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Validity of Reassessment proceedings u/s 147 of Income Tax Act 1961 when original reasons for which proceedings were initiated ceases to survive

Income Tax - By: - Navdeep Gupta - Dated:- 26-12-2016 Last Replied Date:- 26-12-2016 - By Navdeep Gupta CA, LL.B., Valluer(ICAI) There is a prolong litigation in the matter of reopening of assessment between Assessee and Revenue regarding scope of powers of assessing officer to reopen assessments. Provisions of reassessment are very special in nature which provides remedy to Revenue to tax income which has escaped assessment. Various courts including apex court have held that Taxation laws are p .....

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to believe which expand power of assessing officer to reopen assessment. Section 147 is reproduced below: 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 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 rec .....

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Act, 2009 has inserted Explanation 3 to section 147 retrospectively from AY 1989-90 and is reproduced below: 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 under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded un .....

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ng officer on issue/matter for which proceedings u/s 147 were initiated but assessing officer has made addition on other grounds which came to his notice during further course of proceeding. Hon ble Rajasthan High Court while dismissing appeal of revenue and relying on the judgment of High Court of Punjab & Haryana in case of Atlas Cycle Industries 1989 (4) TMI 48 - PUNJAB AND HARYANA High Court has held as follows: 28. If considered on that principle, leaving apart for the moment, the aspec .....

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escaped assessment. and which has come to his notice subsequently, in the course of proceedings under section 147. 29. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to 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 AO entertained a reason to believe, albeit .....

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case of Shri Ram Singh (supra), Bombay High Court in a similar issue after insertion of explanation 3 to section 147 by Finance Act 2009 in case of Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY has held as follows: 17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged .....

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ive would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words and also by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisi .....

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tants 2012 (2) TMI 18 - DELHI HIGH COURT , Cheil Communications India Pvt. Ltd. 2013 (5) TMI 417 - DELHI HIGH COURT , Living Media India Ltd. 2013 (6) TMI 128 - DELHI HIGH COURT , Oriental Bank of Commerce [2014 (9) TMI 7 - DELHI HIGH COURT], Monarch Educational Society 2016 (2) TMI 971. Following the reasoning of Bombay High Court in Jet Airways (supra) and Delhi High Court in Ranbaxy Laboratories Ltd. (supra), High Court of Chattisgarh in case of Major Deepak Mehta - 2011 (11) TMI 462 - CHATTI .....

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s u/s 147 are not vitiated if no addition is made on the ground on which reasons were recorded before initiation of proceedings. Court has held as follows: 12. A plain reading of Explanation 3 to section 147 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment notice might not have been issued in case during the reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice du .....

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dustries' case (supra) and the Rajasthan High Court in Shri Ram Singh's case (supra), it may be noticed that these were the judgments rendered by the courts prior to the insertion of Explanation 3 to section 147 of the Act. In view of the insertion of Explanation 3 to section 147 by the Finance (No. 2) Act, 2009, with effect from April 1, 1989, the aforesaid judgments do not advance the case of the assessee any longer. (Emphasis Supplied) Judgment of Majinder Singh Kang(Supra) is then fo .....

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ch proceeding were initiated may not survive. Relevant observation of high court is as follows: 41. ……. Section 147 of the Act was interpreted differently by different High Courts, i.e., whether the second part of the section was independent of the first part, or not. To clarify the same, Explanation 3 was inserted by which it has been clarified that the Assessing Officer can assess the income in respect of any issue which has escaped assessment and also 'any other income' .....

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48), 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 ). 42. 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 garne .....

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ded 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 b .....

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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 the proceedings on the basis of such notice can go on. We may only reiterate here that once the proceedings have been initiated on a valid notice, it becomes the duty of the Assessing Officer to lev .....

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147 comes to end when reasons for which proceedings were initiated ceases to survive. This opinion is based on the observation that the words and also are used in a cumulative and conjunctive sense. However, hon ble High Court of Punjab & Haryana and Karnataka have taken a contrary view and held that If notice under section 148(2) is found to be valid, then addition can be made on all grounds or issues which may come to notice of Assessing Officer subsequently during course of proceedings u .....

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eedings have commenced, is found to be valid. This controversy now can only be settled through judgment of Hon ble Supreme Court of India on the issue or clarification by parliament. Till then the Judgment of Hon ble Supreme Court of India in case of Vegetable Product Ltd. 1973 (1) TMI 1 - SUPREME Court is relevant in which following is observed: There is no doubt that the acceptance of one or the other interpretation sought to be placed on section 271(1)(a)(i) by the parties would lead to some .....

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ust be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty. (Emphasis supplied) Therefore, following the judgm .....

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