TaxTMI 
TaxTMI 
2025 (2) TMI 239
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.... "Whether the findings recorded by the Hon'ble ITAT is contrary to the provisions of Explanation-3 of Section 147 of the Income Tax Act, 1961 that if no addition is made on the issue which was mentioned for reopening of the case, the Assessment Officer cannot reassess in a case of escaped assessment?" 3. The brief facts relevant for adjudication of the matter are that the respondent assessee filed its return of income on 27.012.2010 declaring a total income of Rs.57,652/-. The said return was processed under Section 143 (1) of the Income Tax Act, 1961 (hereinafter to be referred as "the Income Tax Act") and the Assessing Officer re-opened the assessment under Section 148 of the Income Tax Act while disclosing the reasons for re-opening contending that he had reason to believe that an amount of Rs. 18,00,000/-, which was chargeable to tax, had escaped assessment for the year under consideration and the same needed to be brought under the ambit of taxation and action was being initiated under Sections 147 and 148 of the Income Tax Act. 4. The Assessing Officer concluded the assessment under Section 143 of the Income Tax Act determining the total income of the respondent....
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....vision of section 148 to 153, assess or re-assess such income and also any other income chargeable to tax which has escaped assessment .......' This expression 'and also any other income chargeable to tax which has escaped assessment' and which comes to his notice subsequently has fallen for consideration before various Hon'ble High Courts, namely Hon'ble Bombay High Court - Jet Airways (I) Limited; Hon'ble Delhi High Court - Ranbaxi Laboratories Limited, Hon'ble Gujarat High Court - Mohmed Junded Dadani and Hon'ble Calcutta High Court in the case of M/s. Infinity Infotech Parks Limited. All the Hon'ble High Courts are unanimous in their approach to propound that expression 'and also'employed in section 147 cannot be read as being in the alternative. It means that if no addition is being made on an item for which assessment was reopened, then Assessing Officer cannot add any other item. In other words, he ought to have reopened the assessment again for the purpose of adding those escaped item because that creates an independent circumstance for proceeding against an assessee. There might be various aspects of limitation etc. Would come to the rescue of assessee. Thus follo....
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....of the Income Tax Act. 11. It is contended by the learned counsel for the Revenue that so far as his information is concerned, the judgments rendered by the High Court of Punjab and Haryana and the High Court of Karnataka in the above referred decisions have neither been reversed nor modified and the same still hold good. 12. Heard the learned counsel appearing for the appellant/Revenue and perused the material available on record. 13. The High Court of Punjab and Haryana in Mehak Finvest Pvt. Ltd. (supra) while taking into consideration Explanation-3 inserted to Section 147 of the Income Tax Act through the Finance (No. 2) Act, 2009, prospectively with effect from 01.04.1989 has held as under: "5. After hearing learned counsel for the parties, in our view, the appeal deserves to succeed. Explanation 3 to section 147 has been inserted by the Finance (No. 2) Act, 2009,retrospectively with effect from April 1,1989. It reads thus: '147. Income escaping assessment.--...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, ....
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....R 358 and Mehak Finvest Pvt. Ltd. (supra)has come to the conclusion that the Assessing Officer can take into consideration any other income which may have escaped assessment but discovered during the re-opening process, however, was not specifically mentioned in the reopening order. The relevant portion of the decision of the Karnataka High Court rendered in N. Govindaraju(supra) is reproduced hereunder: "S.147: Income escaping assessment: If the Assessing Officer has reason to believe that any income, chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of S.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, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that ....... Provided further that........ Provided also that ..... Explanation (1) .......
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....he Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. Section 148 of the Act requires the Assessing Officer to issue notice to the assessee where the income has escaped assessment. Subsection (2), which was inserted by Direct Tax Laws (Amendment) Act, 1989 with effect from 1.4.1989, requires the Assessing Officer to record his reasons before issuance of any such notice under sub-section (1) of section 148. The question which first arises is with regard to the validity of the reopening proceedings, which is by issuance of notice under section 148, reasons for which are to be recorded under sub-section (2). The assessee has an opportunity to challenge the reasons given for issuance of notice and if the same are found to be vague or illegal or without any basis, the notice would become invalid. In the case of Raymond Woollen Mills Ltd. Vs ITO (1999) 236 ITR 34, where such notice had been challenged, the Supreme Court held that what is to be seen is "whether there was prima facie some material on the basis of which the Department can reopen the case. The sufficiency of correctness of the material is not to ....
