ONCE THE PRINCIPAL GROUNDS, ON WHICH REASSESSMENT WAS PROPOSED, ARE DROPPED NO FURTHER ADDITIONS CAN BE MADE

[Mr. M. GOVINDARAJAN]

In THE PR. COMMISSIONER OF INCOME TAX -CENTRAL-1 VERSUS JAGUAR BUILDCON PVT. LTD. - 2024 (8) TMI 517 - DELHI HIGH COURT, the Department re-opened the case of the assessee on the basis of information relating to accommodation entry received from TVH Trading Company Private Limited of Rs.26,40,00,000/-. In the assessment order no addition was made since the said amount has already been added to the income under section 153A on 30.03.2014. The Assessing Officer made an addition of Rs.58,18,50,000/- since the assessee had received accommodation entry of Rs.58,18,50,000/- from five persons which was finally added back under section 68 of Income Tax Act in the reassessment proceedings.

The assessee filed on appeal against the order of Assessing Officer before Commissioner of Income Tax (Appeals). The assessee contended before the Commissioner of Income Tax (Appeals) that since no addition has been made on the subject on which reopening was done, the other addition made in this case is not sustainable. The assessee relied on the judgment of Delhi High Court in RANBAXY LABORATORIES LIMITED VERSUS COMMISSIONER OF INCOME TAX - 2011 (6) TMI 4 - DELHI HIGH COURT.

The Commissioner of Income Tax (Appeals) observed that explanation 3 to section 147 was inserted by Finance (No.2) Act, 2009 with effect from 01.04.1989 to clarify that the Assessing Officer could assess or reassess the income in respect of any issue which came to his notice subsequently in the course of the proceedings. The Commissioner of Appeals relied on the judgment of Bombay High Court in CIT VERSUS JET AIRWAYS (I) LTD. - 2010 (4) TMI 431 - BOMBAY HIGH COURT in which it was held that if after issuing a notice under section 148, he accepted the contention of assessee and held that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary, legality of which would be tested in event of a challenge by assessee. The Delhi High Court in the case of Ranbaxy Laboratories Limited (Supra) took a similar view.

The Income Tax Department filed an appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short) against the order of Commissioner of Income Tax (Appeals), New Delhi. After hearing both sides the ITAT dismissed the appeal filed by the Income Tax Department on 13.04.2023.

The Income Tax Department filed an appeal before the High Court against the order of ITAT. The Department raised the following questions of law for the consideration of the High Court-

• Whether ITAT has erred on the facts and circumstances of the case in deleting the addition of Rs.58,18,50,000/- under section 68 of the Act on confirming the order of Commissioner of Income Tax (Appeals) who concluded that when on the ground on which the reopening of assessment is based, whereas no additions are made by the Assessing Officer in the order of assessment, he cannot make addition on some other grounds which did not form part of the reasons recorded by him?
• Whether ITAT has erred on the facts and circumstances of the case in not appreciating the explanation 3 of section 147 of the Income Tax Act, 1961 in which it is provided that the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issues have not been included in the reasons recorded under of section 148(2)?
• Whether ITAT has erred on the facts and circumstances of the case in placing reliance of the case of Ranbaxy Laboratories Ltd, as the facts of the said judgment of Delhi High Court is different from the case of the assessee. Further, the ITAT has not gone through the merits of the case of the assessee and has relied upon the above judgment to delete the addition?
• Whether ITAT has erred on the facts and circumstances of the case when the addition made were not due to roving and fishing enquiries, but rather due to concrete information received from Investigation Wing of the department, based on field enquiries?
• Whether ITAT has erred on the facts and circumstances of the case, when the addition done with regard to accommodation entry in form of share premium, is connected, related and classified under the same head of income, similar to the reasons of reopening?

The principal question which arised for the consideration of High Court is as to whether once the issue of accommodation entry and which alone formed the subject matter of the notice issued under Section 148 of the Income Tax Act, 1961 was ultimately dropped, any further additions could have been made thereafter. It was in the aforesaid context that the appellant had sought to press Explanation 3 of Section 147 as it stood prior to 01.04.2021.

The High Court analyzed the decisions of the ITAT in detail. The High Court also considered the reliance of High Court in the judgments of Ranbaxy Laboratories (supra) and TRAVANCORE CEMENTS LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX AND ANOTHER - 2006 (9) TMI 174 - KERALA HIGH COURT.

The High Court observed that in the above said cases it was held that upon the issuance of 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. To put it differently, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.