Deputy Commissioner Of Income Tax, Circle Jorhat, Office Of The Jt. Commissioner Of Income Tax, Range Jorhat, Ca M.k Bardoloi Building, Tarajan, Near Tarajan Po v. Toor Finanace Company Limited ,Khetan Bhawan, Seuni Ali, A. T. Road, Jorhat, Assm

GAHC010190832023 2025:GAU-AS:1047-DB THE GAUHATI HIGH COURT(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH) Case No. : ITA/9/2023 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE JORHAT, OFFICE OF THE JT. COMMISSIONER OF INCOME TAX, RANGE JORHAT, CA M.K BARDOLOI BUILDING, TARAJAN, NEAR TARAJAN POOL, TARAJAN, JORHAT, ASSAM 785001. …..Appellant . … -VERSUS- TOOR FINANACE COMPANY LIMITED ,KHETAN BHAWAN, SEUNI ALI, A. T. ROAD, JORHAT, ASSM, 785001. …..Respondent … – BEFORE – HON’BLE THE CHIEF JUSTICE MR. VIJAY BISHNOIHON’BLE MR. JUSTICE KAUSHIK GOSWAMI For the Appellant : Mr. S.C. Keyal, Standing Counsel, Income Tax Department.For the Respondent(s) : None appears Date of Hearing :28.01.2025 Date of judgment :30.01.2025 (Vijay Bishnoi, CJ) J UDGMENT & ORDER (CAV) This Income Tax Appeal is preferred on behalf of the Revenue beingaggrieved with the order dated 20.09.2022 passed by the Income Tax AppellateTribunal (ITAT), Guwahati Bench, Kolkata (hereinafter to be referred as “the Tribunal”) in I.T.A. No.305/GAU/2018 for the Assessment Year 2010-11 inrespect of the sole respondent herein. The Revenue has also assailed thevalidity of the order dated 31.08.2018 passed by the Commissioner of IncomeTax (Appeals), Jorhat for the assessment year 2010-11 in respect of the solerespondent herein. 2. This Court, on 16.02.2024, while admitting the appeal has framed thefollowing substantial question of law: “Whether the findings recorded by the Hon’ble ITAT is contrary to theprovisions of Explanation-3 of Section 147 of the Income Tax Act, 1961 that if noaddition is made on the issue which was mentioned for reopening of the case,the Assessment Officer cannot reassess in a case of escaped assessment?” 3. The brief facts relevant foradjudication of the matterare that therespondent assessee filed its return of income on 27.012.2010 declaring a totalincome of Rs.57,652/-. The said return was processed under Section 143(1) ofthe Income Tax Act, 1961 (hereinafter to be referred as “the Income Tax Act”)and the Assessing Officer re-opened the assessment under Section 148 of theIncome Tax Act while disclosing the reasons for re-opening contending that hehad reason to believe that an amount of Rs.18,00,000/-, which was chargeableto tax,had escaped assessment for the year under consideration and the sameneeded to be brought under the ambit of taxation and action was being initiatedunder Sections 147 and 148 of the Income Tax Act. 4. The Assessing Officer concluded the assessment under Section 143 ofthe Income Tax Act determining the total income of the respondent assessee atRs.9,21,96,300/-. The Assessing Officer made two additions, namely,Rs.8,94,55,000/- as unexplained credits under Section 68 of the Income Tax Actand Rs.26,83,650/- under Section 69 of the Income Tax Act being commission paid by the assessee for arranging this bogus accommodation entry ofunexplained credit amounting to Rs.8,94,55,000/-.The Assessing Officercalculated the commission at the rate of 3% and accordingly determined thetaxable income of the assessee at Rs.9,21,96,300/- 5. The assessment order in the matter was passed on 11.12.2017.Therespondent assessee challenged the same by preferring an appeal before theCommissioner of Income Tax (Appeals), Jorhat [hereinafter referred to be as“the Commissioner”] and the said appeal was allowed by the Commissioner videorder dated 31.08.2018 concluding that the addition made were liable to bedeleted, more so, when no addition has been made in regard to the reasons onthe basis of which the reassessment was initiated. The Commissioner alsoexamined the aggregate addition of Rs.9,21,38,650/- (i.e. Rs.8,94,55,000 +Rs.26,83,650/-) on merits and concluded that the same cannot be sustainedand therefore, were liable to be deleted. 5. The assessment order in the matter was passed on 11.12.2017.Therespondent assessee challenged the same by preferring an appeal before theCommissioner of Income Tax (Appeals), Jorhat [hereinafter referred to be as“the Commissioner”] and the said appeal was allowed by the Commissioner videorder dated 31.08.2018 concluding that the addition made were liable to bedeleted, more so, when no addition has been made in regard to the reasons onthe basis of which the reassessment was initiated. The Commissioner alsoexamined the aggregate addition of Rs.9,21,38,650/- (i.e. Rs.8,94,55,000 +Rs.26,83,650/-) on merits and concluded that the same cannot be sustainedand therefore, were liable to be deleted. 