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TMI Blog2015 (8) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts/merits also certain questions have been raised which would require consideration of this Court. Brief facts of this case are that the appellant, who is assessed as an individual, has income from house property, transport business, capital gains and other sources. For the assessment year 2004-05, he filed his Income Tax return on 16.12.2004 declaring an income of Rs. 4,82,330/- and agriculture income of Rs. 1,62,470/-. Such return was first processed under section 143(1) of the Act and accepted on 2.3.2005. Thereafter, notice under Section 148 was issued on 17.1.2006 stating that the assessee had converted agricultural land into nonagricultural purposes, formed sites and sold the same during the relevant period, and while arriving at the capital gains, the assessee had considered the indexation up to the financial year 2003-04 whereas the provision of section 45(2) envisages, if such capital assets were invested in stock-in-trade, the income is chargeable to tax as business income in the year in which the stock is sold. It was also stated that the assessee had claimed indexation till the assessment year 2003-04 and arrived at the capital gains without considering the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was justified in law. On merits also, the finding of the CIT(A) with regard to adopting the fair market value and disallowance of expenditure, were upheld by the Tribunal. Being aggrieved by the said order of the Tribunal, this appeal has been filed, which has been admitted on the following four substantial questions of law: (1) Whether the Tribunal was correct in upholding reassessment proceedings, when the reason recorded for re-opening of assessment under S.147 of Act itself does not survive. (2) Whether the Tribunal was correct in upholding levy of tax on a different issue, which was not a subject matter for re-opening the assessment and moreover the reason recorded for the re-opening of the assessment itself does not survive. (3) Whether the Tribunal was justified in law in passing an order without application of mind as to the determination of the fair market value as on 1.4.1981 by not taking into consideration the material on record and the valuation report filed by the appellant and consequently passed a perverse order on the facts and circumstance of the case. (4) Whether the Tribunal was justified in law in not allowing a sum of Rs. 3,75,000/- being expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been recorded before giving the notice. In support of this, Sri Sanmathi has referred to certain circulars of the Central Board of Direct Taxes (CBDT). Sri K V Aravind has submitted that the said section 147 is in two parts, which have to be read independently, and the phrase "such income" in the first part is with regard to which reasons have been recorded and the phrase "any other income" in the second part is with regard to where no reasons are recorded in the notice and has come to notice of the Assessing Officer during the course of the proceedings. According to him, both being independent, once the satisfaction in the notice is found sufficient, addition can be made on all grounds, i.e., for which reason had been recorded and also for which no reason had been recorded, and all that is necessary is that during the course of the proceedings under section 147, income chargeable to tax must be found to have escaped assessment. In support of his submission, he has relied on Explanation 3 to Section 147 which was inserted by Finance Act, 2009 with effect from 1.4.1989. Learned counsel for the parties have relied on certain circulars of the CBDT and also several decisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of notice where income has escaped assessment: (1) Before making the assessment, reassessment or recomputation under S.147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed,; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under S.139: Provided that ....... Provided further that ..... Explanation: (1) ..... (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. Section 148 of the Act requires the Assessing Officer to issue notice to the assessee where the income has escaped assessment. Subsection (2), which was inserted by Direct Tax Laws (Amendment) Act, 1989 with effect from 1.4.1989, requires the Assessing Officer to record his reasons before is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice is either not challenged or if challenged and found to be justified, it would be a case of reopening the assessment on the basis of a valid notice. Once the notice for reopening of a previously closed assessment is held to be valid, the assessment proceedings as well as the assessment order already passed would be deemed to have been set aside. The Assessing Officer would then have the power to pass fresh assessment order with regard to the entire income which has escaped assessment. As long as the proceedings have been initiated on the basis of a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income which may have escaped assessment during the assessment year. The said section 147 of the Act, as it now stands after 1.4.1989, may be read in a simple manner, in parts, as follows: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he may 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......... The 'reason to believe' that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the purpose is to tax all such income which has escaped assessment, in our view, besides 'such income' for which he has reason to believe to have escaped assessment, it would be open to the Assessing Officer to also independently assess or reassess any other income which does not form the subject matter of notice. Although in a different context, which was whether in the course of reassessment of an escaped item of income an assessee could seek review in respect of an item which stood concluded in the original assessment order, the Supreme Court in the case of Sun Engineering Works Pvt. Ltd. Vs CIT (1992)198 ITR 297 has held that "the proceedings under S.147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee". While interpreting the provisions of section 147, different High Courts have held differently, i.e., some have held that the second part of section 147 is to be read in conjunction with the first part, and some have held that the second part is to be read independently. To clarify the same, in the year 1989, the legislature brought in suitable amendments in sections 147 and 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. In the said judgment, it was also noticed that the Special Leave Petition filed against the judgment in the case of Majinder Singh (supra) had been dismissed by the Supreme Court. Circular No.5 of 2010 issued by the Central Board of Direct Taxes (CBDT) after the amendment of 2009, provided for the "Explanatory Notes to the Provisions of Finance (No.2) Act, 2009" by which Explanation 3 to section 147 of the Act had been inserted with effect from 1.4.1989. The relevant paragraph 47 of this Circular is reproduced below: "47: Clarificatory amendment in respect of reassessment proceeding under S.147. 