The Delhi High Court reiterated that once the principal grounds on which reassessment was proposed are dropped, no further income tax additions can be made.
The court observed that Explanation 3 of the of Section 147 makes it clear that the Assessing Officer may assess or reassess the income in respect of issue which has escaped assessment, if such issue comes to his notice in the course of proceedings under this section even though the issue did not find mention in the reasons recorded and the notice issued under section 148. Since there was a confusion prevailing with regard to the powers of the Assessing Officer to assess or reassess on the issues for which no reasons were recorded, this Explanation came to be inserted as clarificatory.
The reasons for insertion of this clarificatory Explanation in clause (57) of the Memorandum Explaining the Provisions of the Finance (No. 2) Bill, 2009, of 2009 are the following (see (2009) 314 ITR (St.) 57, 206): “Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.
With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 to provide 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 this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub- section (2) of section 148.
By virtue of Explanation 3 to section 147 interpretive confusion came to be clarified that upon the issuance of 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 believe 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.
In other words, 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.
Issue Raised
Whether once the issue of accommodation entry and which alone formed the subject matter of the notice issued under Section 148 of the Income Tax Act, 19612 was ultimately dropped, any further additions could have been made thereafter. It was in the aforesaid context that the appellant had sought to press Explanation 3 of Section 147 as it stood prior to 1 April 2021.
Facts
The department challenged the order passed by the Tribunal. The tribunal held that no additions are made by the Assessing Officer in the order of assessment, he cannot make addition on some other grounds which did not form part of the reasons recorded by him.
Conclusion
The court dismissed the appeal of the department and held 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.
Case Details
Case Title: The Pr. Commissioner Of Income Tax V/S Jaguar Buildcon Pvt. Ltd.
Citation: ITA 756/2023
Judges: Justice Yashwant Varma and Justice Ravinder Dudeja
Date of Order / Judgment: 01/08/2024