6. Being aggrieved with the order dated 31.08.2013 passed by theCommissioner, Revenue preferred an appeal before the Tribunal. However, thesaid appeal came to be dismissed by the Tribunal while holding that theAssessing Officer could not have made addition of any other item which wasdetected during the reassessment of the escaped income, which has not beenspecified in the reopening order. While concurring with the findings of theCommissioner on this point, that the Tribunal did not examine on merit thequestion 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 reproducedhereunder: “12. The second question posed to us, is whether the ld. Assessing Officer canmake addition of any other item which was detected during the reassessmentmake addition of any other item which was detected during the reassessment proceedings as escaped income. Section 147 has a direct bearing on thisaspect, we take note of the relevant part of this section:- ‘Income escaping assessment Section 147: ‘If the Assessing has reasoned to believe that any incomechargeable to tax has escaped assessment for any assessment year, hemay, subject to the provision of section 148 to 153, assess or re-assesssuch income and also any other income chargeable to tax which hasescaped assessment .......’ This expression ‘and also any other income chargeable to tax which hasescaped assessment’ and which comes to his notice subsequently has fallen forconsideration before various Hon’ble High Courts, namely Hon’ble Bombay HighCourt – Jet Airways (I) Limited; Hon’ble Delhi High Court – Ranbaxi LaboratoriesLimited, Hon’ble Gujarat High Court – MohmedJundedDadani and Hon’bleCalcutta High Court in the case of M/s. Infinity Infotech Parks Limited. All theHon’ble High Courts are unanimous in their approach to propound thatexpression ‘and also’employed in section 147 cannot be read as being in thealternative. It means that if no addition is being made on an item for whichassessment was reopened, then Assessing Officer cannot add any other item.In other words, he ought to have reopened the assessment again for thepurpose of adding those escaped item because that creates an independentcircumstance for proceeding against an assessee. There might be variousaspects of limitation etc. Would come to the rescue of assessee. Thus followingthe Hon’ble High Courts decisions, we are of the view that the ld. CIT (Appeals)has rightly deleted the addition. 13. Since we have concurred with the ld. CIT (Appeals) that these amountscannot be considered for making an addition to the income of the assessee onthe ground that no addition was made for the item for which assessment wasreopened, therefore, we do not deem it necessary to indulge in academicexercise, whether addition of Rs.8,94,55,000/- and commission expenditure ofRs.26,83,650/-can be added or not on merit? We are of the view that first thereshould be a jurisdiction with the ld. Assessing Officer to entertain this aspectonly, thereafter it is to be decided on genuineness etc. With the aboveobservation, we do not find any merit in this appeal of the Revenue. It isdismissed.” 13. Since we have concurred with the ld. CIT (Appeals) that these amountscannot be considered for making an addition to the income of the assessee onthe ground that no addition was made for the item for which assessment wasreopened, therefore, we do not deem it necessary to indulge in academicexercise, whether addition of Rs.8,94,55,000/- and commission expenditure ofRs.26,83,650/-can be added or not on merit? We are of the view that first thereshould be a jurisdiction with the ld. Assessing Officer to entertain this aspectonly, thereafter it is to be decided on genuineness etc. With the aboveobservation, we do not find any merit in this appeal of the Revenue. It isdismissed.” 7. Despite service of notice upon the sole respondent, none has put inappearance on behalf of it before this Court. 8. Learned counsel appearing for the Revenue has submitted that the Tribunal as well as the Commissioner has erroneously held that the AssessingOfficer cannot make addition to the income of the assessee, which is notspecifically mentioned in the re-opening order of the case. 9. It is submitted that with the insertion of Explanation-3 of Section 147of the Income Tax Act by the Finance (No.2) Act, 2009 retrospectively witheffect from 01.04.1989, it is open for the Assessing Officer to take intoconsideration any other income which has escaped assessmentand which hasnot specifically been pointed out in the reopening order. 10. In support of the above contention, learned counsel for theappellant/Revenue has placed reliance upon the Division Bench decision of thePunjab and Haryana High Court rendered in Commissioner, Income Tax Vs.MehakFinvest Pvt. Ltd., reported in 2014 (367) ITR 769and the decisionrendered by the Division Bench of the High Court of Karnataka in N.Govindaraju Vs. Income Tax Officer & Ors., reported in 2015 0 Supreme(Kar) 441and submitted that the Division Bench of High Court of Punjab andHaryana as well as the High Court of Karnataka have held that the AssessingOfficer can assess the income chargeable to tax which has escaped assessmentand which has not specifically been pointed out in the reopening order andcomes to his notice subsequently in course of proceedings under Section 147 ofthe Income Tax Act. 11. It is contended by the learned counsel for the Revenue that so far ashis information is concerned, the judgments rendered by the High Court ofPunjab and Haryana and the High Court of Karnataka in the above referreddecisions have neither been reversed nor modified and the same still hold good. 12. Heard the learned counsel appearing for the appellant/Revenue and perused the material available on record. 