TMI Blog2024 (1) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... EHTA [ 2011 (11) TMI 462 - CHATTISGARH HIGH COURT] Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions vide his order passed u/s. 143(3)/147 we herein quash the same. Decided in favour of assessee. Validity of scrutiny assessments - converting the limited scrutiny into complete scrutiny - additions on items not covered under scope of limited scrutiny - HELD THAT:- As is discernible from the assessment order the case of the assessee company was selected for limited scrutiny for the following reason: (i) Large share premium received during the year (verify applicability of Section 56(2)(viib) Admittedly, it is a matter of fact borne from record which has not been rebutted by the Ld. DR that the A.O at no stage of the assessment proceedings had obtained approval of the Pr. CIT for converting the limited scrutiny into complete scrutiny as provided by the CBDT Circular No. 20/2015 [F. No.225/269/2015-ITA-II], dated 29.12.2015. Considering we find, that as stated by the AR, and rightly so, the scope of jurisdiction of the A.O while framing the limited scrutiny was circumscribed by the very purpose/reason, for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 1,23,312/- u/s. 40(a)(ia) of the Income-tax Act, 1961. 4) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 82,208/- out of interest expenses on estimate basis. 5) The impugned order is bad in law and on facts. 6) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice. 3. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not the A.O had validly assumed jurisdiction and framed the assessment in the case of the assessee company vide his order passed u/ss. 143(3)/147 of the Act dated 28.12.2017? 4. As is discernible from the record the case of the assessee company was reopened by the A.O based on the following reasons to believe : Reasons for issuing Notice u/s. 148 As per the information available on records of this office, the assessee was in receipt of Rs. 7,21,147/- as interest on savings and TDS had been deducted at source during F.YR relevant to the assessment year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 dated 25.02.2021. 8. Per contra, the Ld. Departmental Representative (for short DR ) relied on the orders of the lower authorities. 9. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 10. Admittedly, it is a matter of fact borne from record that the A.O while framing assessment vide his order passed u/s. 143(3)/147 of the Act dated 28.12.2017 had not made any addition qua the very reason for which the case of the assessee company was reopened u/s. 147 of the Act. Considering the aforesaid factual position, we find substance in the claim of the Ld. AR that in absence of any addition having been made by the A.O as regards the very reason based on which the case of the assessee company was reopened u/s. 147 of the Act, then no valid jurisdiction could have there been assumed by him to frame assessment u/s. 147 of the Act. Our aforesaid view is fortified by the judgement of the Hon ble High Court of Bombay in the case of CIT-5 Vs. Jet Airways (I) Ltd. (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of 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 of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 section 147. 6. The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 is that even though the notice that has been issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (page 178): The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after subsection (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which, he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads, income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently to the course of the proceedings under the section. 10. Now the submission of the learned counsel appearing on behalf of the assessee in the present case is that the words and also in section 147 postulate that the Assessing Officer may assess or reassess the income which he has reason to believe has escaped assessment together with any other income chargeable to tax which has escaped assessment and which comes to his notice during the course of the proceedings. In other words, unless the Assessing Officer assesses the income with reference to which he had formed a reason to believe within the meaning of section 147, it would not be open to him to assess or reassess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. On the other hand, it has been urged on behalf of the Revenue that even if during the course of assessment or, as the case may be, reassessment, the Assessing Officer does not assess or reassess the income which he has reason to believe has escaped assessment an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess to reassess the income which he had reason to believe had esc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment proceedings. The judgment in V. Jaganmohan Rao's case, [1970] 75 ITR 373 dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engineering Works, [1992] 198 ITR 297 (SC) interprets the provisions of section 147 as they stood prior to the amendment on April 1, 1989. 13. The effect of the amended provisions came to be considered, in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject matter of the notice under section 148. This view was adopted in the judgment of the Punjab and Haryana High Court in Vipan Khanna, [2002] 255 ITR 220 and in the judgment of the Kerala High Court in Travancore Cements Ltd., [2008] 305 ITR 170. This line of authority would now ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd., [2008] 305 ITR 170 and of the Punjab and Haryana High Court in Vipan Khanna, [2002] 255 ITR 220 would, therefore, no longer hold the field. However, in so far as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343, Explanation 3 as inserted by Parliament would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. 