2024 (11) TMI 1384 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Addition on the ground other than assessment was reopened - Assessee contention that since no addition had been made on account of the reasons on the basis of which the reopening of the assessment was sustained no other addition was permissible accepted by ITAT - HELD THAT - Section 147 of the Act enables the reopening of concluded assessments only in exceptional cases, where there the AO has reason to believe that Assessee s income for the relevant period has escaped assessment. It is trite law that concluded assessment should not be lightly interfered with. If the ground on which the concluded assessment is sought to be re-opened, cannot be sustained, there would be little rationale for expanding the reassessment proceedings. In our view, it would not be apposite to accept an expansive interpretation to the provision of Section 147 of the Act. Given that the nature of the proceedings is to unsettle concluded assessment, a strict interpretation of the plain language of Section 147 of the Act, is warranted. We respectfully concur the view of this court as articulated in Ranbaxy Laboratories Limited 2011 (6) TMI 4 - DELHI HIGH COURT and ATS Infrastructure Ltd. 2024 (7) TMI 1441 - DELHI HIGH COURT and Jaguar Buildcon Pvt. Limited. 2024 (8) TMI 517 - DELHI HIGH COURT It is also relevant to note that various courts had taken a view that the reassessment proceedings were confined under Section 147 of the Act only to the issues (reasons to believe) on the basis of which the assessments were reopened. Thus, there was no scope for making any addition other than those which were circumscribed by the reasons to believe as recorded by the AO prior to the issuing a notice under Section 148 of the Act. However, this controversy was set at rest by introduction of Explanation 3 by virtue of the Finance Act, 2009 with retrospective effect from 01.04.1989. Explanation 3 to Section 147 merely clarified that the AO would assess or reassess the income in respect of the issue which had escaped assessment and such other issue, which came to the notice subsequently. However, the said explanation does not control the import of the plain language of Section 147 of the Act. Explanation 3 to Section 147 of the Act, merely clarifies that the jurisdiction of the AO was not confined to assessing or reassessing of the income of an Assessee only in respect of the issue, which formed a part of the reasons recorded for reopening the assessment. The said explanation cannot be interpreted to mean that the AO could assess other incomes of the Assessee even in cases where no addition is made on account of the reasons for which reassessment was initiated. No substantial question of law arises in the present appeal.

Issues Involved:

1. Jurisdiction of the Assessing Officer (AO) to make additions in reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Validity of the addition of Rs. 6,01,00,000/- under Section 68 of the Income Tax Act, 1961.
3. Interpretation of Section 147 of the Income Tax Act, 1961, particularly regarding the necessity of assessing the income for which the assessment was reopened.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) to make additions in reassessment proceedings under Section 147:

The core issue was whether the AO had the jurisdiction to make additions unrelated to the reasons for which the assessment was reopened. The AO had initially reopened the assessment based on information about alleged accommodation entries totaling Rs. 88,00,000/-. However, during the reassessment, the AO did not make any addition for this amount but instead added Rs. 6,01,00,000/- as unexplained share capital under Section 68 of the Act.

The Assessee contested this, arguing that the AO could not make any other additions since no addition was made on the ground for which the assessment was reopened. The ITAT accepted this contention, relying on precedents such as the Bombay High Court's decision in Commissioner of Income Tax v. Jet Airways (I) Ltd. and the Delhi High Court's decision in Ranbaxy Laboratories Limited v. CIT. These decisions held that if the AO does not make an addition on the ground for which the assessment was reopened, he cannot assess other income discovered during the reassessment proceedings without issuing a fresh notice under Section 148.

2. Validity of the addition of Rs. 6,01,00,000/- under Section 68:

The AO had added Rs. 6,01,00,000/- as unexplained share capital under Section 68, which was challenged by the Assessee. The CIT(A) found that this addition was not sustainable. The Revenue's appeal to the ITAT was dismissed, as the ITAT upheld the CIT(A)'s finding that the addition was not permissible since the AO had not made any additions on the original grounds for reopening the assessment.

3. Interpretation of Section 147 of the Income Tax Act, 1961:

The judgment extensively discussed the interpretation of Section 147, particularly the phrase "and also any other income chargeable to tax." The court reiterated that the AO must assess or reassess the income for which he had reason to believe it had escaped assessment. Only after doing so could the AO assess any other income that came to his notice during the proceedings. This interpretation was supported by the language of Section 147 and the legislative intent, emphasizing that the AO's jurisdiction is contingent upon making an addition for the income that formed the basis of the reassessment.

The court also noted the introduction of Explanation 3 to Section 147 by the Finance Act, 2009, which clarified that the AO could assess or reassess any income that came to notice during the proceedings, even if not included in the initial reasons for reopening. However, this explanation did not override the requirement that the AO must first assess the income for which the assessment was reopened.

Conclusion:

The court dismissed the Revenue's appeal, affirming the ITAT's decision that no substantial question of law arose. The judgment underscored the necessity of adhering to the statutory requirements of Section 147 and maintained that the AO's jurisdiction is limited to assessing the income for which the reassessment was initiated. Only then can any additional income be assessed, ensuring that reassessment proceedings do not become a tool for roving inquiries.

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