13. The High Court of Punjab and Haryana in MehakFinvest Pvt. Ltd. (supra) while taking into consideration Explanation-3 inserted to Section 147 ofthe Income Tax Act through the Finance (No.2) Act, 2009, prospectively witheffect from 01.04.1989 has held as under: “5. After hearing learned counsel for the parties, in our view, the appealdeserves to succeed. Explanation 3 to section 147 has been inserted by theFinance (No.2)Act, 2009,retrospectively witheffect fromApril 1,1989. It readsthus: ‘147. Incomeescaping assessment.--...Explanation 3.--For the purpose ofassessment orreassessmentunder this section,the Assessing Officer mayassess orreassess the income inrespectof any issue,which hasescapedassessment, and such issue comes to his notice subsequently inthe course of the proceedings under this section, notwithstanding that thereasons for such issue have not been included in the reasons recordedunder sub-section (2) of section 148.’ “5. After hearing learned counsel for the parties, in our view, the appealdeserves to succeed. Explanation 3 to section 147 has been inserted by theFinance (No.2)Act, 2009,retrospectively witheffect fromApril 1,1989. It readsthus: ‘147. Incomeescaping assessment.--...Explanation 3.--For the purpose ofassessment orreassessmentunder this section,the Assessing Officer mayassess orreassess the income inrespectof any issue,which hasescapedassessment, and such issue comes to his notice subsequently inthe course of the proceedings under this section, notwithstanding that thereasons for such issue have not been included in the reasons recordedunder sub-section (2) of section 148.’ 6. This courtin Majinder SinghKong'’s case(supra), consideringthescope ofExplanation 3 to section 147 ofthe Act heldthattheAssessing Officer isempoweredtomakeadditionsevenonthegroundonwhichreassessmentnoticemight not have been issuedwhereduring the reassessmentproceedings,heconcludes that some other incomehasescaped assessment whichcomes to his notice during the course of the proceedings for reassessment undersection 148 of the Act. The provision nowhere postulates or contemplates thatthe Assessing Officer cannot make any additions on any other ground unlesssome addition is made on the ground on which reassessment had beeninitiated. Special Leave Petition (Civil) No.13028 of 2011 against this decisionwas dismissed on August 19, 2011. The reassessment proceedings, thus, in thepresent case, cannot be held to be vitiated. 7. Adverting tothe judgments reliedupon by learnedcounsel fortherespondent,it maybenoticedthatthe decision of the Rajasthan High CourtinCommissioner of Income Tax Vs. Shri Ram Singh,was held to be notapplicable being prior to the insertion of Explanation 3 to section 147 of the Act.Further, Explanation 3 to section 147 of the Act was not under consideration inEmpire Finvest Ltd.’s case(supra). Inview of the binding precedent of thiscourtin Majinder Singh’s case (supra) against which special leave petition has beendismissed on August 19, 2011, the judgment of the Bombay High Court in JetAirways (I) Ltd.’scase (supra),which has been followed by the Delhi High Courtin Ranbaxy Laboratories Ltd.’s case(supra),wouldnot come to the rescue of theassessee. 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, theappeals are allowed.The matter isremandedto the Tribunal to adjudicatetheissue afreshon themeritsin accordance with law.” 14. The High Court of Karnatakain N. Govindaraju(supra) whilerelying on earlier decision of the High Court of Punjab and Haryana rendered in MajinderSingh Kang Vs. CIT, reported in (2012) CIT 344 ITR 358 andMehakFinvest Pvt. Ltd. (supra)has come to the conclusion that the AssessingOfficer can take into consideration any other income which may have escapedassessment but discovered during the re-opening process, however, was notspecifically mentioned in the reopening order. The relevant portion of the decision of the Karnataka High Court rendered inN. Govindaraju(supra) is reproduced hereunder: “S.147: Income escaping assessment: If the Assessing Officer has reason to believe that any income, chargeableto tax has escaped assessment for any assessment year, he may, subject to theprovisions of S.148 to 153, assess or reassess such income and also any otherincome chargeable to tax which has escaped assessment and which comes tohis notice subsequently in the course of the proceedings under this section, orrecomputed the loss or the depreciation allowance or any other allowance, asthe case may be, for the assessment year concerned (hereafter in this sectionand in sections 148 to 153 referred to as the relevant assessment year): Provided that ……. Provided further that…….. Provided also that ….. Explanation (1) …… Explanation (2)……. inN. Govindaraju(supra) is reproduced hereunder: “S.147: Income escaping assessment: If the Assessing Officer has reason to believe that any income, chargeableto tax has escaped assessment for any assessment year, he may, subject to theprovisions of S.148 to 153, assess or reassess such income and also any otherincome chargeable to tax which has escaped assessment and which comes tohis notice subsequently in the course of the proceedings under this section, orrecomputed the loss or the depreciation allowance or any other