Thursday, February 28, 2013

Expl. 3 to Section 147 added w.e.f. 01.04.2009 with retrospective effect from 01.04.1989 was meant to be merely clarificatory in nature and was introduced with the purpose of putting at rest the legal controversy regarding the true interpretation of Section 147 of the Act which had arisen on account of certain judicial pronouncements

CIT vs Mohmed Juned Dadani
Dated: 29th Jan 2013
 
"Whether the Income-tax Appellate Tribunal was right in law in coming to the conclusion that when on the ground on which the reopening of assessment is based, no additions are made by the AO in the order of assessment, he cannot make additions on some other grounds which did not form part of the reasons recorded by him."
 
On appeal before Hon`ble HC the Ld. DR on behalf of revenue contended that Tribunal committed a grave error in interpreting the provisions contained in Section 147 of the Act. He submitted that Section 147 of the Act, as amended w.e.f. 01.04.1989, gives ample authority to an AO  to assess or reassess any income chargeable to tax which has escaped assessment, of course, as long as the requirements of a valid reopening of the assessment are satisfied. In other words, according to the learned counsel, once an assessment is reopened, by virtue of valid exercise of powers under Section 147 of the Act, thereafter, there would be no further limitation on the AO  framing assessment on all or any of the grounds mentioned in the reasons recorded or even on the grounds not so mentioned.
 
Further Ld. DR also submitted that this position was clear even before Explanation 3 to Section 147 of the Act was added w.e.f. 01.04.2009 with retrospective effect from 01.04.1989. In any case, by virtue of such explanation being introduced in Section 147, the issue has been put beyond any pale of controversy. Ld. DR relied on a decision in case of Majinder Singh Kang.
 
On the other hand, ld. counsel for assessee drew our attention to the statutory provisions contained in Section 147 of the Act, as amended w.e.f. 01.04.1989, and the explanatory memorandum clarifying the background in which Explanation 3 to Section 147 of the Act was enacted. He submitted that Section 147 of the Act, prior to introduction of Explanation 3, permitted the AO  to assess or reassess any income chargeable to tax which had escaped assessment and also any other income which had escaped assessment and which came to the notice of the AO  subsequently in the course of the proceedings for reassessment. He submitted that the words "and also any other income" must be understood as to be referring to such income which has escaped assessment but the ground which has not been mentioned in the reasons recorded, in addition to income which has escaped assessment and for which mention has been made in the reasons recorded. He submitted that Explanation 3 to Section 147 of the Act did not change this basic proposition, nor it was meant to do so as would be clear from the explanatory memorandum explaining the reasons for introduction of the said explanation.
 
Further it was also submitted that power to reopen the assessment which has been previously closed is peculiar in nature and is available to the AO  which is not normally available to an officer exercising judicial or quasi judicial powers. Such powers, therefore, must be strictly construed, authorizing an AO to assess income under any head even if the same was not part of the reasons recorded for reopening of the assessment, would give wide powers which are possible of arbitrary exercise.

Counsel lastly submitted that for an AO  to assess income on any ground not mentioned in the reasons recorded, it is essential that there is a valid reopening of assessment. If the grounds, on which the reopening of the assessment fails, there would thereafter be no longer a valid reopening of an assessment in which the AO  can make any additions on some other grounds. Reliance was placed on Commissioner of Income Tax v. Jet Airways (I) Ltd

Whether introduction of Explanation (3) to Section 147 would change this position and for that purpose we need to ascertain what is true purport of Explanation 3 and the purpose for which the same was introduced.

Hon`ble high court observed that  “Explanation which provides that for the purpose of assessment or reassessment under the said section, the AO  may assess or reassess the income in respect of any issue which escaped assessment and which comes to his notice subsequently in the course of reassessment proceedings. The explanation further provides that this would be so notwithstanding that the reasons for such issue have not been included in the reasons recorded under Section 148(2)”

If the contention of the assessee that even after introduction of Explanation 3 to Section 147 of the Act, the situation has not undergone any material change is accepted, the question that immediately would come to one's mind is, what then was the purpose of introducing such an explanation. An argument may arise that if before and after introduction of Explanation 3, the nature of jurisdiction exercised by the AO  was not to undergo any change, would Explanation 3 not be rendered redundant. Would such a situation not run counter to a well known legal principle that the Legislature cannot be seen to have enacted a redundant legislation and that every effort should be made to give such interpretation which ensures that a provision in a statute is not rendering otiose. Such question may have led to some interesting discussion. However, the entire issue has been put beyond any pale of controversy by virtue of the explanatory memorandum for introducing such explanation.
 
“The explanation was meant to be clarificatory in nature and to put the issue beyond any legal controversy. When the Legislature found that in face of the provisions contained in Section 147 of the Act post 01.04.1989 some of the courts had taken a view that the AO  is restricted to the reassessment proceedings only on issues in respect of which the reasons were recorded for reopening the assessment, such explanation was introduced in the statute. Thus, the explanation was meant to be merely clarificatory in nature and was introduced with the purpose of putting at rest the legal controversy regarding the true interpretation of Section 147 of the Act which had arisen on account of certain judicial pronouncements. We have noticed that prior to enactment of Explanation 3 to Section 147, in case of Commissioner of Income Tax v. Atlas Cycle Industries had taken a restricted view of the power of the AO  to make any addition on the grounds not mentioned in the reasons recorded for reopening the assessment. We may also notice that in case of Travencore Cements Ltd. v. Assistant Commissioner of Income-Tax and anr had taken somewhat similar stand.
 
Explanation 3 to Section 147 of the Act thus does not in any manner, even purport to expand the powers of the AO under Section 147 of the Act. In any case, an explanation cannot expand the scope and sweep of the main body of the statutory provision. In case reported in AIR 1985 SC 582 the Supreme Court observed that, an explanation added to a statutory provision is not a substantive provision but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision.
 
Held, except in the case of Majinder Singh Kang vs CIT, all courts have uniformly taken a view that Explanation 3 to Section 147 of the Act does not change the situation insofar as the present controversy is concerned. Leading decision of in case of CIT. v. Jet Airways (I) Ltd. has been followed by different High Courts. In case of CIT. v. Jet Airways (I) Ltd., the High Court, in its elaborate decision considering the statutory provisions, different judicial pronouncements and the explanatory memorandum for introduction of Explanation 3 to Section 147 of the Act ruled in favour of the assessee.

In case of Majinder Singh Kang v. Commissioner of Income-Tax and anr of course has sounded a different note. We may, however, notice that the explanatory memorandum to Explanation 3 to Section 147 of the Act was not brought to the notice of the High Court in the said decision. The High Court gave considerable importance on such Explanation 3 to Section 147 of the Act and the language used therein.

No comments:

Post a Comment