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 and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income and also any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words and also are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company. 3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 1,75,486/- u/s 40(a)(ia) of the Income-tax Act, 1961. 4) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 1,16,990/- out of interest expenses on estimate basis. 5) The impugned order is bad in law and on facts. 6) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice. 15. Controversy involved in the present appeal lies in a narrow compass, i.e., validity of the jurisdiction assumed by the A.O for framing assessment u/s. 143(3) of the Act dated 28.12.2017. 16. Succinctly stated, the assessee company which is engaged in the business of manufacturing and trading of calcined petroleum cock, had e-filed its return of income for A.Y.2015-16 on 31.10.2015 declaring an income of Rs. 4,45,530/-. Subsequently, the case of the assessee company was selected through CASS for limited scrutiny for carrying out verification on the following issue: (i) Large share premium received durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e possesses accumulated profits ; but dividend does not include (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder GI the share is not entitled in the event of liquidation to participate in the surplus assets ; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off,. (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A13 of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid : Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this subclause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. Explanation. For the purposes of this sub-clause, (i) commission or brokerage shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have the same meaning 3s in clause (a) of the Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... randum that it came with a purpose to ITA No.467/CTK/2017 ensure tax compliance. The fact that the intention of the Legislature was not to punish the assessee is further reflected from a bare reading of the provisions of Section 40(a)(ia) of the Income- tax Act. It only results in shifting of the year in which the expenditure can be claimed as deduction. In a case where the tax deducted at source was duly deposited with the Government within the prescribed time, the said amount can be claimed as a deduction from the income in the previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the Government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the Government. A Division Bench of the Calcutta High Court in CIT v. Crescent Export Syndicate [2013] 216 Taxman 258 (Cal) held: The term shall used in all these sections make it clear that these are mandatory provisions and applicable to the entire sum contemplated under the respective sections. These sections do not give any leverage to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Government before the due date of filing of their returns under section 139(1) of the Income-tax Act. The disability to claim deductions on account of such lately credited sum of TDS in assessment of the previous year in which it was deducted, was detrimental to the small traders who may not be in a position to bear the burden of such disallowance in the present assessment year. In order to remedy this position and to remove hardships which were being caused to the assessees belonging to such second category, amendments have been made in the provisions of section 40(a)(ia) by the Finance Act, 2010. Thus, the Finance Act, 2010 further relaxed the rigors of Section 40(a)(ia) of the Income-tax Act to provide that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income. The idea was to allow additional time to the deductors to deposit the TDS so made. However, the Memorandum. Explaining the Provisions of the Finance Bill, 2010 expressly mentioned as follows: This amendment is proposed to take effect retrospectively from April 1, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never formed the basis for picking up the case for limited scrutiny . Carrying his contention further, the Ld. AR had drawn our attention to the additions/disallowance which were made by the A.O while framing the assessment vide his order passed u/s. 143(3) dated 28.12.2017. Backed by the aforesaid facts, the Ld. AR submitted that as it was not the case that the A.O had extended the scope of the scrutiny assessment by obtaining approval of the Pr.CIT, therefore, the A.O was clearly divested of his jurisdiction to have made the aforesaid disallowances/additions while framing the assessment. It was submitted by the Ld. AR that as per CBDT Instruction No.20 of 2015, dated 29.12.2015, scrutiny in the cases which are selected through CASS has to be confined only to the specific reasons and issues for which the case has been picked up for limited scrutiny. The Ld. AR in support of his aforesaid contention relied on the following judicial pronouncements: (i) Danone Asia Pte Limited, Singapore Vs. ACIT, Int Tax-1(2)(2), New Delhi, ITA No.376/Del/2021 (ii) ACIT, Circle-5(2), New Delhi Vs. Trehan Promoters and Builders Pvt. Ltd., ITA No.9872/Del/2019 (iii) Shri Kumjal Chandrakant Mehta Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer u/s. 143(3) of the Act, dated 21.04.2016 as erroneous in so far it was prejudicial to the interest of the revenue on two grounds, therefore, we shall deal with them in a chronological manner as herein below : (A). Claim of loss from derivatives :- 9. Ostensibly, the Pr. CIT had, inter alia, qua the aforesaid issue held the order passed by the Assessing Officer u/s. 143(3) of the Act, dated 21.04.2016 as erroneous in so far it was prejudicial to the interest of the revenue u/s. 263 of the Act, for the reason that the AO had failed to verify the assessee s claim of loss from derivatives of Rs. 26,90,317/-. 