allowance, asthe case may be, for the assessment year concerned (hereafter in this sectionand in sections 148 to 153 referred to as the relevant assessment year): Provided that ……. Provided further that…….. Provided also that ….. Explanation (1) …… Explanation (2)……. Explanation 3 : For the purpose of assessment or reassessment under thissection, the Assessing Officer may assess or reassess the income in respect ofany issue, which has escaped assessment, and such issue comes to his noticesubsequently 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 S.148. Prior to the amendment with effect from 1.4.1989, section 147 stood as under: S.147: Income escaping assessment – If (a) the income tax officer has reason to believe that, by reason of theomission or failure on the part of an assessee to make a return under S.139 forany assessment year to the Income Tax Officer or to disclose fully and truly allmaterial facts necessary for his assessment for that year, income chargeable totax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure asmentioned in clause (a) on the part of the assessee, the Income Tax Officer hasin consequence of information in his possession reason to believe that incomechargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Ss.148 to 153, assess or reassesssuch income or recomputed the loss or the depreciation allowance, as the casemay be, for the assessment year concerned (hereafter in Ss.148 to 153 referredto as the relevant assessment year). S.148: Issue of notice where income has escaped assessment: (1) Before making the assessment, reassessment or recomputation underS.147, the Assessing Officer shall serve on the assessee a notice requiring himto furnish within such period, as may be specified in the notice, a return of hisincome or the income of any other person in respect of which he is assessableunder this Act during the previous year corresponding to the relevantassessment year, in the prescribed form and verified in the prescribed mannerand setting forth such other particulars as may be prescribed,; and theprovisions of this Act shall, so far as may be, apply accordingly as if suchreturn 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 thissection, record his reasons for doing so. Section 148 of the Act requires the Assessing Officer to issue notice to theassessee where the income has escaped assessment. Subsection (2), whichwas inserted by Direct Tax Laws (Amendment) Act, 1989 with effect from1.4.1989, requires the Assessing Officer to record his reasons before issuanceof any such notice under sub-section (1) of section 148. The question which first arises is with regard to the validity of thereopening proceedings, which is by issuance of notice under section 148,reasons for which are to be recorded under sub-section (2). The assessee hasan opportunity to challenge the reasons given for issuance of notice and if thesame are found to be vague or illegal or without any basis, the notice wouldbecome invalid. Section 148 of the Act requires the Assessing Officer to issue notice to theassessee where the income has escaped assessment. Subsection (2), whichwas inserted by Direct Tax Laws (Amendment) Act, 1989 with effect from1.4.1989, requires the Assessing Officer to record his reasons before issuanceof any such notice under sub-section (1) of section 148. The question which first arises is with regard to the validity of thereopening proceedings, which is by issuance of notice under section 148,reasons for which are to be recorded under sub-section (2). The assessee hasan opportunity to challenge the reasons given for issuance of notice and if thesame are found to be vague or illegal or without any basis, the notice wouldbecome invalid. In the case of Raymond Woollen Mills Ltd. Vs ITO (1999) 236 ITR 34,where such notice had been challenged, the Supreme Court held that what is tobe seen is “whether there was prima facie some material on the basis of whichthe Department can reopen the case. The sufficiency of correctness of thematerial is not to be considered at this stage”. Relying on this decision, the ApexCourt, in the case of ACIT Vs Rajesh Jhaveri Stock Brokers(P) Ltd. (2007) 291ITR 500, while considering the issuance of notice under section 147 of the Actprior to the amendment of 2009, has held that the final outcome of theproceedings is not relevant and at the initial stage, what is required is ‘reasonto believe’ but not established fact of escapement of income. It further held that“at the stage of issue of notice, the only question is whether there was relevantmaterial on which a reasonable person could have formed a requisite beliefwhether the materials would conclusively prove the escapement is not theconcern at this stage”. This would clearly mean that the issuance of notice is justiciable. If theassessee chooses not to challenge the notice or if it is challenged and found tobe valid, then in either case, such notice is to be treated as valid and final.Since the validity of the notice issued under section 148(2) can be challenged oris subject to judicial scrutiny, in our view, the assessment or reassessment of‘any other income’ in the case of a validly issued notice cannot be said to be acase of fishing and roving