2011 (6) TMI 4 - HC - Income Tax

Reopening - Income escaping assessment - Deduction u/s 80IA - REP licences - when reassessment is reopened by issuance of notice under Section 148, the previous assessment is set aside and the whole assessment proceedings start afresh and the Assessing Officer has power to levy taxes on the entire income which has escaped assessment - The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-I which as per our discussion was not permissible - For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under Section 148 - Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive - The appeal is allowed

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer to reassess issues other than those for which proceedings were initiated.
3. Interpretation of Sections 147 and 148 of the Income Tax Act, particularly post-amendment and the insertion of Explanation 3.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act:

The appeal challenges the Tribunal's decision upholding reassessment proceedings initiated under Section 147 of the Income Tax Act. The appellant argued that the reassessment was initiated on the basis of items (club fees, gifts, and provision for leave encashment) which were later found to have no escaped income, thus questioning the validity of the proceedings.

The Tribunal, however, maintained that the initiation of reassessment proceedings was valid under Section 147, as the Assessing Officer had reason to believe that income had escaped assessment. The Tribunal emphasized that even if the initial reasons for reassessment were not upheld, the proceedings remain valid if any other income escaping assessment is discovered during the reassessment process.

2. Jurisdiction of the Assessing Officer to reassess issues other than those for which proceedings were initiated:

The core issue was whether the Assessing Officer could reassess issues other than those for which the reassessment proceedings were initiated, especially when the reasons for the initial reassessment ceased to exist. The appellant contended that the Assessing Officer overstepped his jurisdiction by making additions/disallowances unrelated to the initial reasons for reassessment.

The Tribunal and the High Court clarified that under Section 147, the Assessing Officer has the authority to reassess any income that comes to his notice during the proceedings, even if it was not part of the original reasons for reassessment. This interpretation was supported by Explanation 3 to Section 147, which allows the Assessing Officer to assess any escaped income discovered during the reassessment process, notwithstanding the initial reasons recorded.

3. Interpretation of Sections 147 and 148 of the Income Tax Act, particularly post-amendment and the insertion of Explanation 3:

The High Court delved into the legislative intent and amendments to Sections 147 and 148, including the insertion of Explanation 3 by the Finance Act, 2009. The court highlighted that the amendments were meant to clarify that the Assessing Officer could assess or reassess any income escaping assessment discovered during the proceedings, even if it was not included in the initial reasons for reassessment.

The High Court cited several precedents, including the Bombay High Court's decision in Commissioner of Income Tax v. M/s Jet Airways (I) Limited, which held that the words "and also" in Section 147 are conjunctive and cumulative, indicating that the Assessing Officer must assess the income for which he had reason to believe it escaped assessment and any other income discovered during the proceedings.

The court concluded that while the Assessing Officer had the jurisdiction to reassess issues other than those initially identified, he was not justified in doing so when the initial reasons for reassessment ceased to exist. The court held that the Assessing Officer's jurisdiction to reassess is contingent upon the continued existence of the initial reasons for reassessment.

Conclusion:

The High Court upheld the Tribunal's decision that the Assessing Officer had the jurisdiction to reassess issues other than those for which proceedings were initiated. However, it ruled that the Assessing Officer was not justified in reassessing other issues when the initial reasons for reassessment ceased to survive. The appeal was allowed, and the court answered the substantial question of law partly in favor of the Revenue and partly against it.