TMI Blog2010 (4) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... d also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. - ITA No. 1714 of 2009 & ITA (L) No. 1526 of 2008 - - - Dated:- 12-4-2010 - ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.) : 1. Admit. During the course of the hearing: of these appeals by the Revenue under Section 260A of the Income Tax Act, 1961, submissions have been urged before the Court confined to the following substantial question of law: "'Where upon the issuance of a notice under Section 148 of the Income Tax Act, 1961 read with Section 147, the Assessing Officer does not assess or, as the case may be reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under Section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject matter of the notice ? 2. The two appeals by the-Revenue pertain to assessment years 1994-1995 and 1995-1996'. The Tribunal has noted that an identical issue was agitated by the assessee for assessment year 1997-1998 and that the Tribunal, while allowing the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 chargeable to tax has "escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee. A notice requiring him to furnish a return of his income. Upon the formation of the reason to believe: that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 Section 147. - 6. The effect of Explanation 3 which was inse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment, 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, it was open to him to issue a fresh notice by following sub section1 2 of Section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows: " The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 reeomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of Section 148; (Hi) 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 and1 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 nonetheless,:-assess or reassess the income in respect of any issue; which has escaped assessment and which, comes to his notice subsequently to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation 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 wine 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under assessment on account; of the existence of any of the grounds contemplated by Explanation l is Section 147. The Supreme Court adverted to the judgment in V. Jagixnmohah Rao's case [1970] 75 ITR 373 (S.C.), which held that once an assessment is validly reopened, the previous under assessment 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 earlier or in respect of items not claimed during the course of the original assessment proceedings. The judgment in Jaganmohan Rao's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to which he had "reason to believe" to be so, then only, in addition, 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 enacted the Explanation (3) to Section 1,47 by the Finance (No.2), Act, 2009 clearly had before, it both the: lines of precedent on the subject. The precedent dealt with two separate que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No.2) of 2009. However, Explanation 3 does not and cannor 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 assessee 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 to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 17. We have approached the issue of interpretation that has arisen for decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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