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TMI Blog2024 (1) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2013-14, wherein, the assessee company has assailed the impugned order on the following grounds of appeal: "1) In the facts and circumstances of the case and in law, the action of ld. Commissioner of Income-tax (Appeals) is not justified for he wrongly decided the ground that since the primary ground for which re-assessment proceedings were initiated ceased to survive, the additions on other grounds is illegal and without jurisdiction. 2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 91,16,214/- as deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961 in the hands of the assessee company. 3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 1,23,312/- u/s. 40(a)(ia) of the Income-tax Act, 1961. 4) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 82,208/- out of interest expenses on estimate basis. 5) The impugned order is bad in law and on facts. 6) The appellant reserves the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 7,21,147/-; therefore, he had wrongly assumed jurisdiction and made independent additions/disallowances while assessing the income of the assessee company vide his order passed u/ss. 143(3)/147 of the Act dated 28.12.2017. The Ld. AR in support of his aforesaid contention placed reliance on the following judicial pronouncements: (i) Commissioner of Income Tax-5, Mumbai Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.) (ii) Assistant Commissioner of Income Tax Vs. Major Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh). (iii) Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax (2011) 12 taxmann.com 74 (Delhi) (iv) Ajay Kumar Agrawal Vs. ITO, Ambikapur, ITA Nos. 260 & 261/RPR/2016 dated 14.03.2022. (v) Shri Surendra K Sheth (HUF) Vs. ITO-17(3)(4), Mumbai, ITA No.4861/Mum/2019 dated 25.02.2021. 8. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. 9. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that 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 of recompute the loss or the depreciation allowance, 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 of 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were not connected with the claim of depreciation. This question was answered in the negative. A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. Asst. CIT, [2008] 305 ITR 170, that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to relieve that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge 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 (page 178): "The Assessing Officer gets jurisdiction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment of 2009 can therefore, be summarised as follows: (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148; (iii) the 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 none the less assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d". The words "and" as well as "also" have been used together and in conjunction. The Shorter Oxford Dictionary defines the expression "also" to mean further, in addition besides, too. The word has been treated as being relative and conjunctive. Evidently therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on "reassess" refers to a situation where, an assessment has already been made but the Assessing Officer has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao v. CIT/EPT, [1970] 75 ITR 373, which held that once an assessment is validly reopened, the previous underassessment 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 ensures 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, [1970] 75 ITR 373 dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engineering Works, [1992] 198 ITR 297 (SC) interprets the provisions of section 147 as they stood pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to 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 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 Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are left open. 13. In the result, appeal of the assessee in ITA No.369/RPR/2023 for A.Y.2013- 14 is allowed in terms of our aforesaid observations. ITA No.370/RPR/2023 A.Y. 2015-16 14. We shall now take up the appeal filed by the assessee company in ITA No.370/RPR/2023 for A.Y.2015-16, wherein, the assessee company has assailed the impugned order on the following grounds of appeal: "1) In the facts and circumstances of the case and in law, the action of Id. Commissioner of Income-tax (Appeals) is not justified in confirming additions made by ld. Assessing Officer on items not covered under scope of limited scrutiny and travelled beyond her jurisdiction is illegal and without jurisdiction. 2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 47,53,851/- as deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961 in the hands of the assessee company. 3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs. 1,75,486/- u/s 40(a)(ia) of the Income-tax Act, 1961. 4) In the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Assessing Officer has erred in making addition of Rs. 91,16,214 as deemed dividend u/s. 2(22) (e) of the Income-tax Act, 1961 in appellant's own case. As per Section 2(22(e) (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but "dividend" does not include- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal Commissioner of Income Tax Vs. Gladder Ceramics Ltd. The conditions prescribed u/s 2(22)(e) satisfied in this case and the appellant is covered under the provision of section 2(22)(e) and is to be taxed accordingly. The ground of appeal is dismissed. 8. Ground of appeal no. 3 & 4 3. The Id. Assessing Officer has erred in making disallowance of Rs. 1,23,312 u/s. 40(a)(ia) of the Income-tax Act, 1961. 4. The Id. Assessing Officer has erred in making disallowance of Rs. 82,208 out of interest expenses on estimate basis. As per Section 40 (a)(ia) "Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing compliance of the requirements of TDS. It is also noteworthy that in the proviso added to clause (ia) of Section 40(a) of the Act, it was provided that where in respect of the sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid in any subsequent year after the expiry of the time prescribed in Section 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. The purpose and coverage of this provision as also protection therein have been tersely explained by this Court in the case of Calcutta Export Company (supra), which has been cited by learned counsel for the appellant in support of another limb of submissions which we shall be dealing with in the next question. For the present purpose, we may notice the relevant observations of this Court in Calcutta Export Company as regards Section 40(a)(ia) of the Act as follows (at p. 662 of ITR): - The purpose is very much clear from the above referred explanation by the Memorandum that it came with a purpose to ITA No.467/CTK/2017 ensure tax compliance. The fact that the intention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the tax deducted by them during the last month of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of section 139(1) of the Income-tax Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under Section 40(a)(ia) of Income-tax Act where the tax was deducted before the last month of the previous year and the same was credited to the Government before the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only. The amendment though has addressed the concerns of the assesses falling in the first category but with regard to the case falling in the second category, it was still resulting into unintended consequences and causing grave and genuine hardships to the assesses who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns under section 139(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground of appeal No. 5 & 6 are general in nature no needs adjudication. 