2013 (2) TMI 292 - HC - Income Tax

Reopening of Assessment - The assessee contended that the Assessing Officer had no jurisdiction to travel beyond the reasons for reopening the assessment. - Held that:- Explanation (3), Section 147 of the Act, however, by no stretch of imagination, can be construed as to provide that if the reason on which the assessment is reopened fails, the AO still can proceed to assess some other income which according to him had escaped assessment and which came to his light during the course of the assessment. For assuming jurisdiction to frame an assessment under Section 147 what is essential is a valid reopening of a previously closed assessment. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive.

If the stand of the revenue is accepted, a very incongruent situation would come about if ultimately the AO were to drop the ground on which notice for reopening had been issued but to chase some other grounds not so mentioned for issuance of the notice. In such a situation, even if a case where notice for reopening has been issued beyond a period of four years, the assessment would continue even though on all the grounds on which the additions are being made, there was no failure on the part of the assessee to disclose true and full material facts. In such a situation an important requirement of failure on part of the assessee to disclose truly and fully all material facts would be totally circumvented.

As already noted, except for the Punjab and Haryana High Court in case of Majinder Singh Kang v. Commissioner of Income-Tax and anr (2012 (6) TMI 616 - PUNJAB AND HARYANA HIGH COURT) all courts have uniformly taken a view that Explanation 3 to Section 147 of the Act does not change the situation insofar as the present controversy is concerned. Leading decision of Bombay High Court in case of CIT. v. Jet Airways (I) Ltd. [ 2010 (4) TMI 431 - HIGH COURT OF BOMBAY] has been followed by different High Courts wherin the High Court, in its elaborate decision considering the statutory provisions, different judicial pronouncements and the explanatory memorandum for introduction of Explanation 3 to Section 147 ruled in favour of the assessee.

Punjab and Haryana High Court in case of Majinder Singh Kang v. Commissioner of Income-Tax and anr (supra) ofcourse has sounded a different note, however, the explanatory memorandum to Explanation 3 to Section 147 of the Act was not brought to the notice of the High Court in the said decision. The High Court gave considerable importance on such Explanation 3 to Section 147 and the language used therein. In the result, we answer the question in the affirmative i.e. in favour of the assessee and against the revenue.