J.J. Development Pvt. Ltd., Kolkata vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA [Before Shri P. K. Bansal, AM & Shri Mahavir Singh, JM]

I.T.A No.74/Kol/2012 Assessment Year: 2007-08 Income-tax Officer, Wd-12(3), Kolkata Vs. M/s. J. J. Development Pvt. Ltd. (PAN: AAACJ8800C) (Appellant) (Respondent) & C.O. No.142/Kol/2012 In I.T.A No.74/Kol/2012 Assessment Year: 2007-08 M/s. J. J. Development Pvt. Ltd. Vs. Income-tax Officer, Wd-12(3), Kol. (Cross Objector) (Respondent)

Date of hearing: 20.05.2015 Date of pronouncement: 22.05.2015

For the Revenue: ShriSanjay, Addl. CIT, Sr. DR For the Assessee/Cross Objector: Shri S. M. Surana, Advocate

ORDER

Per Shri Mahavir Singh, JM:

This appeal by revenue and Cross Objection by assessee are arising out of order of CIT(A)-XII, Kolkata in Appeal No. 264/XII/12(3)/10-11 dated 31.10.2011. Assessment was framed by ITO, Ward-12(3), Kolkata u/s. 143(3)/147 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2007-08 vide his order dated 29.12.2010.

2. At the outset, Ld. Counsel for the assessee stated that the assessee's Cross Objection is time barred by 288 days and Condonation petition is not filed. Ld. Counsel for the assessee stated that he has no objection if the C.O. of the assessee is dismissed for the reason that the issue in the CO raised by assessee is in respect to legality of reassessment proceedings, which was challenged before the CIT(A) and CIT(A) adjudicated the issue against assessee. The facts relating to this issue is already available in the orders of the lower authorities and no new facts need to be investigated/considered. According to Ld. Counsel, assessee is entitled to raise this 2 ITA No.74/K/2012 & C.O. No. 142/K/2012 J. J. Development Pvt. Ltd. AY 2007-08

issue under rule 27 of the Appellate Tribunal Rules, 1963 (hereinafter referred to as the 'Rules'). He referred to relevant Rule 27, which reads as under:

"27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him."

On the other hand, the Ld. Sr. DR has not objected to challenge the issue of reassessment by invoking rule 27 of the Rules.

3. We find from the orders of AO as well as CIT(A) that validity of reassessment proceedings u/s. 147 read with section 148 of the Act was challenged and CIT(A) has adjudicated the issue against the assessee. In term of the above, we admit this issue raised by assessee under Rule 27 of the Rules and adjudicate the same. The assessee has raised following ground in its application under Rule 27 :

"That on the facts and under the circumstances and in law proceedings u/s. 147 of the I. T. Act, 1961 initiated by notice u/s. 148 dt. 23.09.09 are bad and assessment made in consequence thereof is liable to be held as a nullity, ab-initio void and/or otherwise and be cancelled."

4. Briefly stated facts are that the assessee is a private limited company engaged in the business of property development and sale of flats in the developed complexes. It filed its return of income electronically on 24.10.2007, which was processed u/s. 143(1) of the Act. Subsequently, assessee received a notice u/s. 148 of the Act dated 23.09.2009 on 07.10.2009. In response to notice u/s. 148 of the Act, assessee filed return of income along with audited account on 13.07.2010. We find from the assessee's paper book at page 37 that reasons recorded for issuance of notice u/s. 147 read with section 148 of the Act are enclosed. The typed copy of the reasons recorded is at page 44 of assessee's paper book and the reasons recorded on 23.09.2009 read as under:

"23.09.2009 In this case an information received from the A.O. Ward-1(1)/Kol on 17.09.2009 that the assessee Co. had sold a flat at Rajwadi on 2nd June, 2006 for a consideration of Rs.26,84,940/- to one Sri Manish Jhunjhunwala vide an agreement dt. 02.06.2006, residing at 19, Dover Place, Kolkata-700 019.

Since from the details filed along with the return filed, no such specific particulars are noticed, it appears the above income has escaped assessment."

Ld. Counsel for the assessee drew our attention to the above reasons and account statement at page 5 which is P&L Account, wherein sale of flats recorded at 3 ITA No.74/K/2012 & C.O. No. 142/K/2012 J. J. Development Pvt. Ltd. AY 2007-08

Rs.3,07,48,597/- is disclosed. According to Ld. Counsel, this sale consideration of flat is also included in the total sales and no separate details of each and every transaction are given in the return of income. Ld. Counsel for the assessee stated, first of all, that the reasons recorded by the AO for issuance of notice u/s. 148 of the Act has no live nexus with the income escaped assessment. For this, he stated that no addition qua the income escaped assessment as reasons recorded for issuance of notice u/s. 147 read with section 148 of the Act has been included in the assessed income while completing assessment u/s. 147 read with section 143(3) of the Act. On query from the Bench, Ld. Sr. DR Shri Sanjay perused the assessment order framed u/s. 143(3) read with section 147 of the Act dated 29.12.2010 and stated that in respect to reasons recorded for excess sale consideration of Rs.26,84,942/-, of one Shri Manish Jhunjhunwala vide agreement dated 02.06.2006, which formed basis for issuance of notice u/s. 148 of the Act has not been included in the total income as assessed by the AO. In view of the above facts, now the issue arises before us for consideration is as under:

"Whether it is open for the AO to assessee or reassess independently any other income which does not form subject matter of reassessment notice u/s. 147 read with section 148 of the Act, wherein the AO does not assess or reassess the income, which he has reasons to believe had escaped assessment, which formed the basis of notice u/s. 148 of the Act."