enquiry. The assessee has the opportunity tochallenge the notice, and if it is held to be invalid for not giving adequatereasons for reopening the assessment, the entire reopening proceedings wouldlapse. In such a case there would be no question of assessment of either ‘suchincome’ 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 bejustified, it would be a case of reopening the assessment on the basis of a validnotice. Once the notice for reopening of a previously closed assessment is held tobe valid, the assessment proceedings as well as the assessment order alreadypassed would be deemed to have been set aside. The Assessing Officer wouldthen have the power to pass fresh assessment order with regard to the entireincome which has escaped assessment. As long as the proceedings have beeninitiated on the basis of a valid notice, it becomes the duty of the AssessingOfficer to levy tax on the entire income which may have escaped assessmentduring the assessment year. The said section 147 of the Act, as it now stands after 1.4.1989, may beread in a simple manner, in parts, as follows: If the Assessing Officer has reason to believe that any income chargeableto tax has escaped assessment, he may assess or reassess ‘such income’ “andalso” ‘any other income’ chargeable to tax which has escaped assessment andwhich comes to his notice subsequently in the course of the proceedings……... The said section 147 of the Act, as it now stands after 1.4.1989, may beread in a simple manner, in parts, as follows: If the Assessing Officer has reason to believe that any income chargeableto tax has escaped assessment, he may assess or reassess ‘such income’ “andalso” ‘any other income’ chargeable to tax which has escaped assessment andwhich comes to his notice subsequently in the course of the proceedings……... The ‘reason to believe’ that any income chargeable to tax has escapedassessment, is one aspect of the matter. If such reason exists, the AssessingOfficer can undoubtedly assess or reassess such income, for which there issuch ‘reason to believe’ that income chargeable to tax has escaped assessment.This is the first part of the section and up to this extent, there is no dispute. It is the latter part of the section that is to be interpreted by this Court,which is as to whether the second part relating to ‘any other income’ is to beread in conjunction with the first part (relating to ‘such income’) or not. If it is tobe read in conjunction, then without there being any addition made with regardto ‘such income’ (for which reason had been given in the notice for reopening theassessment), the second part cannot be invoked. But if it is not to be read inconjunction, the second part can be invoked independently even without thereason for the first part surviving. From a plain reading of section 147 of the Act it is clear that its latter partprovides that ‘any other income’ chargeable to tax which has escapedassessment and which has come to the notice of the Assessing Officersubsequently in the course of the proceedings, can also be taxed. The said twoparts of the section having been joined by the words ‘and also’, what we haveto now consider is whether ‘and also’ would be conjunctive, or the second parthas to be treated as independent of the first part. If we treat it as conjunctive,then certainly if the reason to believe is there for a particular ground or issuewith regard to escaped income which has to be assessed or reassessed, andsuch ground is not found or does not survive, then the assessment orreassessment of ‘any other income’ which is chargeable to tax and has escapedassessment, cannot be made. Chapter XIV of the Act deals with the ‘Procedure for Assessment’. Itprovides for filing of Return of Income (s.139), Self Assessment (s.140 A),Assessment (s.143), Best Judgment Assessment (s.144) and also for IncomeEscaping Assessment (s.147). The purpose of these provisions is to bring to taxthe entire taxable income of the assessee and in doing so, where the AssessingOfficer has reason to believe that some income chargeable to tax has escapedassessment, he may assess or reassess such income. Since the purpose is totax all such income which has escaped assessment, in our view, besides ‘suchincome’ for which he has reason to believe to have escaped assessment, itwould be open to the Assessing Officer to also independently assess orreassess any other income which does not form the subject matter of notice. Although in a different context, which was whether in the course ofreassessment of an escaped item of income an assessee could seek review inrespect of an item which stood concluded in the original assessment order, theSupreme 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 thebenefit of the Revenue and not an assessee and are aimed at garnering the‘escaped income’ of an assessee”. Although in a different context, which was whether in the course ofreassessment of an escaped item of income an assessee could seek review inrespect of an item which stood concluded in the original assessment order, theSupreme 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 thebenefit 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 Courtshave held differently, i.e., some have held that the