TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 1441
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....etition 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, which according to the AO, has escaped assessment. 6. Issue notice. 6.1 Mr. Kunal Sharma, learned senior standing counsel, accepts ....
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....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 scrutiny assessment was also done. Accordingly, in view of the fresh information received in the case, the provisions of clause (c)(i) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to ....
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....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 when the section 148 notice was issued. The additional reasons cannot be provided or recorded subsequent to the issuance of notice under section 148. It is, of course, open to the Assessing Officer, if some other information comes within his knowledge to issue another notice under section 148 for different reasons. But that is ....
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....eri (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 the Assessing Officer has come to the conclusion that there is an escapement of income. The Supreme Court held thus (page 564): "However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessmen....
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.... 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 Officer of reopening the assessment. Those reasons cannot be supplemented or improved upon subsequently. While disposing of the objections of the assessee, the Assessing Officer has purported to state that the assessee had filed only sketchy details in its return filed in the electronic form. As we have noted earlier, the relevant provisions expressly m....
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....e 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) Equitable Investment Co. P. Ltd. v. ITO (1988) 174 ITR 714 (Cal) ; and (vii) S. Sreeramachandra Murthy v. Deputy CIT (2000) 243 ITR 427 (AP). 15. The ratio laid down in all these cases is that, having regard to the entire scheme and purpose of the Act, the validity of the assumption of jurisdiction under section 147 can be tested only by reference to the reasons recorded under section 148 (2) of the Act a....
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.... 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. Before parting, we deem it apposite to deal with one other issue which in our opinion merits consideration, notwithstanding learned counsels for respective sides having not alluded to the same. It becomes relevant to note that by virtue of Finance Act, 2009, the following provision came to be inserted in Section 147 of the Act:- "Amendment of Section 147-In Section 147 of the Income Tax Act, after Explanation 2, the following Explanation shall be inserted and shall be....
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....een 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 power to review the original assessment at the behest of the assessee. 18. Essentially, Explanation 3 was a manifestation of the legislative intent to enable the AO to undertake a wholesome assessment and not be tied down only to those aspects which formed the basis for commencement of reassessment. These aspects and the legislative amendments which came to be introduced by virtue of Finance Act, 2009, were lucidly considered by a Division Bench of our Court in Ranbaxy Laboratories Ltd. vs. Commissioner of Income-ta....
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....ase 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 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 reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment. 11. Now, after the insertion of Explanation 3, as noted above, the position is 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 section 147 though the reasons for such issue were not ....
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.... 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 would be evident from a reading of the following passages of that decision:- "13. Similar contention was raised before the Division Bench of the Bombay High Court in the case of Jet Airways (2011) 331 ITR 236 (Bom). The court referred to the interpretation by the Rajasthan High Court in Ram Singh (2008) 306 ITR 343 (Raj) wherein it was observed as under (page 246): "It is only when, 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....
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....imed 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 chargeable to tax, which has escaped assessment, and which subsequently comes to his notice in the course of the proceedings, but then the prefixing words "and also" which succeeded "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". This expression was found to be making clear that existence of the income for which the Assessing Officer formed belief to have escaped assessment, is a precondition for including any other income chargeable to tax, escaping assessment, and coming to the notice of the Assessing Officer subsequently, ....
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....d 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 income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would ....
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....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 Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on t....
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....hich 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 to any other income which may be found to be exigible to tax. 24. This clearly appeals to reason, since Section 147 of the Act embodies a power to assess, reassess as well also to recompute. Consequently, and once that power is validly invoked, the original assessment would cease to exist in the eyes of law. Undoubtedly, once an assessment already made comes to be reopened, the AO stands empowered statutorily to undertake an assessment afresh in respect of the entire income which may have escaped assessment. However, the only additional caveat which Ranbaxy Laboratories Ltd. enters is with respect to a situation where, in the course of reassessment, the AO ultimately comes to the conclusion that no additions or va....
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....ds 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 plain reading of Explanation 3 to section 147 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment notice might not have been issued in case during the reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice during the course of proceedings for reassessment under section 148 of the Act. The provision nowhere postulates or contemplates that it is only when there is some addition on the ground on which reassessment had been initiated, that the Assessing Officer can make additions on any other ground on the basis of which income may have escaped assessment. The reassessment proceedings, thus, in the present case cannot be held to....
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....ions 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 as well as the language in which Section 147 of the Act stands couched, we find no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. We also bear in consideration the said decision having been affirmed and approved subsequently in Commissioner of Income-tax (Exemption) vs. Monarch Educational Society 2016 SCC OnLine Del 6636 and Commissioner of Income-tax vs. Software Consultants 2012 SCC OnLine Del 316. 30. We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A (b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reasses....