The Pr. Commissioner Of Income Tax -Central-1 v. Jaguar Buildcon Pvt. Ltd

$~23 * IN THE HIGH COURT OF DELHI AT NEW DELHI+ ITA 756/2023 THE PR. COMMISSIONER OF INCOME TAX -CENTRAL-1 .....Appellant Through: Mr. Ruchir Bhatia, SSC with Mr. Anant Manu, JSC and Mr. Pratyaksh Gupta, JSC versus JAGUAR BUILDCON PVT. LTD. .....Respondent Through: Mr. Gaurav Jain and Mr. Shubham Gupta, Advs. % CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE RAVINDER DUDEJA O R D E R01.08.2024 1.The appellant impugns the order of the Income Tax Appellate Tribunal[1] dated 13 April 2023 and posits the following questions of law for our consideration: “2.1 Whether Ld. ITAT has erred on the facts and circumstances of the case in deleting the addition of Rs.58,18,50,000/- under section 68 of the Act on confirming the order of Ld. CIT(A) who concluded that when on the ground on which the reopening of assessment is based, whereas 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? 2.2 Whether Ld. ITAT has erred on the facts and circumstances of the case in not appreciating the explanation 3 of section 147 of the Income Tax Act, 1961 in which it is provided that 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, 1 Tribunal notwithstanding that the reasons for such issues have not been included in the reasons recorded under sub-section (2) of section 148? 2.3 Whether Ld. ITAT has erred on the facts and circumstances of the case in placing reliance of the case of Ranbaxy Laboratories Ltd, as the facts of the said judgment of Hon'ble Delhi High Court is different from the case of the assessee. Further, the Ld. ITAT has not gone through the merits of the case of the assessee and has relied upon the above judgment to delete the addition? 2.4 Whether Ld. ITAT has erred on the facts and circumstances of the case when the addition made were not due to roving and fishing enquiries, but rather due to concrete information received from Investigation Wing of the department, based on field enquiries? 2.5 Whether Ld. ITAT has erred on the facts and circumstances of the case, when the addition done with regard to accommodation entry in form of share premium, is connected, related and classified under the same head of income, similar to the reasons of reopening?” 2.We had while originally admitting the appeal taken note of the principal questions which arise in our order dated 02 February 2024 which reads thus: “A. Whether Ld. ITAT has erred on the facts and circumstances of the case in not appreciating Explanation 3 of Section 147 of the Income Tax Act, 1961 and whether the same would empower the Assessing Officer to assess or reassess income in respect of any issue which has escaped assessment notwithstanding the reasons recorded under sub-section (2) of Section 148 having not alluded to the same or formed the basis for reopening?” 3.However and on hearing learned counsels for the parties, we note that the Tribunal while dealing with the question which is proposed had observed as follows: “7.Upon careful consideration, we note that assessee’s case wasreopened on the basis of information relating to accommodationentry received from TVH Trading Company Pvt. Ltd. of Rs.26,40,00,000/-. No addition was made in the assessment orderon this account since the amount had already been added in theorder u/s 153A dated 30.03.2014. The addition of -Rs.58,18,50,000/ was made u/s 68 of the Act in respect of theamount received from 5 persons which did not form part of thereasons recorded for reopening of the case. In these circumstances, the case laws of Hon'ble Delhi High Court in the 3.However and on hearing learned counsels for the parties, we note that the Tribunal while dealing with the question which is proposed had observed as follows: “7.Upon careful consideration, we note that assessee’s case wasreopened on the basis of information relating to accommodationentry received from TVH Trading Company Pvt. Ltd. of Rs.26,40,00,000/-. No addition was made in the assessment orderon this account since the amount had already been added in theorder u/s 153A dated 30.03.2014. The addition of -Rs.58,18,50,000/ was made u/s 68 of the Act in respect of theamount received from 5 persons which did not form part of thereasons recorded for reopening of the case. In these circumstances, the case laws of Hon'ble Delhi High Court in the case of Jet Airways (I) Ltd. (supra) are fully applicable and there is no infirmity in the well reasoned order of Id. CIT (A). Ld. DR tried to submit that there are some other High Court who have taken a contrary view. But, in our considered view, this is not an acceptable proposition in view of the decision of the Hon'ble jurisdictional High Court which is a binding. Hence, respectfully following the decision of Hon'ble jurisdictional High Court in the case of Ranbaxy Laboratories Ltd. (supra), we uphold the order of Id. CIT (A).” 