second part of section 147 isto be read in conjunction with the first part, and some have held that the secondpart is to be read independently. To clarify the same, in the year 1989, thelegislature brought in suitable amendments in sections 147 and 148 of the Act,which was with the object to enhance the power of the Assessing Officer, andnot to help the assessee. Explanation 3 was inserted in section 147 by Finance(No.2) Act, 2009 with effect from 1.4.1989. By the said Explanation, which ismerely clarificatory in nature, it has been clearly provided that the AssessingOfficer may assess or reassess the income in respect of any issue, which hasescaped assessment, and such issue comes to his notice subsequently in thecourse of the proceedings, notwithstanding that the reasons for such issue hadnot been included in the reasons recorded under sub-section (2) of section 148.Insertion of this Explanation cannot be but for the benefit of the Revenue, andnot the assessee. In this background, if we read Section 147 it would be clear that in thephrase ‘and also’ which joins the first and second parts of the section, ‘and’ isconjunctive which is to join the first part with the second part, but ‘also’ is forthe second part and would be disjunctive. It segregates the first part from thesecond. Thus, when we read the full section, the phrase ‘and also’ cannot besaid to be conjunctive. The Punjab & Haryana High Court, in the case of Majinder Singh Kang VsCIT (2012) CIT 344 ITR 358 has, after noticing that the earlier judgments [of thePunjab & Haryana and Rajasthan High Courts in the cases of CIT Vs AtlasCycle Industries (1989) 180 ITR 319and CIT VsShri Ram Singh (2008) 306 ITR343 respectively] were rendered prior to the insertion of Explanation 3 to section147 of the Act, held that “a plain reading of Explanation 3 to S.147 clearlydepicts that the Assessing Officer has power to make additions even on theground that reassessment notice might not have been issued in the case duringthe reassessment proceedings, if he arrives at a conclusion that some otherincome has escaped assessment which comes to his notice during the course ofproceedings for reassessment under S.148 of the Act. The provision no wherepostulates or contemplates that it is only when there is some addition on theground on which reassessment had been initiated, that the Assessing Officercan make additions on any other grounds on which the income has escapedassessment”. The same view was reiterated by the Punjab & Haryana High Court in the case of CIT VsMehakFinvestPvt. Ltd. (2014) 367 ITR 769. In thesaid judgment, it was also noticed that the Special Leave Petition filed againstthe judgment in the case of Majinder Singh (supra) had been dismissed by theSupreme 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 theProvisions of Finance (No.2) Act, 2009” by which Explanation 3 to section 147 ofthe Act had been inserted with effect from 1.4.1989. The relevant paragraph 47of this Circular is reproduced below: “47: Clarificatory amendment in respect of reassessment proceedingunder S.147. Court in the case of CIT VsMehakFinvestPvt. Ltd. (2014) 367 ITR 769. In thesaid judgment, it was also noticed that the Special Leave Petition filed againstthe judgment in the case of Majinder Singh (supra) had been dismissed by theSupreme 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 theProvisions of Finance (No.2) Act, 2009” by which Explanation 3 to section 147 ofthe Act had been inserted with effect from 1.4.1989. The relevant paragraph 47of this Circular is reproduced below: “47: Clarificatory amendment in respect of reassessment proceedingunder S.147. 47.1: The existing provisions of S.147 provides that if the AssessingOfficer has reason to believe that any income chargeable to tax has escapedassessment for any assessment year, he may, subject to the provisions ofS.148 to 153, assess or reassess such income and also any other incomechargeable to tax, which has escaped assessment. Further Assessing Officermay also assess or reassess such other income which has escaped assessmentand which comes to his notice subsequently in the course of proceedings underthis section. Assessing Officer is required to record the reasons for reopeningthe assessment before issuing notice under S.148 with a view to reassess theincome of assessee. 47.2: Some courts have held that the Assessing Officer has to restrict thereassessment proceedings only to the reasons recorded for reopening of theassessment and he is not empowered to touch upon any other issue for whichno reasons have been recorded. The above interpretation is contrary to thelegislative intent. 47.3: Therefore, to articulate the legislative intention clearly Explanation 3has been inserted in S.147 to provide that the Assessing Officer may examine,assess or reassess any issue relevant to income which comes to his noticesubsequently in the course of proceedings under this section, notwithstandingthat the reason for such issue has not been included in the reasons recordedunder sub-section (2) of S.148. 