The Principal Commissioner Ofincome Tax – 19Room v. R.n. Laddha, Jj

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3640 OF 2019 Yashoda Shivappa Nagangoudaran individual residing at B-3, 4[th] Floor, Room No.408,Sai Leela Building, Tardeo Road,New Maharashtra Nagar,Mumbai – 400 034. V/s.1. Income Tax Officer – 19(3)(5)Room No.201, 2[nd] Floor, MatruMandir, Tardeo Road,Mumbai – 400 007. ….Petitioner 2. The Principal Commissioner ofIncome Tax – 19Room No.228, 2[nd] Floor, MatruMandir, Tardeo Road,Mumbai – 400 007. 3. The Union of IndiaThrough the Secretary,Ministry of Finance, Government of India, North Block,New Delhi – 110 001.…Respondents ---- Mr. Devendra H. Jain i/b Mr. Nikhil C. Bhise for Petitioner.Mr. Sham V. Walve for Respondents-Revenue. ---- CORAM : K.R. SHRIRAM & R.N. LADDHA, JJ. DATED : 5[th] JANUARY, 2022 ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.) 1.Petitioner received a notice dated 16[th] March, 2019 underSection 148 of the Income Tax Act, 1961 (the Act) for A.Y. 2012-13.According to respondents they had reasons to believe that petitioner’s income chargeable to tax for A.Y. 2012-13 has escaped assessment. Thereasons for re-opening is annexed to the petition. The reasons indicate thatrespondents have information that petitioner has deposited Rs.13,40,000/-in cash during F.Y. 2011-12. Notwithstanding that petitioner has not filedreturn of income for A.Y. 2012-13. Therefore, the income chargeable to taxamounting to Rs.13,40,000/- has escaped assessment due to failure on thepart of the petitioner to disclose fully and truly all material facts for hisassessment. 2.Petitioner filed objections dated 10[th] October, 2019 to the re- opening of assessment. In that petitioner has explained as under : “However, the bank, viz; Dena bank in which I hold anaccount, made a factual mistake in reporting the abovetransactions. I had deposited total cash of only Rs.18,000/- ontwo occasions during the relevant year which were out of giftsreceived by me/out of my past savings. Whereas, the figure ofRs.13,40,000/- reported by the bank as cash deposited, was infact the exact amount of cash withdrawn by me, whihc waserroneously reported as Cash depost in the AIR/CIB. In supportof this, I have attached a copy of the bank statement for F.Y. 2011-12. Refenr Annexure – 1. I have already written to Dena bank pointing out theirmistake and have asked them to rectify the same and issue aclarificatory letter to me. I attach a copy of the letter submittedto them. Refer Annexure – 2. Thus, this proves that the re-opening of my case u/s 147 ofthe Income-tax act, 1961 was made on the basis of incorrectmaterial facts and the same should hence be dropped.” 3.We have also considered bank statement which does not show any cash deposit of Rs.13,40,000/-. It only shows cash deposits ofRs.18,000/-. In the order dated 6[th] November, 2019 disposing the objections respondents admit and accept that there were cash deposits of onlyRs.18,000/- and not Rs.13,40,000/- as alleged in the reasons for re-opening.But according to respondents there were deposits/credits to petitioneraccount other than in the form of cash, i.e., total credits of Rs.18,81,092/-(cash and non cash) and therefore as no return of income was filed to showsuch credits it remained unexplained. 4.To confer jurisdiction under Section 147 of the Act, theAssessing Officer must have reasons to believe that income chargeable totax has escaped assessment. In this case, the Assessing Officer felt thatthere were reasons to believe that income had escaped assessment onincorrect facts and that is even accepted in the order disposing theobjections which is impugned in the petition. Therefore, the entire basis onwhich jurisdiction is assumed under Section 147 of the Act fails. On thisground alone, the notice dated 16[th] March, 2019 and consequential order onobjections dated 6[th] November, 2019 has to be quashed and set aside. 4.To confer jurisdiction under Section 147 of the Act, theAssessing Officer must have reasons to believe that income chargeable totax has escaped assessment. In this case, the Assessing Officer felt thatthere were reasons to believe that income had escaped assessment onincorrect facts and that is even accepted in the order disposing theobjections which is impugned in the petition. Therefore, the entire basis onwhich jurisdiction is assumed under Section 147 of the Act fails. On thisground alone, the notice dated 16[th] March, 2019 and consequential order onobjections dated 6[th] November, 2019 has to be quashed and set aside. 5.Mr. Walve submitted that as per explanation 3 to Section 147 ofthe Act, the Assessing Officer may assess or re-assess the income in respectof any issue which has escaped assessment even if such issue comes to hisnotice subsequently in the course of proceedings under this section,notwithstanding that the reasons for such issue have not been included inthe reasons recorded under Sub Section 2 of the Section 148 of the Act. 6. 