2015 (3) TMI 578 - HC - Income Tax

Reopening of assessment - whether on re-opening of a case under Section 147, it is open to ITO to consider all other items and not to confine to the item on which re-assessment notice has been given? - Held that - From the order dated 13.03.1975, whereby the Assessing Officer not only re-opened the case but made assessment in respect to various other items, other than the quantum of development rebate, we find that he has relied on Apex Court s decision in V. Jaganmohan Rao and Ors. vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, 1969 (7) TMI 4 - SUPREME Court in order to hold that once assessment is re-opened, the previous assessment is set aside and whole assessment proceedings restart afresh. This view has also been confirmed by Tribunal while confirming re-assessment proceedings and opening of entire matter afresh. A judgment must be read as a whole and the observations from the judgment should be considered in the light of questions which were before the Court. The decision of Court takes it colour from the questions involved in the case in which it has rendered. While applying the decision to a later case, the Court must carefully try to ascertain the true principle laid down in the decision and not to pick out words from the decision, divorce from the context of question under consideration by Court. If the assessee cannot be allowed to convert the proceedings initiated under Section 147 as revisional or review, the same would also be not available to Revenue. Thus we do not find anything which may help Revenue - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under Section 147(b) of the Income Tax Act, 1961.
2. Scope of reassessment once an assessment is reopened.
3. Whether the Income Tax Officer (ITO) can reassess all items afresh once the assessment is reopened.
4. Interpretation of the Supreme Court's decision in V. Jaganmohan Rao vs. Commissioner of Income Tax and Excess Profits Tax.
5. Applicability of the Supreme Court's decision in Commissioner of Income Tax vs. M/s. Sun Engineering Works (P.) Ltd.
6. Whether the reassessment proceedings can be used to reopen the entire assessment or are limited to the items that led to the reopening.

Detailed Analysis:

1. Reopening of Assessment under Section 147(b):
The case involves the reopening of the assessment for the Assessment Year 1969-70 of a public limited company engaged in manufacturing. The original assessment was completed on 30.03.1972, but based on the Appellate Commissioner's order for the subsequent year, the ITO initiated proceedings under Section 147(b) by issuing a notice under Section 148 on 15.03.1974. The ITO believed that the assessee was allowed excess relief amounting to Rs. 57,088/- in development rebate.

2. Scope of Reassessment Once an Assessment is Reopened:
The Tribunal upheld the ITO's action to reassess not only the development rebate but also other items. The Tribunal relied on the principle that once an assessment is reopened, the ITO is empowered to consider all other items afresh. This principle was supported by decisions in Commissioner of Income Tax vs. Kerala State Industrial Development Corporation Ltd. and Indian & Eastern Newspaper Society, New Delhi vs. Commissioner of Income Tax, New Delhi.

3. Whether the ITO Can Reassess All Items Afresh:
The Tribunal's decision was challenged, leading to the question of whether the ITO can reassess all items or must confine to the item on which the reassessment notice was issued. The Tribunal's reliance on V. Jaganmohan Rao vs. Commissioner of Income Tax and Excess Profits Tax was scrutinized, where it was held that once an assessment is reopened, the previous under-assessment is set aside, and the entire assessment proceedings restart afresh.

4. Interpretation of Supreme Court's Decision in V. Jaganmohan Rao:
The Court noted that the principle laid down in V. Jaganmohan Rao was clarified in Commissioner of Income Tax vs. M/s. Sun Engineering Works (P.) Ltd. The Supreme Court in Sun Engineering Works held that the reassessment should focus on the escaped income and does not reopen the entire original assessment. The Court emphasized that the original order retains its character and identity, and only the under-assessment is set aside.

5. Applicability of Supreme Court's Decision in Sun Engineering Works:
The Court in Sun Engineering Works stated that Section 147 is for the benefit of revenue and not the assessee, aiming to garner the escaped income of the assessee. It cannot be used to convert reassessment proceedings into revisional or review proceedings. The ITO's jurisdiction in reassessment is confined to the escaped income and does not extend to revising the whole assessment.

6. Whether Reassessment Proceedings Can Reopen Entire Assessment:
The Court rejected the Revenue's argument that the reassessment proceedings could reopen the entire assessment. It was held that the reassessment is limited to the escaped income and does not allow the ITO to reassess other items not related to the escaped income. The Court reiterated that both the assessee and the Revenue must follow the same consequences under Section 147.

Conclusion:
The reference was answered in the negative, against the Revenue and in favor of the assessee. The Court held that the ITO's jurisdiction in reassessment is confined to the escaped income and does not extend to revising or reopening the entire assessment. The Court emphasized that reassessment proceedings cannot be used to re-agitate matters concluded in the original assessment unless they relate to the escaped income.

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