.03.2016. 3.3 The above information has been examined with reference to books of account for A.Y. 2015-16 available in this office. A perusal of available records reveals that this issue was not examined fully at the time of assessment proceedings u/s 143 (3) of the Act. Assessee failed to make true disclosure in this regard during filing of ITR as well as assessment proceedings. xxxx xxxx xxxx 4.2 In consideration of above, I have strong reason to believe that the income of assessee has been under-assessed to the tune of Rs. 170,00,00,000/-. In this case, a return of income was filed for the year under consideration and scr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssession it is inferred that income has escaped assessment to the tune of Rs.25,53,42,435/- as per the provisions of I.T. Act." 5. It is thus apparent that faced with the disclosures which were made by the petitioner, the respondents then sought to ascertain the source of funds on the basis of which repayments were made and those loans serviced. That was clearly not the edifice on which the Section 148A (b) notice was based. 6. Our Court in Commissioner of Income Tax-II Vs. Living Media India Ltd. 2013 SCC OnLine Del 1627 had pertinently observed that additional reasons cannot be provided or recorded by the Assessing Officer [AO] subsequent to the issuance of a notice under Section 148 of the Act. We deem it apposite to quote the following passage from that decision:- "13. With regard to the additional reasons which were recorded subsequent to the issuance of notice under section 148 of the said Act, we have already observed that this could not have been done by the Assessing Officer. The validity of the proceedings initiated upon a notice under section 148 of the said Act would have to be judged from the stand point of the reasons which existed at the point of time ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment proceedings even when an intimation under section 143 (1) has been issued. But it is also a settled principle of law that when the Assessing Officer issues a notice under section 148, at that stage the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief (Rajesh Jhaveri (supra). At that stage, an established fact of the escapement of income does not have to be proved, since it is not necessary that the Assessing Officer should have finally ascertained that income has escaped assessment. The nature of the jurisdiction of the Assessing Officer which was dealt with by the judgment of the two learned judges of the Supreme Court in Rajesh Jhaveri's case was revisited in a decision of three learned judges in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). The Supreme Court has held that though after April 1, 1989, a wider power has been conferred upon the Assessing Officer to reopen an assessment, the power cannot be exercised on the basis of a mere change of opinion nor is it in the nature of a review. The Supreme Court has laid down the test of whether there is tangible material on the basis of which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stituted its profits from business. The assessee stated that it had no permanent establishment in India as defined in article 5 of the DTAA and that based on the provisions of article 7 the profits of Rs. 131.70 crores from transactions in Indian securities were not liable to tax in India. The only basis on which the assessment is sought to be reopened is on the assumption that the provisions of section 115AD would stand attracted. That is on the assumption that the assessee is an FIL Though the attention of the Assessing Officer was drawn to the fact that the assessee is not an FII and that the provisions of section 115AD would not be attracted, the Assessing Officer persisted in rejecting the objections to the reopening of the assessment. In the order disposing of the objections which were raised by the assessee, the succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee. The validity of the notice reopening the assessment under section 148 has to be determined on the basis of the reasons which are disclosed to the assessee. Those reasons constitute the foundation of the action initiated by the Assessing O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s its income for the assessment year 1997-98 as no return of income had been filed. The entry made in the proceeding sheet is perhaps more elaborate and informative than the reasons recorded under section 148 (2) in the sense that it also states one more reason for initiating re-assessment proceedings, namely, that there is a difference between the profit before tax (Rs. 42,79,340) and the amount declared in the VDIS (Rs. 7,23,490). The reasons recorded, however, are not so explicit and do not refer to this fact. We are to be guided only by the reasons recorded for reassessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of reassessment. This legal position is well settled and if any authority is needed, reference may be made to the following judgments: (i) Jamna Lal Kabra v. ITO (1968) 69 ITR 461 (All) ; (ii) CIT v. Agarwalla Brothers (1991) 189 ITR 786 (Patna) ; (iii) C. M. Rajgharia v. ITO (1975) 98 ITR 486 (Patna); (iv) Asa John Devinathan v. Addi. CIT (1980) 126 ITR 270 (Mad) ; (v) East Coast Commercial Co. Ltd. v. ITO (1981) 128 ITR 326 (Cal) ; (vi) Equitab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to Section 148 and which reads as under:- "148. Issue of notice where income has escaped assessment - Before making the assessment, reassessment or recomputation under Section 147, and subject to the provisions of Section 148A, - xxxx xxxx xxxx Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice." 12. As is manifest from the above, the Proviso again ties the initiation of action to the existence of information which already exists or is in the possession of the AO and on the basis of which we come to form the opinion that income liable to tax has escaped assessment. The provision thus fortifies our view that the foundational material alone would be relevant for the purposes of evaluating whether reassessment powers were justifiably invoked. Accordingly, and for all the aforesaid reasons we find ourselves unable to sustain the impugned reassessment action. 13....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the AO would still be bound to restrict the scrutiny only to those heads or items in respect of which the notice had been originally issued under Section 148 of the Act. It appears to have been urged from the side of the assessees at that time that notwithstanding a reopening under Section 147 of the Act, the AO would be bound to examine only such items of income which had constituted the basis for formation of opinion that income had escaped assessment. 16. From the side of the Revenue, it appears to have been urged that the decision of the Supreme Court in Commissioner of Income Tax vs. Sun Engineering Works (P.) Ltd. (1992) 4 SCC 363 would not stand in the way in light of Explanation 3 which had come to exist. It would be pertinent to recall that Sun Engineering Works was a case which dealt with the argument of the assessee who had sought a review/revision of certain issues which had come to be settled against it in the original assessment proceedings. 