TMI Blog2011 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive - The appeal is allowed - ITA No. 148/2008 - - - Dated:- 3-6-2011 - MR. JUSTICE A.K.SIKRI, MR. JUSTICE M.L.MEHTA, JJ. For Appellant: Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Somnath Shukla, Advocates For Respondent: Ms. Rashmi Chopra, Advocate. M.L. MEHTA, J. 1. The present appeal filed under Section 260A of the Income Tax Act, 1981 (hereinafter, for short the Act‟) is directed against the order of the Income Tax Appellate Tribunal (hereinafter, for short Tribunal‟) dated May, 2007 whereby the Tribunal upheld the validity of reassessment proceedings initiated under Section 147 of the Act. The Tribunal also confirmed the order of the lower authorities in denying deduction under Section 80-IA of the Act in respect of duty drawback, profit on sale of REP licences and cash assistance. 2. The assessee, being aggrieved of the said order, is in appeal before us. The appeal was admitted on the following substantial question of law:- Whether on facts the Tribunal was right in law in holding that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the basis of roving and fishing enquiries conducted during the assessment proceedings. (ii) The proceedings were initiated on the basis of opinion of the audit party without forming a reasonable belief under Section 148 of the Act that income of the appellant had escaped taxation; and (iii) The reasons recorded are vague and do not reflect application of mind. Since cogent reasons are not stated, it appears, proceedings were initiated on the basis of suspicion, to conduct further enquiry and to circumvent the limitation of assessment. The Tribunal dismissed the appeal vide impugned order with the following reasons:- As per section 147 if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Explanation 2 to section 147 provides that for the purpose of section 147 even in a case where return of income has been furnished but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return it will amount to the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable 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 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 recompute 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): (emphasis supplied) Explanation 2 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s escaped assessment and which comes to his notice subsequently in the course of proceedings under this Section. Explanation 3 makes it clear that the Assessing Officer may assess or reassess the income in respect of issue which has escaped assessment, if such issue comes to his notice in the course of proceedings under this Section even though said issue did not find mention in the reasons recorded and the notice issued under Section 148. Since there was confusion prevailing with regard to the powers of the Assessing Officer to assess or reassess on the issues for which no reasons were recorded, this explanation came to be inserted as clarificatory. The reasons for insertion of this clarificatory explanation in clause (57) of memorandum explaining the provisions of Finance Bill (No.2) of 2009 are following:- Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issued in respect of which the reasons have been recorded for reopening the assessment. 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. With a view to further clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 recomputation, the Assessing Officer has to serve on the assessee a notice under Sub-section (1) of Section 148, (iii) 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 and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) Though the notice under Section 148(2) docs 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 in the course, of the proceedings under the section. 12. The submission of learned counsel for the Revenue was that when reassessment is reopened by issuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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. 14. The Bombay High Court also discussed the case of Jaganmohan Rao (supra) and Sun Engineering (supra) of the Apex Court. In the case of Sun Engineering (supra) the issue before the Supreme Court was whether in the course of reassessment on an escaped item of income could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of Section 147, as they stood prior to the amendment on 1st April, 1989. In this context, the Supreme Court held that the expression escaped assessment includes both non-assessment as well as under-assessment . The expression assess was defined as referring to a situation where the assessment is made for the first time under Section 147, whereas reassess as referring to a situation where the assessment has already been made, but the Assessing Officer has reason to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, and did not continue to possess jurisdiction, to put to tax, any other income which subsequently came to his notice, in the course of the proceedings, which were found by him, to have escaped assessment. 17. Now, coming back to the interpretation which was given by the Bombay High Court to Sections 147 and 148 in view of the precedent on the subject. The Court held as under:- 11. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under Section 147 and following the issuance of a notice under Section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words and also" cannot be ignored. The interpretation which the Court places on the provision 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endently assess the latter. Section 147 has this effect that the Assessing Officer has to assessee or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess 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. 18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra). 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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