TMI Blog2013 (6) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... ief while initiating proceeding u/s 147 of the Act. The reasons recorded for reopening the assessment has no nexus with the income ultimately assessed u/s 147. In favour of assessee. - ITA No.1803 /Hyd/2012 - - - Dated:- 21-6-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Sri I. Rama Rao For the Respondent : Shri D. Sudhakar Rao ORDER Per Saktijit Dey, Judicial Member. This appeal filed by the assessee is directed against the assessment order passed by the Assessing Officer u/s 143(3) read with section 147 r.w.s. 144C(5) of the Act on the direction of the Dispute Resolution Panel (DRP) and it pertains to the assessment year 2005-06. 2. In ground Nos. 1,2 and 3, the assessee has raised the legal issue of validity of proceedings initiated u/s 147 of the Act. 3. Briefly the facts are the assessee is a private limited company jointly promoted by IJM (India) Infrastructure Ltd., and Andhra Pradesh Housing Board, a statutory board created under the Andhra Pradesh Housing Board Act, 1956. The assessee is engaged in the business of development of integrated township and sale of flats. For the assessment year under dispute, i.e. for asst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order dated 5-10-2012 passed u/s 143(3) read with section 147 and section 144C(5) of the Act. The assessee being aggrieved is in appeal before us. 5. The learned authorised representative for the assessee challenged the validity of proceedings initiated u/s 147 of the Act mainly on the following two grounds:- i) Reason for reopening of the assessment was not communicated to the assessee. ii) There is no nexus between the reason recorded for reopening of the assessment and the assessment ultimately made assessing escaped income. It was submitted by the learned authorised representative for the assessee that the Assessing Officer without communicating the reasons for reopening of the assessment to the assessee has completed the assessment. The assessee could only come to know about the reason for reopening of the assessment at the time of proceedings before the DRP. It was submitted that assessment completed without communicating the reasons for reopening of assessment is invalid in law. In support of such contention, the learned authorised representative for the assessee relied upon a decision of Income-tax Appellate Tribunal, Hyderabad Bench in ITA No.748/Hyd/2012 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al representative relied upon the decision of Hon'ble Supreme Court in case of ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. 291 ITR 500. 8. We have heard the contentions of the parties and perused the material on record. We have also carefully examined the decisions cited before us. At the outset we may mention that there is a small error in the order of the DRP with regard to the assessment year in dispute which is wrongly mentioned as 2008-09 instead of 2005-06. The first ground of challenge of the validity of initiation of proceedings u/s 147 of the Act is on the issue of non communication of reasons recorded for reopening the assessment. It is the contention of the assessee that before completion of assessment proceedings, the Assessing Officer has not communicated the reasons for reopening of assessment. However, from the report of the DCIT-III (3)/Hyderabad dated 8-8-2012 submitted to the DRP which has been extracted in the order of the DRP, it is to be noted that the DCIT has reported that in response to the notice issued u/s 148, the assessee furnished information called for in the said notice without asking for communication of reason for reopening the assessment. In c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made for assessment of income other than the income escaping assessment as per the reasons recorded for formation of belief while initiating proceeding u/s 147 of the Act. In other words, the reasons recorded for reopening the assessment has no nexus with the income ultimately assessed u/s 147 of the Act. The Hon'ble Bombay High Court in case of CIT vs. Jet Airways (I) Ltd., (331 ITR 236) (supra) while examining identical issue and after interpreting Explanation-3 to section 147 of the Act held as under:- "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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has to assess to reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceeding. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter." The High Court further held as under:- Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id ratio in case of Ranbaxy Laboratories Ltd. Vs. CIT (336 ITR 136) (Delhi) wherein it was held as under:- "We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (I) Limited (2011) 331 ITR 236 (Bom). We may also note that the reading of section 147 is "income escaping assessment" and that of section 148 "issue notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Sub-section (2) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the facts of the present case as the Hon'ble Supreme Court did not consider the issue whether the Assessing Officer can assess or reassess any income independent of or in exclusion to the income which formed the basis for initiation of proceeding u/s 147 of the Act. Accordingly, the assessment order passed has to be declared legally unsustainable. We therefore annul the assessment order dated 5-10-2012 Passed u/s 143(3) read with section 147 of the Act. 12. Since we have annulled the assessment order on the legal issue, the grounds raised on the merits of the additions have become academic and therefore not required to be adjudicated. However, suffice it to say, the other major addition of Rs.15.24 crores on account of transfer pricing adjustment also cannot survive in view of the order passed by the co-ordinate bench in assessee's own case for the assessment year 2007-08 in ITA No.2072/Hyd/2011 dated 31-12-2012. The DRP in the order passed for the impugned assessment year had confirmed the addition by merely following its order passed for the assessment year 2007-08 which has been deleted by the aforesaid order of the co-ordinate bench. 13. In the result, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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