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....may be read in a simple manner, in parts, as follows: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he 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......... The 'reason to believe' that any income chargeable to tax has escaped assessment, is one aspect of the matter. If such reason exists, the Assessing Officer can undoubtedly assess or reassess such income, for which there is such 'reason to believe' that income chargeable to tax has escaped assessment. This is the first part of the section and up to this extent, there is no dispute. It is the latter part of the section that is to be interpreted by this Court, which is as to whether the second part relating to 'any other income' is to be read in conjunction with the first part (relating to 'such income') or not. If it is to be read in conjunction, then without there being any addition made with regard to 'such income' (for which reason had been given in the notice for reopening the assessment), the secon....
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....g the provisions of section 147, different High Courts have held differently, i.e., some have held that the second part of section 147 is to be read in conjunction with the first part, and some have held that the second part is to be read independently. To clarify the same, in the year 1989, the legislature brought in suitable amendments in sections 147 and 148 of the Act, which was with the object to enhance the power of the Assessing Officer, and not to help the assessee. Explanation 3 was inserted in section 147 by Finance (No. 2) Act, 2009 with effect from 1.4.1989. By the said Explanation, which is merely clarificatory in nature, it has been clearly provided that 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, notwithstanding that the reasons for such issue had not been included in the reasons recorded under sub-section (2) of section 148. Insertion of this Explanation cannot be but for the benefit of the Revenue, and not the assessee. In this background, if we read Section 147 it would be clear that in the phrase 'and also' ....
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....S.148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further Assessing Officer may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Assessing Officer is required to record the reasons for reopening the assessment before issuing notice under S.148 with a view to reassess the income of assessee. 47.2: Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to the reasons recorded for reopening of the assessment and 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. 47.3: Therefore, to articulate the legislative intention clearly Explanation 3 has been inserted in S.147 to provide that the Assessing Officer may examine, assess or reassess any issue relevant to income 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 ....
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....lso the Gujarat High Court in the case of CIT Vs Mohmed Juned Dadani (2013) 214 Taxman 38. With due respect to the view taken in the aforesaid cases, we are unable to persuade ourselves to follow the same. Insertion of 'Explanation' in a section of an Act is for a different purpose than insertion of a 'Proviso'. 'Explanation' gives a reason or justification and explains the contents of the main section, whereas 'Proviso' puts a condition on the contents of the main section or qualifies the same. 'Proviso' is generally intended to restrain the enacting clause, whereas 'Explanation' explains or clarifies the main section. Meaning thereby, 'Proviso' limits the scope of the enactment as it puts a condition, whereas 'Explanation' clarifies the enactment as it explains and is useful for settling a matter or controversy. Orthodox function of an 'Explanation' is to explain the meaning and effect of the main provision. It is different in nature from a 'Proviso', as the latter excepts, excludes or restricts, while the former explains or clarifies and does not restrict the operation of the main provision. It is true that an 'Explanation' may not enlarge the scope of....
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....ome in respect of any issue which has escaped assessment and also 'any other income' (of the second part of section 147) which comes to his notice subsequently during the course of the proceedings under the section. After the insertion of Explanation 3 to section 147 it is clear that the use of the phrase "and also" between the first and the second parts of the section is not conjunctive and assessment of 'any other income' (of the second part) can be made independent of the first part (relating to 'such income' for which reasons are given in notice under section 148), notwithstanding that the reasons for such issue ('any other income') have not been given in the reasons recorded under section 148 (2) of the Act. We are thus in agreement with the view taken by the Punjab & Haryana High Court in the cases of Majinder Singh Kang and Mehak Finvest (supra). Considering the provision of section 147 as well as its Explanation 3, and also keeping in view that section 147 is for the benefit of the Revenue and not the assessee and is aimed at garnering the escaped income of the assessee [viz. Sun Engineering (supra)] and also keeping in view that it is the constitutional obligation....