2025 (2) TMI 239 - HC - Income Tax

Validity of Reopening of assessment - taking consideration any other income which has escaped assessment and which has not specifically been pointed out in the reopening order - Addition u/s 68 - bogus accommodation entry of unexplained credit - HELD THAT - As decided in Mehak Finvest Pvt. Ltd. 2014 (11) TMI 56 - PUNJAB HARYANA HIGH COURT AO can assess the income chargeable to tax which has escaped assessment and which has not specifically been pointed out in the reopening order and comes to his notice subsequently in course of proceedings under Section 147 of the Income Tax Act. Also in Karnataka in N. Govindaraju 2015 (8) TMI 271 - KARNATAKA HIGH COURT while relying on earlier decision of Majinder Singh Kang 2012 (6) TMI 616 - PUNJAB AND HARYANA HIGH COURT and Mehak Finvest Pvt. Ltd. 2014 (11) TMI 56 - PUNJAB HARYANA HIGH COURT has come to the conclusion that the Assessing Officer can take into consideration any other income which may have escaped assessment but discovered during the re-opening process however was not specifically mentioned in the reopening order. Decided in favour of revenue.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the findings recorded by the Income Tax Appellate Tribunal (ITAT) are contrary to the provisions of Explanation-3 of Section 147 of the Income Tax Act, 1961. Specifically, the issue is whether an Assessing Officer (AO) can reassess income that has escaped assessment if no addition is made on the issue which was mentioned for reopening the case under Section 147.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework revolves around Sections 147 and 148 of the Income Tax Act, 1961, which deal with the reassessment of income that has escaped assessment. Explanation-3 to Section 147, inserted by the Finance (No. 2) Act, 2009, allows the AO to assess or reassess any income that comes to notice during proceedings, even if it was not specified in the original reasons for reopening.

Several High Courts, including those of Bombay, Delhi, Gujarat, and Calcutta, have interpreted the phrase "and also any other income chargeable to tax which has escaped assessment" within Section 147. These courts have generally held that if no addition is made on the original grounds for reopening, the AO cannot add other items. However, the Punjab and Haryana High Court and the Karnataka High Court have held that the AO can assess other incomes discovered during reassessment, even if the original reason for reopening does not survive.

Court's Interpretation and Reasoning

The Court agreed with the interpretations of the Punjab and Haryana High Court and the Karnataka High Court, which allow for the assessment of other income discovered during reassessment proceedings under Section 147, even if the original reason for reopening does not result in an addition. The Court emphasized that Explanation-3 to Section 147 clarifies that the AO has the authority to assess any income that comes to notice during the proceedings.

Key Evidence and Findings

The Tribunal had dismissed the Revenue's appeal, agreeing with the Commissioner of Income Tax (Appeals) that the AO could not make additions of items not specified in the reopening order. The Tribunal did not examine the merits of the addition of Rs. 9,21,38,650/- in the income of the assessee.

Application of Law to Facts

The Court applied the legal framework to the facts by determining that the AO had the jurisdiction to assess other income discovered during reassessment proceedings, regardless of whether the original reason for reopening resulted in an addition. The Court found that the Tribunal erred in not considering the merits of the addition made by the AO.

Treatment of Competing Arguments

The Court considered the arguments presented by the Revenue, which relied on judgments from the Punjab and Haryana High Court and the Karnataka High Court. These judgments supported the view that the AO could assess other income discovered during reassessment. The Court found these arguments persuasive and aligned with the legislative intent of Explanation-3 to Section 147.

Conclusions

The Court concluded that the Tribunal's decision was contrary to the provisions of Explanation-3 to Section 147. The AO can assess other income discovered during reassessment proceedings, even if the original reason for reopening does not result in an addition.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Court cited the Punjab and Haryana High Court's decision in Mehak Finvest Pvt. Ltd., which stated: "The Assessing Officer is empowered to make additions even on the ground on which reassessment notice might not have been issued where during the reassessment proceedings, he concludes that some other income has escaped assessment which comes to his notice during the course of the proceedings for reassessment under section 148 of the Act."

Core Principles Established

The core principle established is that Explanation-3 to Section 147 allows the AO to assess or reassess any income discovered during reassessment proceedings, irrespective of the original grounds for reopening.

Final Determinations on Each Issue

The Court determined that the Tribunal erred in its interpretation of Section 147 and Explanation-3. The matter was remitted to the Tribunal for fresh consideration of the merits of the addition of Rs. 9,21,38,650/- in the income of the assessee.