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.
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