TMI Blog2019 (3) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and thereafter, the AO usurped the jurisdiction to reopen the assessment. Words is the ‘income’ which according to the AO escaped assessment while recording reasons for reopening assessment u/s 147 r.w.s. 148. This ‘income’ which AO records in his reasons recorded has escaped assessment and which constituted the bedrock/basis for reopening is the jurisdictional fact which empowered him to usurp the jurisdiction to reopen and reassess the escaped income as contemplate u/s 147/148. So, when that income which was the foundation on which he based his belief of escapement of income is absent /disappeared then the AO’s very usurpation of jurisdiction is on non-existing jurisdictional fact which renders his usurpation of jurisdiction to reopen the assessment legally untenable and so null in the eyes of law and therefore, the assessee succeeds and therefore, we quash the reassessment made by the AO without jurisdiction. - decided in favour of assessee. - I.T.A. No. 2032/Kol/2018 - - - Dated:- 1-3-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For The Appellant : Shri Anikesh Banerjee, Advocate And Mrs. Saswati Mitra (Dutta), Advocate For The Respondent : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of Sri Mukesh Cholsi, two of his employees and an agent i.e. Miss Anupama Patel (Employee), Shri Kapil Chaturvedi (Employee) and Shri Kamal Kishore Rati (Agent) were also recorded. In his sworn in statement recorded, Shri Mukesh Choksi admitted that he and his group were engaged in fraudulent billing activities and giving accommodation entries in order to enable the clients to declare speculation profit/loss, Short Term Capital Gain/Long Term Capital Gain, profit/loss on account of commodity Trading, introduce Share Application Money or introduce money in the form of gift. In the latest duly sworn statement recorded on 16.01.2013 after perusing all seized documents/data produced before him, Shri Mukeh Choksi identified 829 names of the beneficiaries and certified that they are accommodation entries. Out of the 829 cases, Smt. Dipti Mehta [PAN- AESPM 0353 A] the capitioned assessee is one of the beneficiary of above accommodation entries. As per ledger copy of Mahasagar Group cases, Smt. Dipti Mehta had taken beneficiary entry for loss of ₹ 2,71,500/- during the F.Y 2009-10 relevant to A.Y 2010- 11. Since the return of income filed by the assessee on 31/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eve the escapement of income to the tune of ₹ 2,71,500/- for this assessment year; and therefore, he after recording the reason [supra] consider it fit case for issue of notice u/s 148, read with section 147 for reopening the assessment and issued notice and assumed jurisdiction to re-assess the income of assessee. However, in the re-assessment order passed on 26.05.2015, pursuant to the notice to re-open, the AO did not made any assessment of ₹ 2,71,500/- representing the amount of loss claimed by assessee which according to AO in the reasons recorded was nothing but an accommodation entry taken from Mahasagar Group of cases and for the precise fact he reopened to assess this escaped income. According to the AR, the AO could not have proceeded to make any other additions without making any addition/disallowance on the issue on which he based his belief of the escapement of income for reassessment. For that he relied upon the order of the Hon ble Bombay High Court in CIT vs Jet Airways (I) Ltd. (2010) 195 Taxman 117 (Bombay). We note that the legal issue which has been raised before us is no longer res integra and the Hon ble Bombay High Court after taking note of the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or ( b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession 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 or 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative. A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 , that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, 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-section (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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any issue which comes to his notice subsequently in the course 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 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) 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 escap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so cannot be read as being in the alternative. On the contrary, the correct interpretation 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 which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the section when it has not been charged in the hands of an assessee during the 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 1 to section 147. The Supreme Court adverted to the Judgment in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 , 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 enures 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssesses any income chargeable to tax, which has escaped assessment for any assessment year, with 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 147 by the Finance (No. 2) Act, 2009 cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act (No. 2) 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 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 assess 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance on this issue. So, without making any addition/disallowance on this accommodation entry for loss of ₹ 2,71,500/-, the AO ought not to have proceeded to re-assess the assessee on other incomes like the addition of STCG and disallowance u/s 14A of the Act. The jurisdictional fact which empowered the AO to invoke the jurisdiction to reopen by issue of notice u/s. 148 r.w.s. 147 of the Act as deciphered from the reasons recorded is the accommodation entry of loss of ₹ 2,71,500/-. So, when AO desired to reopen this assessment year, he had information of assessee in receipt of accommodation entry of loss from Mahanagar Group, which fact was recorded to re-open the assessment. This precise fact was the foundation based on the information from Director of income Tax and the AO recorded the reason which warranted him to hold the belief that income chargeable to tax has escaped assessment and thereafter, the AO usurped the jurisdiction to reopen the assessment. In other words is the income which according to the AO escaped assessment while recording reasons for reopening assessment u/s 147 r.w.s. 148 of the Act. This income which AO records in his reasons recorded h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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