TMI Blog2015 (8) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... parts of section 147 (one relating to 'such income' and the other to 'any other income') are to be read independently. The phrase 'such income' used in the first part of section 147 is with regard to which reasons have been recorded under section 148(2) of the Act, and the phrase 'any other income' used in the second part of the section is with regard to where no reasons have been recorded before issuing notice and has come to the notice of the Assessing Officer subsequently during the course of the proceedings, which can be assessed independent of the first part, even when no addition can be made with regard to 'such income', but the notice on the basis of which proceedings have commenced, is found to be valid. It is true that if the foundation goes, then the structure cannot remain. Meaning thereby, if notice has no sufficient reason or is invalid, no proceedings can be initiated. But the same can be checked at the initial stage by challenging the notice. If the notice is challenged and found to be valid, or where the notice is not at all challenged, then in either case it cannot be said that notice is invalid. As such, if the notice is valid, then the foundation remains and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards transfer and brokerage charges, even when the same had been paid by cheque and the receipt of which was obtained from the broker. Merely saying that generally 1-2% of the sale consideration is the brokerage, would not suffice when the specific case of the assessee was that heavy brokerage had to be paid because of the property being under litigation and that it being occupied by unauthorized persons for which payment had to be made to get it vacated. In our view, when the said brokerage was paid by cheque and there was sufficient reason for paying higher brokerage, the entire amount ought to have been allowed and deduction of 50% amount i.e., ₹ 3,75,000/- cannot be justified in law. It is noteworthy that the Assessing Officer, after observing that what is normally allowed as brokerage in such deals is 1-2%, had himself allowed 5% brokerage, meaning thereby that in the facts of the case, higher brokerage was required to be paid. Once the Assessing Officer accepts that the facts required payment of higher brokerage and it is not disputed that the transaction of brokerage was through banking channel, reduction of allowance of brokerage paid from 10% to 5%, without assigni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd claimed excessive indexation. Thus, it was stated that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment for the year 2004-05. The assessment was reopened for the purpose of assessing the income from the sale of property under section 45(2) of the Act and denying the benefit of indexation. The reassessment was completed on total income of ₹ 29,90,672/-, which was for reasons other than the one recorded in the notice. During the relevant period, the assessee had sold a plot of land measuring 12,430 sq. ft. for a consideration of ₹ 74,58,000/-. The property devolved upon the assessee in a family partition in the year 1972. Assessee treated it as a case of sale of long term capital asset, for which a fair market value was adopted at ₹ 225/- per sq.ft. and offered the capital gains for taxation after availing the benefit of indexation. After reopening of the case, the Assessing Officer adopted fair market value at ₹ 84/- per sq.ft. and computed the capital gains, and also disallowed 50% of expenses on transfer claimed by the assessee. Besides this, certain other disallowances were also made by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively in connection with the transfer more so when the payments are through banking channels, and consequently passed a perverse order on the facts and circumstance of the case. We have heard Sri A.Shanker, learned counsel for the appellant and Sri E.I.Sanmathi learned counsel for the respondent-department, as well as Sri K.V.Aravind, learned counsel for the department appearing in the connected appeals, and have also perused the record. The first two questions relate to the primary issue and are interconnected. They are thus being first considered together. Sri A.Shanker has submitted that the order under section 147 of the Act has to be in consonance with the reasons given for which notice under section 148 has been issued, and once it is found that no tax can be levied for the reasons given in the notice for reopening the assessment, independent assessment or reassessment on other issues would not be permissible, even if subsequently, in the course of such proceedings, some other income chargeable to tax may have been found to have escaped assessment. In the submission of Sri Shankar, the reason for which notice was given has to survive, and it is only thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich all shall be referred to while considering their submission. For ready reference, the relevant sections 147 and 148 are reproduced below: 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) Explanation (2) . 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, and such issue comes to his notice subsequently in the course of the proceedings unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 be considered at this stage . Relying on this decision, the Apex Court, in the case of ACIT Vs Rajesh Jhaveri Stock Brokers(P) Ltd. (2007) 291 ITR 500, while considering the issuance of notice under section 147 of the Act prior to the amendment of 2009, has held that the final outcome of the proceedings is not relevant and at the initial stage, what is required is 'reason to believe' but not established f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve' 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 second part cannot be invoked. But if it is not to be read in conjunction, the second part can be invoked independently even without the reason for the first part surviving. From a plain reading of section 147 of the Act it is clear that its latter part provides that 'any other income' chargeable to tax which has escaped assessment and which has come to the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 subsection (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' which joins the first and second parts of the section, 'and' is conjunctive which is to join the first part with the second part, but 'also' is for the second part and would be disjunctive. It segregates the first part from the second. Thus, when we read the full section, the phrase 'and also' cannot be said to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired 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 under sub-section (2) of S.148. 47.4: Applicability - This amendment has been made applicable with retrospective effect from 1st April, 1989 and will apply accordingly in relation to assessment year 1989-90 and subsequent years. It is thus clear that once satisfaction of reasons for the notice is found sufficient, i.e., if the notice under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation' 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 the section but it also does not restrict the operation of the main provision. Its purpose is to clear the cob-webs which may make the meaning of the main provision blurred. Ordinarily, the purpose of insertion of an 'Explanation' to a section is not to limit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of every assessee to disclose his total income on which it is to pay tax, we are of the clear opinion that the two parts of section 147 (one relating to 'such income' and the other to 'any other income') are to be read independently. The phrase 'such inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r at ₹ 225/- per sq. ft. as on 1.4.1981. However, the same was assessed by the Assessing Officer at the rate of ₹ 84/- per sq. feet and confirmed so by the Tribunal. Section 48 of the Act deals with the 'Mode of Computation' of income chargeable under 'Capital gains' and in that context 'full value of the consideration' would mean the consideration or price received as a result of the transfer of a capital asset. It is different from 'fair market value' of the property, which phrase is used in section 45(2) [relating to capital gains] and section 55(2)(b) [relating to cost of acquisition]. Section 45 of the Act provides for how profit or gain arising from transfer of capital asset is to be charged to income tax as 'Capital gains'. Sub-section (2) provides that the 'fair market value' of the asset would be deemed to be the 'full value of the consideration' on the relevant date. Section 55(2)(b) of the Act provides that 'cost of acquisition' of a capital asset, where the capital asset became the property of the assessee before 1.4.1981, would mean the actual cost of acquisition to the assessee or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport to substantiate the valuation of the property, and in such context it was held that merely because it was not produced, no adverse inference could be drawn. Even in the absence of production of such report, a duty was cast on the authorities to assess the fair market value independent of the evidence adduced by the assessee. Instead of calling for particulars from the Sub-Registrar's office about the guideline value, the Assessing Officer himself could have referred the matter to the valuator to get the valuation done under Section 53-A of the Act, which he has not resorted to. . In the present case at hand, the valuation report of the registered valuer, valuing the property in question as on 1.4.1981, was filed which, in our opinion, has wrongly been ignored by the Assessing Officer. In such view of the matter, we are of the opinion that the Tribunal was not justified in arriving at the fair market value of the property in question as on 1.4.1981 without taking into consideration the material on record, including the valuation report filed by the assessee. The matter thus requires to be remanded to the Assessing Officer for determination of the fair market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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