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TMI Blog2006 (12) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer may 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 this section or etc. 3. That the ld. CIT(A) has also erred in law in directing the Assessing Officer that cost of acquisition for land and building should be based as calculated in view of Dr. A.K. Mukherjee while ld. CIT(A) has himself in his order very clearly observed that since the order has already been cancelled by him, the cost of acquisition is not discussed here. As such ld. CIT(A) has himself gone beyond the direction given by himself in his order." 3. The assessee has raised the following gross objection in support of the order of the ld. CIT(A):- "1. Because considering the facts and the circumstances of the case the proceedings under sections 147 and 148 of the Income-tax Act, 1961 which have been initiated on the basis of erroneous assumption and facts, in absence of any genuine and definite information, without a valid and legal reason and formation of belief for escapement of a particular income, are illegal and bad in law. Consequently the reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account filed during the course of assessment proceedings does not reflect the above deposit and withdrawal. Apart from the above the assessee has also taken an advance of Rs. 7,50,000 M/s. A.H. Wheeler & Co. (P.) Ltd., where he is a Director. The above amount is a deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. In view of the above I have reason to believe that income chargeable to tax amounting to Rs. 13,36,835 (Rs. 5,86,835 + Rs. 7,50,000) has escaped assessment. Issue notice under section 147/148." 5. Thus, the assessment was re-opened on two grounds, one is that the money paid by the assessee along with his brother Shri Subir Banerjee amounting to Rs. 11,73,679 as freehold charges, the assessee's share being Rs. 5,86,835, was unexplained. The second point taken by the Assessing Officer for reopening the assessment was that the assessee has received a sum of Rs. 7,50,000 as advance from M/s. A.H. Wheeler & Co. (P.) Ltd., where he was a Director and the same was taxable as deemed dividend under section 2(22)(e). 6. Thereafter, the Assessing Officer is issued notice to the assessee on 2-9-2002 which was received by him on 4-9-2002. During the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hold land and it was converted into freehold land by paying freehold charges of Rs. 11,73,679. Stamp duty of Rs. 1,15,000 and other charges totally to Rs. 12,95,179. The Assessing Officer rejected the Approved Valuer's report wherein the rate of land was taken at Rs. 270 per sq. metre. 9. The assessee challenged the re-opening of the assessment before the ld. CIT(A) on the ground that the item on which the assessment was reopened was not added at the time of reassessment, therefore, the very basis of re-assessment/reopening did not survive. It is because the Assessing Officer accepted the explanation of the assessee that a sum of Rs. 11,73,679, is explained as coming from advanced of sale of land and further that deemed dividend is not taxable in the year concerned. The Assessing Officer has made the addition on account of long-term capital gains, which was not the subject-matter of reopening of the assessment. The ld. CIT(A) also called for a remand report from the Assessing Officer before cancelling the assessment. However the ld. CIT(A) cancelled the assessment by observing as under:- "Similar issue has arisen in the appellant's own case in earlier year and it has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of Hon'ble Calcutta High Court in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 240 for the proposition that once re-assessment proceedings are initiated, then entire original assessment is set aside and entire assessment proceedings start afresh. In such a case, the Assessing Officer has not only jurisdiction but also the duty to levy tax on entire income that has escaped assessment. Once an assessment is reopened notice is given for a fresh return of all the items. 12. Against this, the ld. A.R. for the assessee submitted that reassessment proceedings are bad in law, because no addition was made by the Assessing Officer in respect of sum of Rs. 11,73,679 being the sum paid as freehold charges, the assessee's share being Rs. 5,86,835. Once no addition is made of this amount by the Assessing Officer, the very basis of reopening of the assessment goes away; therefore, the reassessment could not validly stand. The question of adding other items escaping income would arise only when the Assessing Officer makes addition in re-assessment proceedings in respect of the items on which assessment is reopened. Once items on which reassessment is initiated is satisfactorily explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial on record. The only question to be adjudicated upon is whether the Assessing Officer could include capital gains in the re-assessment proceedings, which was initiated on the question of unexplained investment in freehold charges but which was later found to be satisfactorily explained. Investment in freehold charges was not added in the computation of income whereas capital gains which was not the subject-matter of initiation of reassessment proceedings was added into the total income. So far as the material available with the Assessing Officer at the time of reopening of the assessment is concerned, there is no dispute. There is no dispute to the fact that the bank accounts available with the Assessing Officer at the time of reopening of the assessment did not reflect the deposit and withdrawals of the money for making freehold charges. Thus, at that point of time, the expenditure of Rs. 11,73,679 was unexplained. The Assessing Officer had given an opportunity to the assessee initially before issuing notice under section 148 to explain the source of expenditure and the explanation was that the money was paid out of deposit in the bank of the money received as advance on sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial in his possession which indicates escapement of