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TMI Blog2024 (7) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... ith whether the reasons which formed the bedrock for formation of the requisite opinion are tenable and sufficient to warrant invocation of Section 148 of the Act. Import of Explanation 3 as well as the language in which Section 147 of the Act stands couched, we find no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. [ 2011 (6) TMI 4 - DELHI HIGH COURT ] We also bear in consideration the said decision having been affirmed and approved subsequently in Commissioner of Income-tax (Exemption) vs. Monarch Educational Society [ 2016 (2) TMI 971 - DELHI HIGH COURT ] and Commissioner of Income-tax vs. Software Consultants [ 2012 (2) TMI 18 - DELHI HIGH COURT ] We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A (b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Jain says, that a reply was filed, to demonstrate that the petitioner, in the period in issue, had not received loan from its subsidiary, but had, in fact, repaid the loan/advance. 4. It is pointed out by Mr. Jain, that although in the order dated 23.07.2022 passed under Section 148A(d) of the Act, this explanation was accepted, the Assessing Officer (AO) has now embarked on a different course altogether i.e., that the petitioner has not been able to completely explain the source of the money, which was used to repay a part of the loan. 5. It is in this context, that amount paid towards loan to the tune of Rs.25,53,42,435/- is sought to be treated as income chargeable to tax, which according to the AO, has escaped assessment. 6. Issue notice. 6.1 Mr. Kunal Sharma, learned senior standing counsel, accepts notice on behalf of the respondents/revenue. 7. Mr. Sharma says that he will return with instructions. 8. In case instructions are received to resist the writ petition, counter affidavit will be filed before the next date of hearing. 9. List the matter on 28.04.2023. 10. In the meanwhile, there shall be a stay on the operation of the order dated 23.07.2022 passed under Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords reveals that this issue was not examined fully at the time of assessment proceedings u/s 143 (3) of the Act. Assessee failed to make true disclosure in this regard during filing of ITR as well as assessment proceedings. xxxx xxxx xxxx 4.2 In consideration of above, I have strong reason to believe that the income of assessee has been under-assessed to the tune of Rs. 170,00,00,000/-. In this case, a return of income was filed for the year under consideration and scrutiny assessment was also done. Accordingly, in view of the fresh information received in the case, the provisions of clause (c)(i) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has been underassessed. I have, therefore, reasons to believe that in this case income of Rs. 170,00,00,000/- has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 4. Responding to the aforesaid notice the petitioner furnished a reply in which it was contended that the loans which had been alluded to had in fact been obtained in earlier years and were in the process of being repaid. Faced with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom that decision:- 13. With regard to the additional reasons which were recorded subsequent to the issuance of notice under section 148 of the said Act, we have already observed that this could not have been done by the Assessing Officer. The validity of the proceedings initiated upon a notice under section 148 of the said Act would have to be judged from the stand point of the reasons which existed at the point of time when the section 148 notice was issued. The additional reasons cannot be provided or recorded subsequent to the issuance of notice under section 148. It is, of course, open to the Assessing Officer, if some other information comes within his knowledge to issue another notice under section 148 for different reasons. But that is not the case here. On the basis of the very same notice issued under section 148, the Assessing Officer has recorded additional reasons subsequent to the issuance of notice and this is impermissible in law. 7. It becomes pertinent to observe that the validity of the proceedings initiated upon a notice under Section 148 of the Act would have to be adjudged from the stand point of the reasons which formed the basis for the formation of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). The Supreme Court has held that though after April 1, 1989, a wider power has been conferred upon the Assessing Officer to reopen an assessment, the power cannot be exercised on the basis of a mere change of opinion nor is it in the nature of a review. The Supreme Court has laid down the test of whether there is tangible material on the basis of which the Assessing Officer has come to the conclusion that there is an escapement of income . The Supreme Court held thus (page 564): However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, the succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee. The validity of the notice reopening the assessment under section 148 has to be determined on the basis of the reasons which are disclosed to the assessee. Those reasons constitute the foundation of the action initiated by the Assessing Officer of reopening the assessment. Those reasons cannot be supplemented or improved upon subsequently. While disposing of the objections of the assessee, the Assessing Officer has purported to state that the assessee had filed only sketchy details in its return filed in the electronic form. As we have noted earlier, the relevant provisions expressly make it clear that no document or report can be filed with the return of income in the electronic form. The assessee has an opportunity to do so during the course of the assessment proceedings if a notice is issued under section 143 (2). The Assessing Officer was, in our view, not entitled, when he disposed of the objections to travel beyond the ambit of the reasons which were disclosed to the assessee. For all these reasons, we are of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments: (i) Jamna Lal Kabra v. ITO (1968) 69 ITR 461 (All) ; (ii) CIT v. Agarwalla Brothers (1991) 189 ITR 786 (Patna) ; (iii) C. M. Rajgharia v. ITO (1975) 98 ITR 486 (Patna); (iv) Asa John Devinathan v. Addi. CIT (1980) 126 ITR 270 (Mad) ; (v) East Coast Commercial Co. Ltd. v. ITO (1981) 128 ITR 326 (Cal) ; (vi) Equitable Investment Co. P. Ltd. v. ITO (1988) 174 ITR 714 (Cal) ; and (vii) S. Sreeramachandra Murthy v. Deputy CIT (2000) 243 ITR 427 (AP). 15. The ratio laid down in all these cases is that, having regard to the entire scheme and purpose of the Act, the validity of the assumption of jurisdiction under section 147 can be tested only by reference to the reasons recorded under section 148 (2) of the Act and the Assessing Officer is not authorised to refer to any other reason even if it can be otherwise inferred and/or gathered from the records. He is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others up his sleeves to be disclosed before the court if his action is ever challenged in a court of law. xxxx xxxx xxxx 18. From the record made available to us by the learned standing counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne would be relevant for the purposes of evaluating whether reassessment powers were justifiably invoked. Accordingly, and for all the aforesaid reasons we find ourselves unable to sustain the impugned reassessment action. 