11. As a result, the appeal is hereby dismissed." 19. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 20. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 21. Shri S.R. Rao, Ld. Authorized Representative (for short 'AR') for the assessee company at the threshold had assailed the validity of the jurisdiction that was assumed by the A.O for framing of the assessment vide his order passed u/s. 143(3) of the Act. Elaborating on his contention, the Ld. AR submitted that though the case of the assessee company was selected for "limited scrutiny" for the purpose of verifying the applicability of Section 56(2)(viib) of the Act regarding the amount share premium that it had received during the year but additions/disallowances were made on certain extraneous issues which had never formed the basis for picking up the case for "l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, the scope of jurisdiction of the A.O while framing the "limited scrutiny" was circumscribed by the very purpose/reason, for which, the case of the assessee company was selected for scrutiny assessment. Accordingly, we find substance in the claim of the Ld. AR that the A.O had clearly exceeded his jurisdiction by making disallowances/additions which never formed the basis for selection of the case of the assessee company for "limited scrutiny". Our aforesaid view is fortified by the order of the Co-ordinate Bench of the Tribunal, Raipur in the case of Aryadeep Complex (P) Ltd. Vs. Pr. Commissioner of Income Tax, ITA No.85/RPR/2020 dated 05.08.2022, wherein the Tribunal relying on the order of the ITAT, Bombay in the case of Su-Raj Diamond Dealers (P) Ltd. Vs. Pr. CIT (2020) 203 TTJ ( Mumbai) 137 had held as under: "8. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. As the Pr. CIT had held the order passed by the Assessing Officer u/s. 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under CASS, thereupon, the Pr. CIT could not have justifiably stepped in to hold the order passed by the Assessing Officer u/s. 143(3) of the Act, dated 21.04.2016 as erroneous, for the reason, that he had failed to verify and examine such unrelated issues while framing the assessment. Our aforesaid view is fortified by the decision of the co-ordinate Bench of the Tribunal in the case of M/s Su-Raj Diamond Dealers Pvt. Ltd Vs. Pr. CIT, (2020) 203 TTJ 137 (Mum.) (of which one of us i.e., Judicial Member was a party), wherein it was held as under : "6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the case of the assessee was selected for limited scrutiny through CASS for two reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. Insofar the fact that the case of the assessee was selected for limited scrutiny for the aforesaid reasons is concerned, the same as observed by us hereinabove is not disputed and is clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No 7/2014 iv Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-- one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its case was selected for scrutiny assessment viz. viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. 7. As observed by us hereinabove, as per the CBDT instruction No. 20/2015, dated 29.12.2015, in a case which had been selected for scrutiny assessment on the basis of Computer Aided Scrutiny Selection ('CASS'), the scrutinising of such case would be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax, where it is felt that apart from the CASS information there is potential escapement of income of more than Rs. 10,00,000/-. Accordingly, the CBDT had in clear and unequivocal terms clarified that for broadening the scope of a case selected for limited scrutiny as per CASS information the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax would be required. In the case before us, it is an admitted fact that the case of the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case was selected for limited scrutiny under CASS. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under Sec. 143(3), dated 08.12.2016 is erroneous, therefore, „set aside‟ his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the ld. A.R on the merits of the case, which thus are left open." On the basis of our aforesaid observations, we are of a strong conviction, that as stated by the Ld. AR, and rightly so, the Pr. CIT had clearly traversed beyond the scope of his jurisdiction and revised the order passed by the Assessing Officer by holding the same as erroneous, for the reason that he had while framing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, the total investment of the assessee in unquoted equity shares was Rs. 15,00,00,000/- and the same stood at Rs. 11,42,00,000/- as at 31/03/2014. The assessing officer vide notice under section 142(1) dated 04/04/2017 has simply asked the assessee to furnish the details of investment. Counsel for the assessee vide his reply, received by the AO on 10/04/2017, has furnished list of investment. The list shows that during the year under consideration assessee has made substantial investment in unquoted equity shares. It is seen that the assessing officer has not made any enquiry in this regard. He has not asked the assessee to furnish the detail ledger of investment. He has not asked for the relevant documents such as broker's details, ledger account of the assessee in the broker's books of account etc,, He has not made any enquiry so as to enquire that whether the assessee company, director or family members of the assessee company in which the investment has been made by the assessee. Thus the AO has not properly examined the issue." On a perusal of the order passed by the Pr. CIT u/s 263 of the Act, it transpires that the Assessing Officer vide his notice u/s. 142(1) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of Rs. 3.58 crores [Rs. 15 crore (-) Rs. 11.42 crores] in unquoted equity shares made by the assessee company during the year under consideration was sourced out of its old loans and advances of Rs. 3.65 crore (supra) that were received back during the year, therefore, the same were made out of it duly disclosed sources. Be that as it may, having principally concurred with the order passed by the Pr. CIT under Sec. 263 qua the aforesaid issue in hand i.e, failure on the part of the AO in carrying out verifications as regards the substantial investments made in equity shares by the assessee during the year under consideration, we herein direct the AO to consider the aforesaid claim of the assessee in the course of the set-aside proceedings." 24. Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions/disallowances vide his order passed u/s. 143(3) dated 28.12.2017, we herein vacate the same. 25. As we have vacated the additions/disallowances made by the A.O for want of valid assumption of jurisdiction on his part, therefore, we refrain from adverting to and therein adjudicating the other contentions ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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