income then he is not required to convene the assessee or to intimate to him the nature of alleged escapement. At the time of initiating reassessment proceedings, what is to be seen is whether there was enough material in the possession of the Assessing Officer which would form the reasons for reopening the assessment. It is not necessary that the item of income which is alleged to have escaped the assessment is finally established to have escaped before initiating reassessment proceedings. It is only after giving opportunity of being heard to the assessee and during the reassessment proceedings the Assessing Officer may decide to make the addition of the same amount, he may decide to increase the amount as originally thought by him to have escaped assessment, he may reduce the amount to be added into the total income depending upon the evidence furnished by the assessee during the course of reassessment proceedings. Law does not require the Assessing Officer to necessarily make addition of the amount of income on which assessment was reopened. The law also does not require him to make the addition of the same amount which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as gathered from the context as well as the language of the particular provision. But primarily the word is used in a permissive sense unless it becomes necessary to give effect to the intent of Legislature where it becomes mandatory. Here in section 147, after the Assessing Officer has recorded reasons to believe that any income chargeable to tax has escaped the assessment for the assessment year, "he may assess or re-assess such income or other income.... " Thus, during the process of reassessment, the Assessing Officer has to decide whether he has to make an addition or need not make the addition. If we take the meaning of the word "May" used in this section as mandatory then on whatever basis the Assessing Officer has recorded the reasons for reopening the assessment, he will have to make the addition of the amount and subsequent reassessment proceedings for examining the veracity of or truthfulness of the explanation furnished by the assessee would become an exercise in futility. Since the process of reassessment would include providing an opportunity to the assessee of being heard one cannot come to the conclusion prior to assessment, i.e. at the initial stage of reopening t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Income-tax Officer, it is a proceeding for assessment. In the proceedings under section 155, the Income-tax Officer amends the order of completed assessment of a partner in a firm on the assessment or reassessment of the firm, on the ground that the share of the partner in the income of the firm has not been correctly included in the income of the partner. Such proceedings are amendment proceedings and, therefore, clearly form part of the proceedings for assessment." 17. Similarly, Hon'ble Gujarat High Court in Prabhavati B. Solanki v. CWT [2000] 243 ITR 827 has held that the word 'Assessment' is a comprehensive term. The Head Notes from the above decision are as under:- "The term "assessment" in the provision prescribing the period of limitation in the Wealth-tax Act, 1957, has been used in comprehensive sense which includes the integrated process of computation of net wealth as well as computation of tax liability thereon. The two actions need not be simultaneous; they may be taken separately and at different times but the assessment is complete only when both the processes are over, namely, determination of net wealth and determination of tax payable on such net wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly. The word "May" provides a discretion to the Assessing Officer to make the addition either of two or of the both or of none. Suppose in a case where certain item is discovered in the course of the reassessment proceedings which prima facie Assessing Officer believes that it has escaped assessment, he cannot make the addition only on that prima facie satisfaction. He has to afford an opportunity of being heard to the assessee. If he satisfied, addition has to be made otherwise not. Mere discovery of an item during the reassessment proceedings does not empower the Assessing Officer to make the addition thereof. He has to provide an opportunity to the assessee and consider his explanation before deciding to make addition in respect of that item. Therefore, we are of the considered view that at the end of the reassessment proceedings, the Assessing Officer mayor may not, depending upon the material gathered by him and furnished by the assessee, make an addition of any other item of income discovered during the reassessment proceeding, or of the item on which assessment was reopened. Thus, the word "Assessed" and "Re-assessed" in this section only refers to the process of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment proceedings initiated on the basis of information received on another ground. Not only this decision is differing on facts, as in the present case the question of capital gains was not at all there in the original assessment proceedings and it was only discovered during the reassessment proceedings but also in view of decision of Hon'ble Al1ahabad High Court being jurisdictional High Court which is binding on this Bench. 23. The decision of Hon'ble Punjab & Haryana High Court in Vipin Khanna's case is also on different facts and hence, not applicable in view of the decision of Hon'ble Allahabad High Court in Rama Shanker Gupta's case. 24. As a result, we hold as under: (1) The validity of re-opening of assessment proceedings has to be evaluated only on the basis of material available at the time of reopening of the assessment. Subsequent material gathered during the re-assessment proceedings leading to enhancement, reduction or no addition will not affect the jurisdiction acquired by the Assessing Officer to reopen the assessment. (2) The word "May" used in section 147 is only permissive and provides discretion to the Assessing Officer to make addition either the it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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