47.1: The existing provisions of S.147 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 S.148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further Assessing Officer may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Assessing Officer is required to record the reasons for reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." Thus, what has been held is that 'such income' in the first part of section 147 is joined with 'any other income' of the second part of the section by the phrase "and also" which is used in a "cumulative and conjunctive sense". Following the said judgment of the Bombay High Court, same view has been taken by the Delhi High Court in the cases of Ranbaxy Laboratories Ltd. Vs CIT (2011) CIT 336 ITR 136 and CIT Vs Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212 and also the Gujarat High Court in the case of CIT Vs Mohmed Juned Dadani (2013) 214 Taxman 38. With due respect to the view taken in the aforesaid cases, we are unable to persuade ourselves to follow the same. Insertion of 'Explanation' in a section of an Act is for a different purpose than insertion of a 'Proviso'. 'Explanation' gives a reason or justification and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 issued by the CBDT (already reproduced above) also makes this position clear. In our view, there is no conflict between the main section 147 and its Explanation 3. This Explanation has been inserted only to clarify the main section and not curtail its scope. Insertion of Explanation 3 is thus clarificatory and is for the benefit of the Revenue and not the assessee. If there is ambiguity in the main provision of the enactment, it can be clarified by insertion of an Explanation to the said section of the Act. Same has been done in the present case. Section 147 of the Act was interpreted differently by different High Courts, i.e., whether the second part of the section was independent of the first part, or not. To clarify the same, Explanation 3 was inserted by which it has been clarified that the Assessing Officer can assess the income in respect of any issue which has escaped assessment and also 'any other income' (of the second part of section 147) which comes to his notice subsequently during the course of the proceedings under the section. After the insertion of Explanation 3 to section 147 it is clear that the use of the phrase "and also" between the first and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenged, then in either case it cannot be said that notice is invalid. As such, if the notice is valid, then the foundation remains and the proceedings on the basis of such notice can go on. We may only reiterate here that once the proceedings have been initiated on a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income (including 'any other income') which may have escaped assessment and comes to his notice during the course of the proceedings initiated under section 147 of the Act. In view of the aforesaid, we answer the first two substantial questions of law in favour of the Revenue and against the assessee. After having answered the first two questions relating to the primary issue, we may now deal with questions 3 and 4, which relate to the merits of the case at hand. Question 3 relates to the evaluation of the 'fair market value' of the property in question as on 1.4.1981. From the record it is borne out that the assessee had claimed the value of the property at the rate of Rs. 261/- per sq. ft. but had submitted the valuation report of a registered valuer at Rs. 225/- per sq. ft. as on 1.4.1981. However, the same was as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proper mode of arriving at the 'fair market value' of the property in question as on 1.4.1981, for the purpose of determining 'Capital gains' under the Act. In a recent case of Smt Krishna Bajaj Vs ACIT - 2014 (41) Taxman.com 445 (Kar) the question for consideration before this Court was "Whether the authorities were justified in relying on either the guideline value for the purpose of stamp duty and registration charges, or the value adopted under the Wealth Tax Act, for determining the fair market value under the Income Tax Act, 1961". After considering the facts, this Court has held that "in determining the fair market value under the Act, neither the guideline value prescribed for the purpose of stamp duty and registration under the Karnataka Stamp Act and the Indian Registration Act nor the net wealth value arrived at under the provisions of the Wealth Tax Act, cannot be the guiding factor. The market value of the property is certainly far more than the guideline value." In the said case of Smt Krishna Bajaj (supra) the assessee had not provided the valuation report to substantiate the valuation of the property, and in such context it was held that "merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokerage, meaning thereby that in the facts of the case, higher brokerage was required to be paid. Once the Assessing Officer accepts that the facts required payment of higher brokerage and it is not disputed that the transaction of brokerage was through banking channel, reduction of allowance of brokerage paid from 10% to 5%, without assigning or giving any reasons for the same, cannot be justified in law. As such, in the facts of this case, we are satisfied that the entire amount of Rs. 7,50,000/- ought to have been allowed by the authorities towards expenses of brokerage charges. Accordingly, we answer the third and fourth substantial questions of law in favour of the assessee and against the Revenue. For the foregoing reasons, the answer to the first two questions is in favour of the Revenue and against the assessee. The third and fourth questions are answered in favour of the assessee and against the Revenue. The matter is remanded back to the Assessing Officer for re35 determining the taxable income of the assessee, in accordance with law and in light of the observations made and directions given hereinabove. Accordingly, this appeal stands disposed of. There shall be no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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