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TMI Blog2019 (5) TMI 1800X X X X Extracts X X X X X X X X Extracts X X X X ..... rievance of the revenue is against the action of the Ld. CIT(A) in allowing the appeal of the assessee wherein the assessee had raised the legal issue by raising additional ground before the Ld. CIT(A) wherein the assessee has challenged the jurisdiction of the AO to reopen and assess the income/loss from client code modification without mentioning about it in the reason recorded to reopen the assessment and without making any addition/disallowance on the production/ suppression of iron ore which was the precise reason recorded in the reason to re-open alleging escapement of income. 4. Brief facts of the case are that assessee company is mainly engaged in the business of mining and trading of iron ore and Manganese ore had filed its return of income reflecting total income of Rs. 40,65,54,550/- on 29.09.2009. The original scrutiny assessment u/s. 143(3) of the Act completed on 12.12.2011 at Rs. 50,60,22,409/-. Later a search and seizure operation was conducted against the assessee u/s. 132 of the Act on 13.09.2012 and the assessment u/s. 153A was completed on 28.04.2014 at a total income of Rs. 40,60,22,409/-. 5. Thereafter, notice u/s. 148 of the Act was issued on 17.02.2015 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO proceeded on another issue of artificial loss created by misusing client's code modification as per information received from the Directorate of Income-tax (I&CI), Mumbai and thereafter, he disallowed the claim made by assessee of loss of Rs. 2,30,62,270/- and made an addition of the said amount. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to allow the legal issue raised by the assessee against the jurisdiction to reopen and assess the new issue [artificial loss created by misusing client's code modification], without making any addition/disallowance for which reason was recorded to re-open [suppression in the actual quantity of production of iron ore]. The Ld. CIT(A) has relied on the following judgments: i) CIT Vs. Jet Airways (I) Ltd. (2011) 331 ITR 0236 (Bom.); ii) CIT Vs., Ranbaxy Laboratories Ltd. (ITA No. 148/2008 dated 03.06.2011)(Del. High Court); iii) CIT Vs. Sri Ram Singh (2008) 306 ITR 343 (Raj.); iv) DCIT Vs. Takhshila Educational Society (2016) 284 CTR 0306 (Pat.) v) Oriental Bank of Commerce Vs. ACIT 272 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this specific issue (i.e. for production/suppression of iron ore) on the basis of which reopening was initiated. According to the Ld AR, the AO could not have proceeded to make any other addition, without making any addition/disallowance on the issue for which he based his belief in respect of the escapement of income, and for which he resorted to re-opening. For that proposition he relied upon the order of the Hon'ble Bombay High Court in CIT vs Jet Airways (I) Ltd. (2010) 195 Taxman 117 (Bombay). We note that the legal issue which is before us is no longer res integra and the Hon'ble High Court after taking note of the Explanation 3 inserted by the Finance Bill 2009 has held in favour of the assessee by holding as under: 2. The two appeals by the revenue pertain to assessment years 1994-95 and 1995-96. The Tribunal has noted that an identical issue was agitated by the assessee for assessment year 1997-98 and that the Tribunal, while allowing the claim of the assessee, held that the re-opening of the assessment was not valid in law. The Court has been informed that the appeal against the order of the Tribunal for assessment year 1997-98 has been dismissed for non-compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)." 5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 section 147. 6. The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 is that even though the notice that has been issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows : ". . .The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 the section; and (iv) Though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. 10. Now the submission of the learned counsel appearing on behalf of the assessee in the present case is that the words "and also" in section 147 postulate that the Assessing Officer may assess or reassess the income which he has reason to believe has escaped assessment together with any other income chargeable to tax which has escaped assessment and which comes to his notice during the course of the proceedings. In other words, unless the Assessing Officer assesses the income with reference to which he had formed a reason to believe within the meaning of section 147, it would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that 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 any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the season to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of section 147 enures to the benefit of the revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings. The judgment in V. Jaganmohan Rao's case (supra) dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P.) Ltd.'s case (supra) interprets the provisions of section 147 as they stood prior to the amendment on 1-4-1989. 13. The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147." 15. Parliament, when it enacted the Explanation (3) to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by "Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 accepted the contention of the assessee and holds that the income which he has initially 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. 17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a.matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates 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 assess or reassess such income "and also" any other i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reason to believe escapement of income" to 'for reasons to be recorded by him in writing, is of the opinion'' which gave unbridled subjective satisfaction to the AO was later substituted back to 'reason to believe escapement of income'', by the Direct Tax Laws (Amendment) Act, 1989. The Hon'ble Apex Court as well as the Hon'ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact and law (mixed question of fact and law) the reason to believe escapement of income (supra). For reopening the assessment by the AO the condition precedent of reason to believe escapement of income is sine qua non. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information, still there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon'ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression "reason to believe" occurring in sec. 147 "is stronger" th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escapement of income happened and for which precise reason recorded AO invoked the reopening jurisdiction after the assessment was framed u/s. 153A/143(3) of the Act on 28.04.2014 (supra). However, we note that at page 3 of the reassessment order the AO has accepted the contention of the assessee after going through the Form HI filed before DG, Mines and has recorded that he is not drawing any adverse inference so far as production of iron ore by the assessee and did not make any addition/disallowance on this issue for which purpose only he invoked his reopening jurisdiction u/s. 147 of the Act. So, we note that here is a case wherein the AO invoked the reopening jurisdiction for a specific purpose which issue was dropped, then according to assessee and rightly so, the condition precedent for assuming jurisdiction has disappeared/absent, then the AO lacks jurisdiction to proceed further to reassess any other income which he has not taken note in the reasons recorded to reopen. Therefore, the AO ought not to have proceeded to reassess the assessee on a new issue of artificial loss created by misusing the client's code modification. And, therefore, the jurisdictional fact which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT Vs. Mehak Finvest (P) Ltd. (supra) has followed the Division bench order in Majinder Sing Kang (supra) since it was binding on the same High Court and taking into consideration that the SLP against the Majinder Singh Kang has been dismissed. 10. However, we note that the Hon'ble Bombay High Court in the case of Jet Airways (supra) has considered at length the effect of the insertion of Explanation (3) to sec. 147 of the Act by the Finance No. 2 Act, 2009 retrospectively w.e.f. April 1, 1989 and has laid down the ratio decidendi of the issue before us. We note that the jurisdictional High Court i.e. Hon'ble Calcutta High Court in ITAT No. 60 of 2014 in GA No. 1736 of 2014 CIT Vs. M/s. Infinity Infotech Parks Ltd. has concurred with the view taken by the Hon'ble Delhi High Court judgment in Ranbaxy Laboratories Vs. CIT 336 ITR 136 (Del.) and Hon'ble Bombay High Court in CIT Vs. Jet Airways India Ltd. 331 ITR 236 (Bom.) approved the Tribunal's view on the same which is reproduced as under: "We further find that similar view was taken by the Hon'ble Bombay High Court in the case of CIT Vs. Jet Airways India Ltd. (supra) and the Hon'ble Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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