6.Though, there cannot be any dispute on this statement ofMr.Walve, explanation 3 presupposes that the notice which has been issuedwas a valid notice. As per explanation 3 it empowers the Assessing Officerto assess or re-assess the income in respect of any issue that comes to hisnotice subsequently in the course of the proceedings under Section 147 ofthe Act but if the proceedings under Section 148 of the Act itself has beeninitiated wrongly, the question of any new issue that would come to hisnotice subsequently during the course of proceedings under Section 147 ofthe Act would not arise. The assessment or reassessment must be in respectof the income in respect of which he has formed a reason to believe that ithas escaped assessment and also in respect of which comes to his noticesubsequently during the course of the any other income proceedings ashaving escaped assessment. If the income, the escapement of which was thebasis of the formation of the reason to believe is not assessed or reassessed,it would not be open to the Assessing Officer to independently assess onlythat income which comes to his notice subsequently in the course of theproceedings under the section as having escaped assessment. If upon theissuance of a notice under section 148(2), the Assessing Officer accepts theobjections of the assessee and does not assess or reassess the income whichwas the basis of the notice, it would not be open to him to assess incomeunder some other issue independently. We find support for this view inCommissioner of Income Tax vs. Jet Airways (I) Ltd.1 where paragraph 1 (2011) 331 ITR 236 (Bombay) nos.6, 14, 15 and 22 reads as under : 6. The effect of Explanation 3 which was inserted by theFinance (No. 2) Act of 2009 is that even though the notice thathas been issued under section 148 containing the reasons forreopening the assessment does not contain a reference to aparticular issue with reference to which income has escapedassessment, the Assessing Officer may assess or reassess theincome in respect of any issue which has escaped assessment,when such issue comes to his notice subsequently, in the courseof the proceedings. The reasons for the insertion of Explanation3 are to be found in the Memorandum Explaining the Provisionsof the Finance (No. 2) Bill of 2009. The Memorandum treats theamendment to be clarificatory and contains the followingexplanation ([2009] 314 ITR (St.) 183, 206) : "Some courts have held that the Assessing Officer has to restrictthe reassessment proceedings only to issues in respect of whichthe reasons have been recorded for reopening the assessment.He is not empowered to touch upon any other issue for whichno reasons have been recorded. The above interpretation iscontrary to the legislative intent. "Some courts have held that the Assessing Officer has to restrictthe reassessment proceedings only to issues in respect of whichthe reasons have been recorded for reopening the assessment.He is not empowered to touch upon any other issue for whichno reasons have been recorded. The above interpretation iscontrary to the legislative intent. With a view to further clarifying the legislative intent, it isproposed to insert an Explanation in section 147 to provide thatthe Assessing Officer may assess or reassess income in respect ofany issue which comes to his notice subsequently in the courseof proceedings under this section notwithstanding that thereason for such issue has not been included in the reasonsrecorded under sub-section (2) of section 148." 14. The rival submissions which have been urged on behalf ofthe Revenue and the assessee can be dealt with both as a matterof first principle, interpreting the section as it stands and on thebasis of precedent on the subject. Interpreting the provision asit stands and without adding or deducting from the words usedby Parliament, it is clear that upon the formation of a reason tobelieve under section 147 and following the issuance of a noticeunder section 148, the Assessing Officer has power to assess orreassess the income which he has reason to believe had escapedassessment, and also any other income chargeable to tax. Thewords "and also" cannot be ignored. The interpretation whichthe court places on the provision should not result in dilutingthe effect of these words or rendering any part of the languageused by Parliament otiose. Parliament having used the words"assess or reassess such income and also any other incomechargeable to tax which has escaped assessment", the words"and also" cannot be read as being in the alternative. On thecontrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of somesignificance that Parliament has not used the word "or". TheLegislature did not rest content by merely using the word "and".The words "and" as well as "also" have been used together andin conjunction. words as being conjunctive and cumulative. It is of somesignificance that Parliament has not used the word "or". TheLegislature did not rest content by merely using the word "and".The words "and" as well as "also" have been used together andin conjunction. 