4.The principal question which arises for our consideration is 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, 1961[2] 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. 5.The Tribunal rested its conclusions on the judgment rendered by a Division Bench of this Court in Ranbaxy Laboratories Ltd. v. Commissioner of Income-tax[3] to hold that once the principal grounds on which reassessment was proposed are dropped, no further additions can be made even by taking recourse to Explanation 3. 6.We deem it apposite to extract the following pertinent observations rendered in the aforenoted decision: “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 Officermay assess or reassess the income in respect of issue which hasescaped assessment, if such issue comes to his notice in the courseof proceedings under this section even though the said issue did notfind mention in the reasons recorded and the notice issued undersection 148. Since there was a confusion prevailing with regard tothe powers of the Assessing Officer to assess or reassess on the 2 Act 3 2011 SCC OnLine Del 2612 issues for which no reasons were recorded, this Explanation cameto be inserted as clarificatory. The reasons for insertion of thisclarificatory Explanation in clause (57) of the MemorandumExplaining the Provisions of the Finance (No. 2) Bill, 2009, of2009 are the following (see (2009) 314 ITR (St.) 57, 206): “Some courts have held that the Assessing Officer has torestrict the reassessment proceedings only to issues in respect ofwhich the reasons have been recorded for reopening theassessment. He is not empowered to touch upon any other issue forwhich no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it isproposed to insert an Explanation in section 147 to provide that theAssessing Officer may assess or reassess income in respect of anyissue which comes to his notice subsequently in the course ofproceedings under this section, notwithstanding that the reason forsuch issue has not been included in the reasons recorded under sub-section (2) of section 148. “Some courts have held that the Assessing Officer has torestrict the reassessment proceedings only to issues in respect ofwhich the reasons have been recorded for reopening theassessment. He is not empowered to touch upon any other issue forwhich no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it isproposed to insert an Explanation in section 147 to provide that theAssessing Officer may assess or reassess income in respect of anyissue which comes to his notice subsequently in the course ofproceedings under this section, notwithstanding that the reason forsuch issue has not been included in the reasons recorded under sub-section (2) of section 148. This amendment will take effect retrospectively from April 1, 1989, and will accordingly apply in relation to the assessment year 1989-1990 and subsequent years.” 9. By virtue of Explanation 3 to section 147 interpretive confusioncame to be clarified and thus the decisions rendered by the Punjaband Haryana High Court in the case of Vipan Khanna v. CIT,(2002) 255 ITR 220 (P&H) and the Kerala High Court in the case of Travancore Cements Limited v. Asst. CIT, (2008) 305 ITR 170 (Ker), no longer hold the field on the subject. 10. The ratio of both the aforecited cases was that upon theissuance of notice under section 148(2), when proceedings wereinitiated by the Assessing Officer on issues in respect of which hehad formed a reason to believe that income had escapedassessment, it was not open to the Assessing Officer to carry out anassessment or reassessment in respect of other issues which weretotally unconnected with the proceedings that were alreadyinitiated. To put it differently, once the Assessing Officer hasreason to believe that income chargeable to tax has escapedassessment and proceeds to issue a notice under section 148, it isnot open to him to assess or reassess the income under anindependent or unconnected issue, which was not the basis of thenotice 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 reassessincome in respect of any issue which comes to his noticesubsequently in the course of proceedings under section 147though the reasons for such issue were not included in the reasonsrecorded in the notice under section 148(2) on the basis of whichhe had initiated proceedings under section 147. Similar questioncame 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 assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 the section; and (iv) though the notice under section 148 (2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section.” 7.We find that the view that was expressed in Ranbaxy Laboratories was noticed by us recently in our decision in ATS Infrastructure Limited v. Assistant Commissioner of Income Tax Circle 1 (1) & Ors.