Punjab & Haryana H.C : The Assessing Officer could not have assessed the income chargeable to tax which has come to his notice subsequently in the course of proceedings under section 147 though was not the basis for reopening of the proceedings under section 147

High Court Of Punjab & Haryana

CIT Vs. Mehak Finvest (P.) Ltd.

Section : 147,68

Assessment Year : 2000-01

Ajay Kumar Mittal And Jaspal Singh, JJ.

I.T.A. Nos. 505 & 454 Of 2009 (O & M)

July 17, 2014

JUDGMENT

Ajay Kumar Mittal, J. – This order shall dispose of I. T. A. Nos. 505 and 454 of 2009 as, according to the learned counsel for the parties, the issue involved in both the cases is similar. However, the facts have been extracted from I. T. A. No. 505 of 2009.

2. I. T. A. No. 505 of 2009 has been preferred by the Revenue under section 260A of the Income-tax Act, 1961 (in short, “the Act”), against the order dated January 20, 2009, annexure A.4 passed by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”), for the assessment year 2000-01, claiming the following substantial questions of law :

“(i)Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in concluding that the Assessing Officer could not have assessed the income chargeable to tax which has come to his notice subsequently in the course of proceedings under section 147 though was not the basis for reopening of the proceedings under section 147 of the Income-tax Act ?

(ii)Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law to conclude that once the Assessing Officer had not made any addition on the income which form the basis for reopening the assessment under section 147 of the Income-tax Act then the Assessing Officer was precluded in law from having made the additions qua other income chargeable to tax, which escaped assessment and came to the notice of the Assessing Officer during the course of the proceedings under section 147 ?

(iii)Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law to conclude that the proceedings under section 147 were vitiated though there was no challenge to the reopening proceedings at the instance of the assessee ?”

3. A few facts relevant for the decision of the controversy involved, as narrated in I. T. A. No. 505 of 2009 may be noticed. The assessee is a private limited company. It filed regular return of income on November 30, 2000, for the assessment year 2000-01 declaring a net taxable income of “nil”, which was processed under section 143(1) of the Act. The Assessing Officer received information from the Additional Director of Income-tax (Investigation) that various finance companies managed and controlled by Shri Kapil Aggarwal and Shri V. K. Umat, chartered accountants of Amritsar, were involved in providing accommodation entries to various assessees. One such finance company was M/s. Mehak Finvest P. Ltd. The bank accounts of this finance company were first used to receive cash and then to issue accommodation entries. All the accounts were held in the name of various employees of Shri Kapil Aggarwal and Shri V. K. Umat, chartered accountants. Accordingly, the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment. The Assessing Officer initiated proceedings under section 147 of the Act. It was noticed that fresh share application money amounting to Rs. 47,00,000 could not be explained by the respondent and, therefore, treating the same as undisclosed income made the addition of the said amount as unexplained cash credits under section 68 of the Act, vide order dated March 31, 2005, annexure A.2. Aggrieved by the order, the respondent filed an appeal before the Commissioner of Income-tax (Appeals) (“the CIT(A”)). Vide order dated September 19, 2008, annexure A.3, the Commissioner of Income-tax (Appeals) allowed the appeal. Dissatisfied with the order, the Revenue filed an appeal before the Tribunal. Vide order dated January 20, 2009, annexure A.4, the Tribunal dismissed the appeal relying upon the decision of this court dated August 6, 2008, in I. T. A. No. 493 of 2007 in assessee’s sister concern-Empire Finvest-for the assessment year 1996-97. Hence, the instant appeals by the Revenue.

4. Learned counsel for the Revenue submitted that the Tribunal had erred in quashing the proceedings under section 147/148 of the Act. It was argued that the issue raised herein stands decided in favour of the Revenue by the judgment of this court in Majinder Singh Kang v. CIT [2012] 344 ITR 358/25 taxmann.com 124 (Punj. & Har.). It was submitted that special leave petition against the said judgment was also dismissed by the apex court bearing Special Leave Petition (Civil) No. 13028 of 2011 on August 19, 2011.

5. On the other hand, learned counsel for the assessee placed reliance upon the judgments in CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236/[2010] 195 Taxman 117 (Bom.), Ranbaxy Laboratories Ltd. v. CIT [2011] 336 ITR 136/200 Taxman 242/12 taxmann.com 74 (Delhi), Balbir chand Maini v. CIT [2012] 340 ITR 161/ [2011] 201 Taxman 94 (Mag.)/12 taxmann.com 276 (Punj. & Har.), CIT v. M.P. Iron Traders [2004] 136 Taxman 520 (Punj. & Har.) and CIT v. Empire Finvest Ltd. [IT Appeal No. 421 of 2009, dated 26-11-2009], to contend that the Tribunal had rightly decided the issue in favour of the assessee. It was submitted that the Tribunal had relied upon the decision in Empire Finvest Ltd.’s case (supra) against which no appeal had been filed. In the present case, the circumstances being similar, the appeal be dismissed.

6. After hearing learned counsel for the parties, in our view, the appeal deserves to succeed. Explanation 3 to section 147 has been inserted by the Finance (No. 2) Act, 2009, retrospectively with effect from April 1, 1989. It reads thus :

“147. Income escaping assessment.-.Explanation 3.-For the purpose of assessment or reassessment under this section, 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, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”

7. This court in Majinder Singh Kang’s case (supra), considering the scope of Explanation 3 to section 147 of the Act held that the Assessing Officer is empowered to make additions even on the ground on which reassessment notice might not have been issued where during the reassessment proceedings, he concludes that some other income has escaped assessment which comes to his notice during the course of the proceedings for reassessment under section 148 of the Act. The provision nowhere postulates or contemplates that the Assessing Officer cannot make any additions on any other ground unless some addition is made on the ground on which reassessment had been initiated. Special Leave Petition (Civil) No. 13028 of 2011 against this decision was dismissed on August 19, 2011. The reassessment proceedings, thus, in the present case, cannot be held to be vitiated.

8. Adverting to the judgments relied upon by learned counsel for the respondent, it may be noticed that the decision of the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343 was held to be not applicable 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 in Empire Finvest Ltd.’s case (supra). In view of the binding precedent of this court in Majinder Singh’s Kang’s case (supra) against which special leave petition has been dismissed on August 19, 2011, the judgment of the Bombay High Court in Jet Airways (I) Ltd.’s case (supra), which has been followed by the Delhi High Court in Ranbaxy Laboratories Ltd.’s case (supra), would not come to the rescue of the assessee.

9. 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, the appeals are allowed. The matter is remanded to the Tribunal to adjudicate the issue afresh on the merits in accordance with law.

[Citation : 367 ITR 769]

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