5. In the light of the above question and facts and circumstances of the case, we find that this issue now stands covered by the decision of Hon'ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) wherein Hon'ble Bombay High Court has considered the issue in great detail and after discussing the meaning and expression of 'also' observed as under:

"The Shorter Oxford Dictionary defines the expression "also" to mean further, in addition besides, too. The word has been treated as being relative and conjunctive. Evidently therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) such income; and also (ii) 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. The words "such income" refer to the income chargeable to tax which has escaped assessment, and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently 4 ITA No.74/K/2012 & C.O. No. 142/K/2012 J. J. Development Pvt. Ltd. AY 2007-08

during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis 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 only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess to reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceeding. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.

And the Hon'ble High Court adjudicated the issue as under:

"Parliament, when, it enacted Explanation 3 to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd. [2008) 305 ITR 170 and of the Punjab and Haryana High Court in Vipan Khanna [2002] 255 ITR 220 would, therefore, no longer hold the field. However, in so far as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh [2008) 306 ITR 343, Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab and Haryana High Court in CIT v. Atlas Cycle Industries [1989] 180 ITR 319. The decision in Atlas"

Cycle Industries [1989] 180 ITR 319 held that the Assessing Officer did not have jurisdiction to proceed with the reassessment once he found that the two grounds mentioned in the notice under section 148 were incorrect or nonexistent. The decisions of the Punjab and Haryana High Court in Atlas Cycle Industries [1989] 180 ITR 319 and of the Rajasthan High Court in Shri Ram Singh [2008] 306 ITR 343 would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.

Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a 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 sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the 5 ITA No.74/K/2012 & C.O. No. 142/K/2012 J. J. Development Pvt. Ltd. AY 2007-08

substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.

We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147 and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income" and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh [2008] 306 ITR

343. Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147 as they stood after the amendment of April I, 1989, continue to hold the field.

In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall accordingly stand answered against the Revenue and in favour of the assessee. The appeal is accordingly dismissed. There shall be no order as to costs."

6. Similarly, Hon'ble Rajasthan High Court in the case of CIT Vs. Shri Ram Singh (2008) 306 ITR 343 (Raj) has considered the words used by Parliament in section 147 of the Act particularly the words that the AO may assesses or reassesses such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently during the assessment proceedings u/s. 147 of the Act. The Hon'ble Rajasthan High Court held as follows:

"It is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has 6 ITA No.74/K/2012 & C.O. No. 142/K/2012 J. J. Development Pvt. Ltd. AY 2007-08

escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147.

To clarify if further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."

7. In view of the above position and the facts of the present case that the allegedly escaped income, as is the subject matter of reasons for notice u/s. 148 read with section 147 of the Act, i.e. the assessee has not included the sale consideration of Rs.26,84,940/- to one Shri Manish Jhunjhunwala vide agreement dated 02.06.2006, is never the subject matter of addition by the AO and once this is not the subject matter of addition, the reassessment proceedings initiated by issuing of notice u/s. 148 of the Act cannot survive because the very base for issuance of notice u/s. 148 of the Act goes. In view of the above decision of Hon'ble Bombay High Court and Rajasthan High Court, no contrary decision was pointed out by ld. Sr. DR, we respectfully following the decisions quash reassessment proceedings. The issue raised by assessee under Rule 27 of the Rules is allowed and initiation of reassessment proceeding is quashed.

8. Since we have quashed the reassessment proceedings, the Cross Objections of the assessee as well as the appeal of revenue need no adjudication even on merits.

9. In the result, both the appeal of revenue as well as Cross Objection of assessee is dismissed.

10. Order is pronounced in the open court on 22.05.2015 Sd/- Sd/-

(P. K. Bansal) (Mahavir Singh) Accountant Member Judicial Member Dated :22nd May, 2015

Jd.(Sr.P.S.) 7 ITA No.74/K/2012 & C.O. No. 142/K/2012 J. J. Development Pvt. Ltd. AY 2007-08

Copy of the order forwarded to:

1. APPELLANT - ITO, Ward-12(3), Kolkata.

2 Respondent - M/s. J. J. Development Pvt. Ltd., 43/3, Hazra Road, Kolkata-700 019 3. The CIT(A), Kolkata 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata

/True Copy, By order,

Asstt. Registrar.