2022 (1) TMI 435 - HC - Income Tax

Reopening of assessment u/s 147 - scope of explanation 3 to Section 147 - unexplained cash deposits - HELD THAT - As per explanation 3 it empowers the AO to assess or re-assess the income in respect of any issue that comes to his notice subsequently in the course of the proceedings under Section 147 of the Act but if the proceedings under Section 148 itself has been initiated wrongly, the question of any new issue that would come to his notice subsequently during the course of proceedings under Section 147 of the Act would not arise. The assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of which comes to his notice subsequently during the course of the any other income proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the AO to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. See JET AIRWAYS (I) LTD. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY - we set aside the notice u/s 148 - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 for A.Y. 2012-13.
2. Reopening of assessment based on alleged cash deposits.
3. Objections filed by the petitioner regarding the reopening of assessment.
4. Discrepancies in the reported cash deposits by the bank.
5. Interpretation of Explanation 3 to Section 147 of the Act.
6. Jurisdiction of the Assessing Officer in assessing or reassessing income.

Analysis:

1. The petitioner received a notice under Section 148 for A.Y. 2012-13, alleging that income had escaped assessment due to unreported cash deposits. The petitioner contested this by explaining that the reported cash deposits were actually withdrawals, supported by bank statements. The respondents acknowledged the error in the reported cash deposits but argued that other credits remained unexplained, justifying the reopening of assessment.

2. The Assessing Officer must have valid reasons to believe that income has escaped assessment to confer jurisdiction under Section 147. In this case, the basis for reopening assessment was found to be incorrect, as admitted by the respondents themselves. Therefore, the notice and subsequent order disposing of objections were deemed invalid and quashed.

3. The respondents cited Explanation 3 to Section 147, allowing assessment of any issue that comes to notice subsequently, even if not included in the original reasons for reopening. However, this explanation is contingent upon a valid notice being issued initially. If the proceedings were initiated wrongly, the Assessing Officer cannot independently assess new issues that arise later.

4. The judgment referenced Commissioner of Income Tax vs. Jet Airways (I) Ltd., highlighting the importance of assessing or reassessing the income that formed the basis for the notice under Section 148. Explanation 3 clarifies that the Assessing Officer can assess any other income that escaped assessment during proceedings, but only if the initial reason for reopening was properly addressed.

5. Ultimately, the petition was allowed, quashing the notice under Section 148 and the order disposing of objections. The court issued a Writ of Certiorari to review and set aside the impugned actions. No costs were awarded in disposing of the petition.