47.4: Applicability – This amendment has been made applicable withretrospective effect from 1st April, 1989 and will apply accordingly in relation toassessment year 1989-90 and subsequent years.” It is thus clear that once satisfaction of reasons for the notice is foundsufficient, i.e., if the notice under section 148(2) is found to be valid, thenaddition can be made on all grounds or issues (with regard to ‘any otherincome’ also) which may come to the notice of the Assessing Officersubsequently during the course of proceedings under section 147, even though reason for notice for ‘such income’ which may have escaped assessment, maynot survive. In the case of CIT Vs Jet Airways (I) Ltd. (2011) 331 ITR 236 the BombayHigh Court has held that “Explanation 3 does not and cannot override thenecessity of fulfilling the conditions set out in the substantive part of section147. An Explanation to a statutory provision is intended to explain its contentsand cannot be construed to override it or render the substance or core nugatory.Section 147 has this effect that the Assessing Officer has to assess or reassessthe income (“such income”) which escaped assessment and which was thebasis of the formation of belief and if he does so, he can also assess orreassess any other income which has escaped assessment and which comes tohis notice during the course of the proceedings. However, if after issuing anotice under section 148, he accepted the contention of the assessee and holdsthat the income which he has initially formed a reason to believe had escapedassessment, has as a matter of fact not escaped assessment, it is not open tohim independently to assess some other income. If he intends to do so, a freshnotice under section 148 would be necessary, the legality of which would betested in the event of a challenge by the assessee.” Thus, what has been held is that ‘such income’ in the first part of section147 is joined with ‘any other income’ of the second part of the section by thephrase “and also” which is used in a “cumulative and conjunctive sense”.Following the said judgment of the Bombay High Court, same view has beentaken by the Delhi High Court in the cases of Ranbaxy Laboratories Ltd. Vs CIT(2011) CIT 336 ITR 136 and CIT VsAdhunikNiryatIspat Ltd. (2011) 63 DTR 212and also the Gujarat High Court in the case of CIT VsMohmedJunedDadani(2013) 214 Taxman 38. With due respect to the view taken in the aforesaid cases, we are unableto persuade ourselves to follow the same. Insertion of ‘Explanation’ in a section of an Act is for a different purposethan insertion of a ‘Proviso’. ‘Explanation’ gives a reason or justification andexplains the contents of the main section, whereas ‘Proviso’ puts a condition onthe contents of the main section or qualifies the same. ‘Proviso’ is generallyintended to restrain the enacting clause, whereas ‘Explanation’ explains orclarifies the main section. Meaning thereby, ‘Proviso’ limits the scope of theenactment as it puts a condition, whereas ‘Explanation’ clarifies the enactmentas it explains and is useful for settling a matter or controversy. Orthodox function of an ‘Explanation’ is to explain the meaning and effectof the main provision. It is different in nature from a ‘Proviso’, as the latterexcepts, excludes or restricts, while the former explains or clarifies and does notrestrict the operation of the main provision. It is true that an ‘Explanation’ maynot enlarge the scope of the section but it also does not restrict the operation ofthe main provision. Its purpose is to clear the cob-webs which may make the meaning of the main provision blurred. Ordinarily, the purpose of insertion of an‘Explanation’ to a section is not to limit the scope of the main provision but toexplain or clarify and to clear the doubt or ambiguity in it. Explanation is also different from Rules framed under an Act. Rules arefor effective implementation of the Act whereas Explanation only explains theprovision of the Section. Rules cannot go beyond or against the provision of theAct as it is framed under the Act and if there is any contradiction, the Act willprevail over the Rules. Same is not the position vis-à-vis the Section and itsExplanation. The latter, by its very name, is intended to explain the provision ofthe Section, hence there can be no contradiction. Section has to be understoodand read hand-in-hand with the Explanation, which is only to support the mainprovision, like an example does to explain any situation. In the present case, insertion of Explanation 3 to section 147 does not inany manner override the main section and has been added with no otherpurpose than to explain or clarify the main section so as to also bring in ‘anyother income’ (of the second part of section 147) within the ambit of tax, whichmay have escaped assessment, and comes to the notice of the Assessing Officersubsequently during the course of the proceedings. Circular 5 of 2010 issued bythe CBDT (already reproduced above) also makes this position clear. In ourview, 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 notcurtail its scope. Insertion of Explanation 3 is thus clarificatory and is for thebenefit of the Revenue and not the assessee. In the present case, insertion of Explanation 3 to section 147 does not inany manner override the main section and has been added with no otherpurpose than to explain or clarify the main section so as to also bring in ‘anyother