2014 (11) TMI 56 - HC - Income Tax

Basis for reopening of assessment u/s 147 Power of the AO to make additions during reassessment - Income chargeable to tax came to notice subsequently in the course of proceedings u/s 147 Held that - In Majinder Singh Kang Versus Commissioner of Income-tax 2012 (6) TMI 616 - Punjab and Haryana High Court considering the scope of Explanation 3 to section 147 of the Act it has been held that the AO is empowered to make additions even on the ground on which reassessment notice might not have been issued where during the reassessment proceedings, some other income has escaped assessment which comes to his notice during the course of the proceedings for reassessment u/s 148 of the Act - The provision nowhere postulates or contemplates that the AO cannot make any additions on any other ground unless some addition is made on the ground on which reassessment had been initiated the decision in CIT v. Shri Ram Singh 2008 (5) TMI 200 - RAJASTHAN HIGH COURT is distinguished as being decided prior to the insertion of Explanation 3 to section 147 of the Act - thus, the order of the Tribunal is set aside Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Explanation 3 to section 147 of the Income-tax Act, 1961.
2. Validity of proceedings under section 147/148 of the Act.
3. Assessment of income that has escaped assessment during reassessment proceedings.

Analysis:

Issue 1: Interpretation of Explanation 3 to section 147
The judgment addresses the interpretation of Explanation 3 to section 147 of the Income-tax Act, which empowers the Assessing Officer to assess or reassess income that has escaped assessment and comes to notice during proceedings under this section. The court refers to a previous case, Majinder Singh Kang v. CIT, where it was held that the Assessing Officer can make additions on grounds not included in the reassessment notice if other income has escaped assessment during the proceedings. The court emphasizes that the provision does not restrict the Assessing Officer from making additions on other grounds. The judgment clarifies that the reassessment proceedings are not vitiated by such actions.

Issue 2: Validity of proceedings under section 147/148
The Revenue argued that the Tribunal erred in quashing the proceedings under section 147/148 of the Act. The court noted that a judgment in Majinder Singh Kang v. CIT favored the Revenue's position, stating that the Assessing Officer can assess income that escaped assessment during the proceedings, even if not the basis for reopening. The court dismissed the argument that the proceedings were vitiated, citing the empowering provision of Explanation 3 to section 147.

Issue 3: Assessment of income during reassessment
The judgment delves into the assessment of income that escaped during reassessment proceedings. It discusses the relevance of various judgments cited by both parties, ultimately concluding that the Tribunal's decision in favor of the assessee was unsustainable. The court sets aside the Tribunal's order and remands the matter for fresh adjudication in accordance with the law, emphasizing the importance of Explanation 3 to section 147 in such assessments.

In conclusion, the judgment provides a detailed analysis of the issues surrounding the interpretation of Explanation 3 to section 147, the validity of proceedings under section 147/148, and the assessment of income during reassessment. It clarifies the powers of the Assessing Officer in making additions during reassessment proceedings and highlights the significance of legal precedents in determining the outcome of such cases.