2010 (4) TMI 431 - HC - Income Tax

Re-assessment - reopening of an assessment - Amendment with effect from Finance Act, 2009 by inserting an explanation - Section 147 of the Income Tax Act, 1961 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this Section . The proviso deals with reopening of an assessment upon the expiry of a period of four years from the end of the relevant assessment year and does not fall for interpretation in this appeal. - Held that - upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assesss or reassess such income and also any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The word and also are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament.

Issues Involved:
1. Interpretation of Section 147 of the Income Tax Act, 1961.
2. Validity of assessing or reassessing income not mentioned in the notice under Section 148.
3. Impact of Explanation 3 to Section 147 inserted by the Finance (No.2) Act of 2009.

Issue-wise Detailed Analysis:

1. Interpretation of Section 147 of the Income Tax Act, 1961:
Section 147 allows the Assessing Officer to assess or reassess income if there is "reason to believe" that income chargeable to tax has escaped assessment. The provision includes the authority to assess "such income" and "any other income" that comes to notice during the proceedings. The condition precedent is the formation of a reason to believe that income has escaped assessment, followed by serving a notice under Section 148 to the assessee.

2. Validity of assessing or reassessing income not mentioned in the notice under Section 148:
The Tribunal noted that the issue had been previously agitated and decided in favor of the assessee for the assessment year 1997-1998. The core question was whether the Assessing Officer could assess or reassess income not forming the basis of the notice under Section 148. The court examined the historical interpretation by various High Courts, including Punjab & Haryana and Kerala High Courts, which had held that the Assessing Officer could not assess income unrelated to the reasons recorded for reopening the assessment.

3. Impact of Explanation 3 to Section 147 inserted by the Finance (No.2) Act of 2009:
Explanation 3 was inserted to clarify that the Assessing Officer could assess or reassess any income that comes to his notice during the proceedings, even if not included in the reasons recorded under Section 148(2). This amendment was a response to judicial interpretations that restricted reassessment proceedings to issues for which reasons were recorded. The court noted that this explanation aimed to correct the perceived misinterpretation by courts that limited the scope of reassessment.

Detailed Analysis:

Section 147 and Explanation 3:
The court detailed that Section 147 enables the Assessing Officer to assess or reassess income that has escaped assessment and any other income that comes to notice during the proceedings. Explanation 3, introduced by the Finance (No.2) Act of 2009, clarifies that the Assessing Officer can assess income not initially recorded in the reasons for reopening. This was intended to align with the legislative intent and correct judicial interpretations that had restricted the scope of reassessment.

Precedent Analysis:
The court reviewed precedents, including the Punjab & Haryana High Court in Vipan Khanna and the Kerala High Court in Travancore Cements Limited, which held that the Assessing Officer could not reassess income unrelated to the reasons for reopening. However, the Rajasthan High Court in Commissioner of Income Tax v. Shri Ram Singh held that the Assessing Officer could assess other income only if the initially identified escaped income was also assessed.

Judgment:
The court concluded that the words "and also" in Section 147 are conjunctive and cumulative, meaning the Assessing Officer must assess the initially identified escaped income and any other income noticed during the proceedings. If the initial reason for belief of escaped income is not assessed, the officer cannot independently assess other income. The court upheld the Tribunal's decision, answering the question of law in favor of the assessee and against the Revenue.

Conclusion:
The judgment clarified that the Assessing Officer must assess the income that formed the basis of the notice under Section 148 and can also assess any other income noticed during the proceedings. However, if the initially identified income is not assessed, the officer cannot independently assess other income without issuing a fresh notice. The appeal was dismissed with no order as to costs.

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