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TMI Blog2018 (12) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(3) ? 3. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that interest received from dealers for belated payments cannot be included in the business profits for the purpose of deduction under section 80HHC of the Act ?" 2. The first two substantial questions of law pertain to the validity of the reopening of the assessment and the third substantial question of law is with regard to deduction claimed by the assessee under section 80HHC of the Income-tax Act. 3. Heard Mr. Vikram Vijayaraghavan, assisted by Mr. R. Venkatanarayanan, for M/s. Subbaraya Aiyar Padmanabha and Ramamani, learned counsel appearing for the assessee and Mrs. S. Premalatha, learned junior standing counsel, for Mr. M. Swaminathan, learned senior standing counsel for the Revenue. 4. The first issue is to be considered as to whether the reopening of the assessment was valid and proper. The assessee was engaged in the business of manufacturing farm equipment and for the assessment year under consideration (1997-98), they filed a return of income on November 28, 1997, admitting a total income of Rs. 81,72,97,700. The return was processed under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has to necessarily exclude 90 per cent. of the interest receipts for computing the eligible pro- fits and therefore, the assessment was validly reopened and the assessment order dated December 28, 2004, is just and proper. 8. Before considering as to whether Explanation 3 to section 147 would be attracted, it is to be seen as to whether section 147 was rightly invoked by the Assessing Officer. To consider this question, we have to decide as to whether there has been full and true disclosure of all material facts necessary for assessment. We need not labour much to decide this controversy since the reason for reopening gives the answer. 9. The Assessing Officer, while issuing notice dated March 30, 2004, assigned the following reasons for reopening : "To disallow the contribution to welfare fund of Rs. 3,51,682 as it is not an approved fund." On a reading of the above reason makes it clear that the proposal to dis allow the contribution to welfare fund was on the ground that it is not an approved fund. There is no allegation of the assessee's failure to disclose fully and truly all material facts necessary for assessment. Thus, the proposal to disallow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 3 would stand attracted only upon the court being satisfied that there has been no full or true disclosure of all the material facts necessary for assessment. For the sake of argument, if we consider the submission of the Revenue, we are not persuaded to accept the same for the reasons that (a) a notice issued to the assessee under section 148 of the Act dated March 30, 2004, was to disallow the contribution to the welfare fund as it was not an approved fund ; and (b) on hearing the submissions of the assessee, the Assessing Officer accepted the case of the assessee and dropped the proposal. 13. In such circumstances, the question would be as to whether the Revenue can fall back on Explanation 3 to section 147 and proceed to make a roving enquiry into some other matter, in the instant case, with regard to computing eligible profits for the purpose of section 80HHC of the Act. This issue is no longer res integra and considered by the hon'ble Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom). 14. The Tribunal, while considering the said issue, had referred to the decisions in the case of ITO v. K. L. Srihari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account, he would be required to issue a fresh notice under section 148 of the Act. Thus, it was held that the Assessing Officer had jurisdiction to reassess the income other than the income in respect of which the proceedings under section 147 were initiated, but, he was not justified in doing so when the reasons for the initiation of those proceedings ceased to survive. Therefore, the argument advanced by the Revenue placing reliance on Explanation 3 to section 147 is of little avail. 17. Having thus come to a conclusion that reopening of the assessment itself was bad in law, we may not be required to decide other issue as to whether the finding of the Assessing Officer with regard to computation of eligible profits for the purpose of section 80HHC of the Act was correct or not. However, in this regard, learned counsel appearing for the Revenue placed reliance on the decision of the Punjab and Haryana High Court in the case of CIT v. Malwa Cotton Spinning Mills Ltd. [2008] 302 ITR 53 (P&H) ; [2008] 166 Taxman 457 (P&H). 18. Learned counsel for the assessee would point out that the assessee does not concede to the point that interest on belated payment from the customer is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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