13. Before parting, we deem it apposite to deal with one other issue which in our opinion merits consideration, notwithstanding learned counsels for respective sides having not alluded to the same. It becomes relevant to note that by virtue of Finance Act, 2009, the following provision came to be inserted in Section 147 of the Act:- Amendment of Section 147 In Section 147 of the Income Tax Act, after Explanation 2, the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1989, namely: Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d context, observed that the power of reassessment inures to the benefit of the Revenue and is consequently not liable to be construed as an embodiment of a power to review the original assessment at the behest of the assessee. 18. Essentially, Explanation 3 was a manifestation of the legislative intent to enable the AO to undertake a wholesome assessment and not be tied down only to those aspects which formed the basis for commencement of reassessment. These aspects and the legislative amendments which came to be introduced by virtue of Finance Act, 2009, were lucidly considered by a Division Bench of our Court in Ranbaxy Laboratories Ltd. vs. Commissioner of Income-tax 2011 SCC OnLine Del 2612. The Court firstly traced the legislative intent underlying the introduction of Explanation 3 and made the following pertinent observations:- 8. The crux of section 147 of the Act is the escapement of income which may be assessed or reassessed as well as any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Explanation 3 makes it clear that the Assessing Officer may assess or reassess the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that were already initiated. To put it differently, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment. 11. Now, after the insertion of Explanation 3, as noted above, the position is that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147 though the reasons for such issue were not included in the reasons recorded in the notice under section 148 (2) on the basis of which he had initiated proceedings under section 147. Similar question came for consideration before the Division Bench of the Bombay High Court in CIT v. Jet Airways (1) Limited (2011) 331 ITR 236 (Bom). The court held as under (page 242): The effect of section 147 as it now stands after the amendment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood posited as would be evident from a reading of the following passages of that decision:- 13. Similar contention was raised before the Division Bench of the Bombay High Court in the case of Jet Airways (2011) 331 ITR 236 (Bom). The court referred to the interpretation by the Rajasthan High Court in Ram Singh (2008) 306 ITR 343 (Raj) wherein it was observed as under (page 246): It is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, and which subsequently comes to his notice in the course of the proceedings, but then the prefixing words and also which succeeded 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 . This expression was found to be making clear that existence of the income for which the Assessing Officer formed belief to have escaped assessment, is a precondition for including any other income chargeable to tax, escaping assessment, and coming to the notice of the Assessing Officer subsequently, in the course of the proceedings. Thus, unless and until such income, as giving rise to form belief, for escaping assessment, continues to exist, and constitutes a subject-matter of assessment, under section 147 no other income coming to the notice of the Assessing Officer, during the course of the proceedings, can be roped in. 16. In the case of C. J. International Hotels Ltd. (supra) before the Tribunal, the facts were almost similar as in the present case. The Tribunal relied upon the case of CIT v. Shri Ram Singh (2008) 306 ITR 343 (Raj) while holding that the Assessing Officer was jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 reason 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 assessment. If upon the issuance of a notice under section 148 (2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 22. Speaking on the scope and extent of the power of the AO in light of the principles which had come to be elucidated and have been noticed hereinabove, the Division Bench pertinently observed:- 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , reassess as well also to recompute. Consequently, and once that power is validly invoked, the original assessment would cease to exist in the eyes of law. Undoubtedly, once an assessment already made comes to be reopened, the AO stands empowered statutorily to undertake an assessment afresh in respect of the entire income which may have escaped assessment. However, the only additional caveat which Ranbaxy Laboratories Ltd. enters is with respect to a situation where, in the course of reassessment, the AO ultimately comes to the conclusion that no additions or variations were warranted in respect of the heads or items of income which had formed the basis for initiation of action under Section 148 of the Act. It is in the aforesaid backdrop that the Court in Ranbaxy Laboratories Ltd. proceeded on facts to hold that since no additions had ultimately been made in respect of items such as club fees, gifts and presents, and which constituted the basis for initiation of reassessment, it would not be open to the AO to revise or modulate findings on any other head or items that may have been dealt with in the original assessment. 25. The position in law which emerges from the aforesaid di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice during the course of proceedings for reassessment under section 148 of the Act. The provision nowhere postulates or contemplates that it is only when there is some addition on the ground on which reassessment had been initiated, that the Assessing Officer can make additions on any other ground on the basis of which income may have escaped assessment. The reassessment proceedings, thus, in the present case cannot be held to be vitiated. 27. For the sake of completeness, we may note that a Division Bench of this Court had expressed certain doubts with respect to the view taken by the Court in Ranbaxy Laboratories Ltd. This becomes evident upon a consideration of the opinion expressed by the Court in Principal Commissioner of Income Tax vs. Jakhotia Plastics Pvt. Ltd. Order dated 22.01.2018 in ITA 727/2017. The Court in Jakhotia Plastics had expressed certain reservations with respect to what it viewed as undue importance having been placed by the Bombay High Court on the words and also in Jet Airways (I) Ltd. 28. In light of the above, the Court in Jakhotia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and approved subsequently in Commissioner of Income-tax (Exemption) vs. Monarch Educational Society 2016 SCC OnLine Del 6636 and Commissioner of Income-tax vs. Software Consultants 2012 SCC OnLine Del 316. 30. We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A (b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened. 31. Explanation 3, or for that matter, the Explanation which presently forms part of Section 147, would come into play only once it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in light of principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the AO in the course of proceedings of reassessment subject to the supervening ..... X X X X Extracts X X X X X X X X Extracts X X X X
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