15. The Shorter Oxford Dictionary defines the expression"also" to mean further, in addition besides, too. The word hasbeen treated as being relative and conjunctive. Evidentlytherefore, what Parliament intends by use of the words "andalso" is that the Assessing Officer, upon the formation of areason to believe under section 147 and the issuance of a noticeunder section 148(2) must assess or reassess : (i) such income ;and also (ii) any other income chargeable to tax which hasescaped assessment and which comes to his notice subsequentlyin the course of the proceedings under the section. The words"such income" refer to the income chargeable to tax which hasescaped assessment, and in respect of which the AssessingOfficer has formed a reason to believe that it has escapedassessment. Hence, the language which has been used byParliament is indicative of the position that the assessment orreassessment must be in respect of the income in respect ofwhich he has formed a reason to believe that it has escapedassessment and also in respect of which comes to his noticesubsequently during the course of the any other incomeproceedings as having escaped assessment. If the income, theescapement of which was the basis of the formation of thereason to believe is not assessed or reassessed, it would not beopen to the Assessing Officer to independently assess only thatincome which comes to his notice subsequently in the course ofthe proceedings under the section as having escapedassessment. If upon the issuance of a notice under section148(2), the Assessing Officer accepts the objections of theassessee and does not assess or reassess the income which wasthe basis of the notice, it would not be open to him to assessincome under some other issue independently.Parliament whenit enacted the provisions of section 147 with effect from April 1,1989 clearly stipulated that the Assessing Officer has to assessto reassess the income which he had reason to believe hadescaped assessment and also any other income chargeable to taxwhich came to his notice during the proceeding. In the absenceof the assessment or reassessment of the former, he cannotindependently assess the latter. 22. Explanation 3 lifts the embargo, which was inserted byjudicial interpretation, on the making of an assessment ofreassessment on grounds other than those on the basis of whicha notice was issued under section 148. Setting out the reasons,for the belief that income had escaped assessment. Those 22. Explanation 3 lifts the embargo, which was inserted byjudicial interpretation, on the making of an assessment ofreassessment on grounds other than those on the basis of whicha notice was issued under section 148. Setting out the reasons,for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was soughtto be reopened on the ground that income had escapedassessment on a certain issue, the Assessing Officer could notmake an assessment or reassessment on another issue whichcame to his notice during the proceedings. This interpretationwill no longer hold the field after the insertion of Explanation 3by the Finance (No. 2) Act of 2009. However, Explanation 3does not and cannot override the necessity of fulfilling theconditions set out in the substantive part of section 147. AnExplanation to a statutory provision is intended to explain itscontents and cannot be construed to override it or render thesubstance and core nugatory. Section 147 has this effect that theAssessing Officer has to assess or reassess the income ("suchincome") which escaped assessment and which was the basis ofthe formation of belief and if he does so, he can also assess orreassess any other income which has escaped assessment andwhich comes to his notice during the course of the proceedings.However, if after issuing a notice under section 148, he acceptedthe contention of the assessee and holds that the income whichhe has initially formed a reason to believe had escapedassessment, has as a matter of fact not escaped assessment, it isnot open to him independently to assess some other income. Ifhe intends to do so, a fresh notice under section 148 would benecessary, the legality of which would be tested in the event of achallenge by the assessee. (emphasis supplied) 7.In the circumstances, petition is allowed in terms of prayer clause - (a) which reads as under : (a) that this Hon’ble Court may be pleased to issue a Writ ofCertiorari or a Writ in the nature of Certiorari or any otherappropriate Writ, Order or direction, calling for the records ofthe Petitioner’s case and after going into the legality andpropriety thereof, to quash and set aside the notice u/s 148dated 16.03.2019 (“Exhibit A”) and the subsequent Orderdated 06.11.2019 (“Exhibit E”) disposing of Petitioner’sobjections on the issue of impugned notice. 8.Petition disposed with no order as to costs. (R.N. LADDHA, J.) (K.R. SHRIRAM, J.)