10. After giving a thoughtful consideration, it transpires, that as stated by the Ld. AR, and rightly so, as the case of the assessee was selected for limited scrutiny under CASS for certain specific reasons and, examination of its claim for loss from derivatives was not one of those reasons for which the case was selected for such limited scrutiny assessment, therefore, the Pr. CIT could not have held the order passed by the Assessing Officer as erroneous, for the reason that the latter while framing the assessment had failed to verify the assessee s claim of loss from de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly discernible from the order passed by the Pr. CIT under Sec. 263 of the Act. In fact, we find, that the Pr. CIT in his order had categorically observed that the case of the assessee was not selected for examination on the issue relating to closing stock‟, but was selected for limited scrutiny for the aforesaid two reasons viz. (i). Large other expenses claimed in the P L A/c.;and (ii). Low income in comparison to High Loans/advance /Investment in shares. We find that as per the CBDT Instruction No. 20/2015, dated 29.12.2015, scrutiny in cases selected through Computer Aided Scrutiny Selection (CASS) is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. In order to appreciate the issue under consideration, we deem it fit to cull out the CBDT instruction No. 20/2015, dated 29.12.2015., which reads as under: INSTRUCTION NO. 20/2015, DATED: 29-12-2015 29/12/2015 Subject : Scrutiny Assessments-some Important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection ('CASS') - Reg.- The Central Board of Direct Taxes ('CBDT'), vide Instruction No. 7/2014 dated 26.09.2014 had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific reasons/issues for which case has been picked up for scrutiny Further, the scope of enquiry shall be restricted to the Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'Limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr CIT/CIT concerned. However, such an approval shall be accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case Such cases Shalt be monitored by the Range Head concerned The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata. Bengaluru, Hyderabad and Ahmedabad. 4. The Board further desires that in all cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under CASS,for the reasons, viz. (i). Large other expenses claimed in the P L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. In fact, it is neither a fact nor the case of the revenue that the said case was thereafter taken up for complete scrutiny with the approval of the administrative commissioner. In the backdrop of the aforesaid facts, we are of the considered view that as the scope of the assessment framed by the A.O under Sec. 143(3), dated 08.12.2016 was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, therefore, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose for which the said case was selected for being scrutinised. 8. We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec. 263. As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry out necessary verification and examination of the assessee s claim of loss from derivatives i.e, an issue which was never the subject matter for selection of the case of the assessee for limited scrutiny under CASS. (B). Investment in unquoted equity shares and in unsecured loans/advances:- 11. As observed by us hereinabove, it is the claim of the Pr. CIT that the Assessing Officer had while framing the assessment erred in not verifying and examining the investments that were made by the assessee company in unquoted equity shares and unsecured loans/advances. As stated by the Ld. AR, and rightly so, the amount of the aforesaid investments as on 31.03.2015 was Rs. 15 crores not Rs. 15.25 crores as had been mentioned by the Pr. CIT in the impugned order. 12. Adverting to the claim of the ld. AR that as the AO in the course of the assessment proceedings had vide notice(s) issued u/s. 142(1) of the Act, dated 04.04.2017 and 28.10.2016 specifically queried about the details of the investments reflected in its balance sheet a/w the source of the same (Page 42 to 44 of the APB), and had only after duly applying his mind to the requisite details and the explanation furnished by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings simply asked the assessee to furnish the details of investment. In reply, the assessee had vide its letter dated 10.04.2017 furnished with the AO the bifurcated details of its investments. Ostensibly, though the AO in the course of the assessment proceedings had queried as regards the investments reflected in the balance sheet of the assessee, and, the assessee in its reply had furnished the details of said investments, but in our considered view such furnishing of bare basic details can by no means be brought within the realm of making of inquiries or carrying out verifications qua the issue in hand by the AO. Be that as it may, the view of the Pr. CIT that the AO had passed the order without making inquiries or verifications which should have been made as regards the aforesaid issue i.e, substantial investments in unquoted equity shares made by the assessee company during the year under consideration, therein, renders the order passed by him as deemed to be erroneous in so far it is prejudicial to the interest of the revenue is supported by the Explanation 2(a) of Sec. 263, which reads as under (relevant extract) : Explanation 2 For the purposes of this section, it is hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X
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