[4] and where the legal position was summarised in the following passages: 7.We find that the view that was expressed in Ranbaxy Laboratories was noticed by us recently in our decision in ATS Infrastructure Limited v. Assistant Commissioner of Income Tax Circle 1 (1) & Ors.[4] and where the legal position was summarised in the following passages: “23. It becomes evident that the Court in Ranbaxy Laboratories Ltd., firstly took into consideration Section 147 of the Act, embodying the phrase “and also” prefixed to the expression “any other income chargeable to tax which has escaped assessment”. It thus came to the conclusion that, while an assessment may be reopened based on certain grounds which may have led the AO to be of the opinion that income chargeable to tax had escaped assessment, once it is found that the reassessment power had been validly invoked, the power of the AO would not stand confined only to those aspects which may have been noticed in the original notice issued under Section 148 of the Act but would also extend to any other income which may be found to be exigible to tax. 24. This clearly appeals to reason, since Section 147 of the Act embodies a power to assess, 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, 4 2024 SCC OnLine Del 5048 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 discussion is that while it is true that the AO would have to establish that reassessment is warranted on account of information in its possession which appears to indicate that income chargeable to tax had escaped assessment, once the assessment itself is reopened it would not be confined to those subjects only. This would, however, be subject only to one additional rider and that being if, in the course of reassessment, the AO ultimately comes to conclude that no additions or modifications are warranted under those heads, it would not be entitled to make any additions in respect of other items forming part of the original return. xxxx xxxx xxxx 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 v. Jakhotia Plastics Pvt. Ltd. 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 Plastics had observed that since there was some doubt as to the accuracy of the interpretation accorded in Ranbaxy Laboratories Ltd., it would be appropriate for the matter being placed for the consideration of a larger Bench. This becomes evident from a reading of paragraphs 13, 14 and 15 of the report and which are extracted hereinbelow:- xxxx xxxx xxxx 28. In light of the above, the Court in Jakhotia Plastics had observed that since there was some doubt as to the accuracy of the interpretation accorded in Ranbaxy Laboratories Ltd., it would be appropriate for the matter being placed for the consideration of a larger Bench. This becomes evident from a reading of paragraphs 13, 14 and 15 of the report and which are extracted hereinbelow:- xxxx xxxx xxxx 29. In our considered opinion, and bearing in mind the 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. We also bear in consideration the said decision having been affirmed and approved subsequently in Commissioner of Income-tax (Exemption) vs. Monarch Educational SocietyandCommissioner of Income-tax vs. Software Consultants. 30.We thus, come to the conclusion that the enunciation withrespect to the indelible connection between Section 148A(b) andSection 148 A(d) of the Act are clearly not impacted byExplanation 3. As we read Sections 147 and 148 of the Act, wecome to the firm conclusion that the subject of validity ofinitiation of reassessment would have to be independentlyevaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could beinvoked once an assessment has been validly reopened. 31.Explanation 3, or for that matter, the Explanation whichpresently forms part of Section 147, would come into play onlyonce it is found that the power to reassess had been validlyinvoked and the formation of opinion entitled to be upheld in lightof principles which are well settled. The Explanations would beapplicable to issues which may come to the notice of the AO inthe course of proceedings of reassessment subject to thesupervening requirement of the reassessment action itself havingbeen validly initiated. 32.Explanation 3, cannot consequently be read as enabling theAO to attempt to either deviate from the reasons originallyrecorded for initiating action under Section 147/148 of the Actnor can those Explanations be read as empowering the AO toimprove upon, supplement or supplant the reasons which formedthe bedrock for initiation of action under the aforenotedprovisions.” 8.In view of the aforesaid, we answer the question which stands posited in the negative and against the appellant. The appeal fails and shall stand dismissed. YASHWANT VARMA, J AUGUST 1, 2024ns RAVINDER DUDEJA, J