2018 (6) TMI 1284 - HC - Income Tax

Reopening of assessment - reopen Held that - This is not a case in which additions made, on the issues not originally recorded under Section 148(2) could be deleted, merely on the ground of original reasons recorded having not concluded in an assessment of escaped income. Two of the reasons recorded did conclude in assessment of escaped income. It definitely cannot be a preposition that only if all the recorded reasons ended in assessment of escaped income, could there be assessment made on issues of escapement; detected during the course of re-opening. We, hence, answer the questions of law framed in favour of the Revenue and against the assessee. In the present case, which is a reassessment proceeding, quite surprisingly, the Assessing Officer proceeded to assess the escapement of income in the following manner The assessee has not explained why there is discrepancy in the sales as per the old statement and the new statement except for the discrepancy in Trichur. After due consideration this year making a departure from the old method and allocating the sales as per the old statement as the sales but with certain changes (sic). This definitely is not permissible and falls foul of the principles of reassessment for reason of it being a mere change of opinion. The power conferred under Section 147 is not one of review and is of reassessment for reasons recorded. These reasons recorded has to emanate from some material coming to the notice of the Assessing Officer after the original assessment; which is absent at this instance. On the ground of binding precedents, inter-parties, in the other assessment years as also on the ground of the reassessment proceedings being incompetent, we are of the opinion that the direction of the First appellate Authority on the issue of Section 80(IA), need not be touched. We affirm the order to that extent and the consequences flowing from the said directions necessarily follow. Hence there would be no purpose served in remanding those two issues. What remains is the expense incurred for maintaining Mammen Mappilai Hall. The expenses is in the nature of salary paid to a sweeper for cleaning the premises. Though the Hall is in the name of the founder of the assessee, it is not owned by the assessee. The claim is that in keeping the Hall clean the assessse s business gets enhanced good will. A similar claim for business expenditure, was held to be not permissible in a binding precedent in the assessee s own case for another assessment year; reported Malayala Monorama Co.Ltd. v. CIT 2005 (12) TMI 67 - KERALA HIGH COURT . The amount is also only ₹ 2,45,33/- and there can be no dispute on quantum looking at the facts pleaded. Hence there is no reason for a remand. We answer the questions of law as framed by the Revenue in favour of the Revenue and against the assessee on the reasoning above. But the additions under Section 80(IA) will be as directed in the first appellate authority s order and the addition on deemed dividend stands reversed. The addition on the expenses incurred for Mammen Mappillai Hall stands sustained. The Income Tax Appeal is partly allowed.

Summary

Issues:
1. Whether the Tribunal was right in canceling the reassessment?
2. Whether the reassessment was in accordance with the law and if the ITAT was justified in interfering with it?

Issue 1: Tribunal's Decision on Reassessment
The case involves the reassessment for the assessment year 1999-2000 under Section 147 of the Income Tax Act, 1961. The appellant challenged the reassessment on the grounds that the Assessing Officer had identified additional issues beyond the reasons recorded for re-opening the assessment. The reassessment included issues related to teak plantation income, property income in Bombay, Section 80(IA) claim, deposits from agents, deemed dividend, and Mammen Mappillai Hall expenditure. The first appellate authority found that the AO's inquiry into the Section 80(IA) claim was impermissible under Section 148(2) and directed a re-computation based on the assessee's concession. The Tribunal rejected the Revenue's appeal, relying on a previous decision. However, the Full Bench overruled the previous decision and clarified that the AO can assess any other issue that comes to notice during reassessment, even if not part of the original reasons recorded.

Issue 2: Legal Interpretation of Explanation 3 to Section 147
The insertion of Explanation 3 to Section 147 by the Finance Act (No.2) of 2009 was crucial in this case. Explanation 3 allows the Assessing Officer to assess any issue that has escaped assessment, even if not included in the original reasons recorded for re-opening. The Bombay High Court in Jet Airways (I) Ltd. explained that post the introduction of Explanation 3, the AO can assess or reassess income on any issue that comes to notice during the reassessment proceedings, irrespective of the reasons initially recorded. The Court analyzed whether issues not part of the original reasons could be proceeded with during reassessment. The Division Bench held that if no additions were made based on the original reasons, fresh notice with reasons recorded should be issued for other detected issues during reassessment.

Conclusion
The Court analyzed the reassessment proceedings, emphasizing that the AO can assess any issue that comes to notice during reassessment, as per Explanation 3 to Section 147. The judgment favored the Revenue, concluding that the additions made during reassessment were valid, even if not part of the original reasons. The Court upheld the additions related to Section 80(IA) and Mammen Mappillai Hall expenses, while reversing the addition on deemed dividend. The Income Tax Appeal was partly allowed, affirming the Tribunal's decision on reassessment issues.