income’ (of the second part of section 147) within the ambit of tax, whichmay have escaped assessment, and comes to the notice of the Assessing Officersubsequently during the course of the proceedings. Circular 5 of 2010 issued bythe CBDT (already reproduced above) also makes this position clear. In ourview, 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 notcurtail its scope. Insertion of Explanation 3 is thus clarificatory and is for thebenefit of the Revenue and not the assessee. If there is ambiguity in the main provision of the enactment, it can beclarified by insertion of an Explanation to the said section of the Act. Same hasbeen done in the present case. Section 147 of the Act was interpreted differentlyby different High Courts, i.e., whether the second part of the section wasindependent of the first part, or not. To clarify the same, Explanation 3 wasinserted by which it has been clarified that the Assessing Officer can assess theincome in respect of any issue which has escaped assessment and also ‘anyother income’ (of the second part of section 147) which comes to his noticesubsequently during the course of the proceedings under the section. After theinsertion 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 notconjunctive and assessment of ‘any other income’ (of the second part) can bemade independent of the first part (relating to ‘such income’ for which reasonsare given in notice under section 148), notwithstanding that the reasons forsuch issue (‘any other income’) have not been given in the reasons recordedunder section 148(2) of the Act. We are thus in agreement with the view takenby the Punjab & Haryana High Court in the cases of Majinder Singh Kang andMehakFinvest (supra). Considering the provision of section 147 as well as its Explanation 3, andalso keeping in view that section 147 is for the benefit of the Revenue and not the assessee and is aimed at garnering the escaped income of the assessee[viz. Sun Engineering (supra)] and also keeping in view that it is theconstitutional obligation of every assessee to disclose his total income on whichit is to pay tax, we are of the clear opinion that the two parts of section 147 (onerelating to ‘such income’ and the other to ‘any other income’) are to be readindependently. The phrase ‘such income’ used in the first part of section 147 iswith regard to which reasons have been recorded under section 148(2) of theAct, and the phrase ‘any other income’ used in the second part of the section iswith regard to where no reasons have been recorded before issuing notice andhas come to the notice of the Assessing Officer subsequently during the courseof the proceedings, which can be assessed independent of the first part, evenwhen no addition can be made with regard to ‘such income’, but the notice onthe basis of which proceedings have commenced, is found to be valid. In the end it was vehemently argued by the learned counsel for theappellant that the reason to be given under sub-section (2) of section 148 wouldbe the very foundation of the issuance of notice and if it is false or baseless,then everything goes and the structure erected on such foundation wouldcrumble. In the end it was vehemently argued by the learned counsel for theappellant that the reason to be given under sub-section (2) of section 148 wouldbe the very foundation of the issuance of notice and if it is false or baseless,then everything goes and the structure erected on such foundation wouldcrumble. It is true that if the foundation goes, then the structure cannot remain.Meaning thereby, if notice has no sufficient reason or is invalid, no proceedingscan be initiated. But the same can be checked at the initial stage by challengingthe notice. If the notice is challenged and found to be valid, or where the noticeis not at all challenged, then in either case it cannot be said that notice isinvalid. As such, if the notice is valid, then the foundation remains and theproceedings on the basis of such notice can go on. We may only reiterate herethat once the proceedings have been initiated on a valid notice, it becomes theduty of the Assessing Officer to levy tax on the entire income (including ‘anyother income’) which may have escaped assessment and comes to his noticeduring the course of the proceedings initiated under section 147 of the Act.” 15. Having given a thoughtful consideration on the above referreddecisions and the provisions of Sections 147 as well as Section 148 of theIncome Tax Act, we are in perfect agreement with the view taken by the HighCourt of Punjab and Haryana in MehakFinvest Pvt. Ltd.(supra) as well as thedecision rendered by the High Court of Karnataka in N. Govindraju(supra). 16.Resultantly, the question of law framed in this appeal for appropriateanswer 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/-) inthe income of the assessee on merits. We deem it appropriate to remit thematter to the Tribunal for fresh consideration whether the addition to the tuneof Rs.9,21,38,650/- (Rs.8,94,55,000/- + 26,83,650/-) in the income of therespondent assessee is liable to be sustained or not. Ordered accordingly. 17. With the above observations, this appeal stands disposed of. JUDGE CHIEF JUSTICE Comparing Assistant