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TMI Blog2025 (2) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... other income which may have escaped assessment but discovered during the re-opening process, however, was not specifically mentioned in the reopening order. Decided in favour of revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... an appeal before the Tribunal. However, the said appeal came to be dismissed by the Tribunal while holding that the Assessing Officer could not have made addition of any other item which was detected during the reassessment of the escaped income, which has not been specified in the reopening order. While concurring with the findings of the Commissioner on this point, that the Tribunal did not examine on merit the question of addition of Rs. 9,21,38,650/- in the income of the assessee. The operative portion of the order passed by the Tribunal is reproduced hereunder: "12. The second question posed to us, is whether the ld. Assessing Officer can make addition of any other item which was detected during the reassessment proceedings as escaped income. Section 147 has a direct bearing on this aspect, we take note of the relevant part of this section:- 'Income escaping assessment Section 147: 'If the Assessing has reasoned to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provision of section 148 to 153, assess or re-assess such income and also any other income chargeable to tax which has escaped assessment ....... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospectively with effect from 01.04.1989, it is open for the Assessing Officer to take into consideration any other income which has escaped assessment and which has not specifically been pointed out in the reopening order. 10. In support of the above contention, learned counsel for the appellant/Revenue has placed reliance upon the Division Bench decision of the Punjab and Haryana High Court rendered in Commissioner, Income Tax Vs. Mehak Finvest Pvt. Ltd., reported in 2014 (367) ITR 769 and the decision rendered by the Division Bench of the High Court of Karnataka in N. Govindaraju Vs. Income Tax Officer & Ors., reported in 2015 0 Supreme (Kar) 441 and submitted that the Division Bench of High Court of Punjab and Haryana as well as the High Court of Karnataka have held that the Assessing Officer can assess the income chargeable to tax which has escaped assessment and which has not specifically been pointed out in the reopening order and comes to his notice subsequently in course of proceedings under Section 147 of the Income Tax Act. 11. It is contended by the learned counsel for the Revenue that so far as his information is concerned, the judgments rendered by the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 147 of the Act. Further, Explanation 3 to section 147 of the Act was not under consideration in Empire Finvest Ltd.'s case(supra). In view of the binding precedent of this court in Majinder Singh's case (supra) against which special leave petition has been dismissed on August 19, 2011, the judgment of the Bombay High Court in Jet Airways (I) Ltd.'s case (supra), which has been followed by the Delhi High Court in Ranbaxy Laboratories Ltd.'s case(supra), would not come to the rescue of the assessee. In view of the above, the order dated January 20, 2009 (annexure A. 4) passed by the Tribunal is unsustainable and is set aside. Accordingly, the appeals are allowed. The matter is remanded to the Tribunal to adjudicate the issue afresh on the merits in accordance with law." 14. The High Court of Karnatakain N. Govindaraju (supra) while relying on earlier decision of the High Court of Punjab and Haryana rendered in Majinder Singh Kang Vs. CIT, reported in (2012) CIT 344 ITR 358 and Mehak Finvest Pvt. Ltd. (supra)has come to the conclusion that the Assessing Officer can take into consideration any other income which may have escaped assessment but discovered during the re-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year concerned (hereafter in Ss. 148 to 153 referred to as the relevant assessment year). S.148: Issue 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), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment of either 'such income' of the first part of section 147 or 'any other income' of its second part. But if the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, he may assess or reassess such income. Since 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014) 367 ITR 769. 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 reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 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 explains the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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 second parts of the section is not conjunctive and assessment of 'any other income' (of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings 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." 15. Having given a thoughtful consideration on the above referred decisions and the provisions of Sections 147 as well as Section 148 of the Income Tax Act, we are in perfect agreement with the view taken by the High Court of Punjab and Haryana in Mehak Finvest Pvt. Ltd. (supra) as well as the decision rendered by the High Court of Karnataka in N. Govindraju (supra). 16. Resultantly, the question of law framed in this appeal for appropriate answer is answered in favour of the appellant/Revenue. However, it is noticed that the Tribunal has not examined the validity of the addition to the tune of Rs. 9,21,38,650/- (Rs. 8,94,55,000/- + 26,83,650/-) in the income of the assessee on merits. We deem it appropriate to remit the matter to the Tribunal for fresh consideration whether the addition to the tune of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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