17. In Sun Engineering Works, the Supreme Court in the aforesaid context, observed that the power of reassessment inures to the benefit of the Revenue and is consequently not liable to be construed as an embodiment of a pow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148. This amendment will take effect retrospectively from April 1, 1989, and will accordingly apply in relation to the assessment year 1989-90 and subsequent years." 9. By virtue of Explanation 3 to section 147 interpretive confusion came to be clarified and thus the decisions rendered by the Punjab and Haryana High Court in the case of Vipan Khanna v. CIT (2002) 255 ITR 220 (P&H) and the Kerala High Court in the case of Travancore Cements Limited v. Asst. CIT (2008) 305 ITR 170 (Ker), no longer hold the field on the subject. 10. The ratio of both the aforecited cases was that upon the issuance of 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 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. To put it differently, once the Assessing Officer has reason to belie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resh and the Assessing Officer has power to levy taxes on the entire income which has escaped assessment. The learned counsel relied upon the cases of the Supreme Court in CIT v. Sun Engineering Works P. Limited (1992) 198 ITR 297 (SC) and V. Jaganmohan Rao v. CIT and EPT [1970] 75 ITR 373 (SC). On the other hand learned counsel for the assessee submitted that the words, "and also" in section 147 signify that unless the Assessing Officer assesses the income with respect to which he has formed reason to believe within the meaning of section 147, it would not be open for him to assess or reassess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings. Learned counsel relied upon the case of Jet Airways (2011) 331 ITR 236 (Bom) and also CIT v. Shri Ram Singh (2008) 306 ITR 343 (Raj) and CIT v. Dr. Devendra Gupta (2008) 174 Taxman 438 (Raj); (2011) 336 ITR 59 (Raj). Reliance was also placed in the case of C. J. International Hotels Ltd. v. ITO being I. T. A. No. 2736/Del./2006 dated October 24, 2008." 20. It then proceeded to review various precedents relevant to the question which stood posited as woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 147, whereas "reassess" as referring to a situation where the 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 stipulated in section 147. The Supreme Court referred to the judgment in the case of V. Jaganmohan Rao (1970) 75 ITR 373 (SC) wherein it was held that the object of section 147 enures 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 earlier or in respect of items not claimed during the course of the original assessment proceedings. 15. In Dr. Devendra Gupta's case (supra), the learned Tribunal has relied upon the judgment of the Punjab and Haryana High Court in Atlas Cycle Industries case (1989) 180 ITR 319 (P&H), and concluded that the basic condition is that the Assessing Officer has reason to believe, that any income chargeable to tax has escaped assessment, for any assessment year, and it was found that the section puts no bar on the powers of the Assessing Officer to put to tax any other income charge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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.... 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: (1). '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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee." 21. The Division Bench ultimately concluded that the view expressed by the Bombay High Court in Commissioner of Income-tax Vs. Jet Airways (I) Ltd. 2010 SCC OnLine Bom 2065 clearly merited affirmation as would be evident from a reading of Para 18 of the report:- "18. We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (1) Limited (2011) 331 ITR 236 (Bom). We may also note that the heading of section 147 is "income escaping assessment and that of section 148 "Issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Sub-section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions 80HH and 80-1 as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in the affirmative in favour of the Revenue and the second part of the question against the Revenue." 23. It becomes evident that the Court in Ranbaxy Laboratories Ltd., firstly took into consideration Section 147 of the Act, embodying the phrase "and also" prefixed to the expression "any other income chargeable to tax which has escaped assessment". It thus came to the conclusion that, while an assessment may be reopened based on certain grounds which may have led the AO to be of the opinion that income chargeable to tax had escaped assessment, once it is found that the reassessment power had been validly invoked, the power of the AO would not stand confined only to those aspects which may have been noticed in the original notice issued under Section 148 of the Act but would also extend ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he income from salary, perquisites and unexplained cash deposits in various accounts along with interest thereon had escaped assessment. The counsel urged that the Assessing Officer, however, while passing the reassessment order had sought to make addition of another amount without any addition having been made on the ground on the basis of which reassessment had been initiated. According to the learned counsel, no reassessment order could be passed by the Assessing Officer. Learned counsel for the assessee relied upon the following observations made by this court in CIT v. Atlas Cycle Industries [1989] 180 ITR 319 (page 322): " ...we are of the view that the Tribunal was right in cancelling the reassessment as both the grounds on which reassessment notice was issued were not found to exist, and the moment such is the position, the Income-tax Officer does not get the jurisdiction to make a reassessment." 9. Support was also drawn from the decision of the Rajasthan High Court in CIT v. Shri Ram Singh (2008) 306 ITR 343 (Raj) wherein judgment of this court in Atlas Cycle Industries' case (1989) 180 ITR 319 (P&H) was followed." xxxx xxxx xxxx 12. A pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 14. Having regard to the facts, this Court is of the opinion that since there is some doubt as to the accuracy of the interpretation in the case of Ranbaxy Laboratories Limited (supra) and which was subsequently followed in the case of Monarch Educational Society (supra), the appropriate course would be to refer the issue to a larger Bench. 15. The following issue is accordingly framed for reference to the Full Bench i.e. whether the view expressed in the case of Ranbaxy Laboratories Limited (supra) [following Jet Airways's case (supra) of the Bombay High Court and followed later in Monarch Educational Society's case (supra)] with respect to the interpretation of Section 147 read with Explanation (3) of the Act, is restrictive, so as to sustain only additions made in the course of reassessment proceedings subject to the additions of amounts adverted to in the reassessment notice in the "reasons to believe" under Sections 147/148 of the Act and notice pursuant thereof?" However, the aforesaid reference ultimately came to be closed on 07 February 2020 on account of low tax effect. 29. In our considered opinion, and bearing in mind the import of Explanation 3....