Reassessment Quashed – No Addition on Original Reason for Reopening

ACIT Vs Somani Services Private Limited (ITAT Kolkata)

The ITAT Kolkata dismissed the Revenue’s appeal and upheld the CIT(A)’s order quashing reassessment proceedings where the AO failed to make any addition on the issue for which the case was originally reopened. The reassessment was initiated alleging receipt of ₹2.50 crore from Eastern Navigation & Logistics Pvt. Ltd., but in the final order no addition was made on that issue; instead, additions u/s 68 were made for transactions with other parties. Following judicial precedents such as Jet Airways and Ranbaxy Laboratories, the Tribunal held that if the income forming the basis of “reason to believe” is not assessed, the AO cannot independently make additions on other issues without fresh notice u/s 148. Accordingly, the reassessment was held invalid and Revenue’s appeal was dismissed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)-20, Kolkata [hereinafter referred to as Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2013-14 dated 30.08.2024.

1.1 The Registry has mentioned that the appeal is barred by limitation by 39 days for which the Revenue has filed a petition along with an affidavit for condonation of delay of 42 days in filing the appeal before the Hon’ble ITAT explaining the reasons that the appeal order was received on 30.08.2024 and on 25.09.2024 the Appeal Scrutiny Report of this group and others including the present case was submitted. It was also submitted that the Assessing Officer as well as the PCIT were engaged in section 148 related time barring matters introduced by the Union Budget Finance (No.2) Bill, 2024 and also due to the annual general transfer, the appeal could not be filed in time and it has been requested to condone the delay. After perusing the same, we are satisfied that the Revenue had a reasonable and sufficient cause and was prevented from filing the instant appeal within the statutory time limit. We, therefore, condone the delay and admit the appeal for adjudication.

2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal:

“1. Whether the Ld. CIT(A) was justified in commenting in page no. 13 of the Appellate Order that, “further find from the assessment order that, no addition has been made on account of alleged receipt of Rs. 2,50,00,000/-from M/s Eastern Navigation and Logistics Pvt. Ltd. in the re-assessment order”, while the addition was made to the tune of the same amount mentioning the layer 2 source, i.e. M/s Blue Shine Creation Pvt. Ltd. from whom, directly, fund was received by the instant assessee; instead of mentioning the Layer I source M/s Eastern Navigation & Logistics Pvt. Ltd.

2. Whether the Ld. CIT(A) could have reasonably decided the appeal in favour of the assessee, while, there was neither factual nor quantificational deviation from the information in entirety, as was received by the Assessing Officer on insight portal, and the addition was concluded in the assessment, whereas, the only lacuna was lying in the fact that in the assessment order, the layer 2 sources of fund transfer were mentioned, instead of the sources in layer 1, which ultimately casted no shadow on the revenue effect as well as factual validity of addition.

3. Whether the Ld. CIT(A) was justified in deciding the issue, relying upon only the several catena of judgements, whereas vide Explanation 3 & 4 to provision u/s 147 of the Act the AO has the jurisdiction to assess any income escaped assessment, which comes to his/her notice during the course of assessment proceedings; irrespective of whatever be the reason recorded for issuance of notice u/s 148 of the Act.

4. Whether in the facts and circumstances of the case Ld. CIT(A) is judiciously correct in quashing the assessment on technical ground by placing his reliance upon the judicial decision in the case of Commissioner of Income Tax (Exemption), Kolkata vs. B.P. Poddar foundation for Education, wherein it was commented that, when no addition was made on the issue for which the assessment was reopened no addition can be made on any other issue, while there are contradictory views of the Hon’ble Karnataka High court in the case of N Govinda Raju vs. Income Tax wherein on the same issue, appeal of the assessee has been dismissed and also of the Hon’ble Punjab-Haryana High Court in the case of Manjinder Singh Kang vs. Commissioner of Income-Tax, Amritsar wherein on the same issue appeal of the assessee has been dismissed.

5. That the revenue reserves its rights to substantiate, modify, delete supplement and/or alter any or all grounds of appeal at any the time of appeal proceedings.”

3. Brief facts of the case are that the assessee had filed its return of income showing ‘NIL’ income. Subsequently, a notice u/s 148 of the Act was issued, in response to which the assessee filed the revised return of income. The Assessing Officer (hereinafter referred to as ‘the Ld. AO’) found that the assessee company had received a sum of ₹2,50,00,000/-from M/s. Blue Shine Creation Pvt. Ltd. and ₹1,70,00,000/- from M/s. Om Infrareality Pvt. Ltd., both allegedly bogus companies, during the year under consideration. The Ld. AO also noted that during the year under consideration, a sum of ₹3,45,00,000/- was credited to the bank account of the assessee company from the bank account of M/s. Om Infrareality Pvt. Ltd. and he added a sum of ₹5,95,00,000/- to the total income of the assessee and assessed the total income u/s 147 of the Act at ₹5,95,94,850/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who allowed the appeal of the assessee by holding as under:

“4.1 I have carefully considered the relevant assessment order, findings of the A.O. and the submissions of the appellant. Before deciding on other grounds. I deem it fit to deal with ground no. 3 of the assessee in which the assessee has disputed the assessment on the ground that the assessment was reopened for alleged escapement of income on account of transaction by receipt of Rs. 2,50,00,000/- from Eastern Navigation and Logistics Pvt. Ltd. The AO concluded that an income of Rs. 2,50,00,000/- chargeable to tax has escaped assessment which required examination. The reasons recorded were as under:-

“Somani Services Pvt Ltd (hereinafter the assessee”) filed its return of income for the assessment year 2013-14 electronically on 05.10.2013 declaring income of Rs. NIL.

Credible information was received from insight portal that the assessee has been involved in suspicious transaction by receipt of Rs. 2,50,00,000/- from Eastern Navigation and Logistics Pvt. Ltd. whose credential is doubtful.

In view of the above, the assessment for the assessment year 2013­14 in the case of the assessee is required to be reopened by service of notice u/s 148 of the Act. Considering the above facts, I have reason to believe that income of Rs. 2,50,00,000/- chargeable to tax has escaped assessment within the meaning of section 147 of the Act.”

I further find from the assessment order that no addition has been made on account of the alleged receipt of Rs. 2,50,00,000/- from M/s Eastern Navigation and Logistics Pvt. Ltd. in the reassessment order. There is no whisper in the assessment order that the assessee received Rs. 2,50,00,000/- from M/s Eastern Navigation and Logistics Pvt. Ltd. which was escaped assessment nor any such amount has been added back. On the other hand the A.O. has added back some other transactions with two companies namely; M/s Blue Shine Creation Pvt. Ltd. and M/s Om Infrareality Pvt. Ltd. for a sum of Rs. 2,50,00,000/- and Rs. 3,45,00,000/-u/s 68 of the Income Tax Act as unexplained and escaped income. It has been held by various Courts and Tribunals that when no addition was made on the issue for which assessment was reopened, no other addition can be made. The assessee has also referred to the judgement of the jurisdictional High court dated 13.09.2022 in ITAT/143/2021 (IA NO: GA/02/2021) in the case of Commissioner of Income Tax (Exemption), Kolkata vs. B.P. Poddar Foundation for Education wherein after elaborate discussion on all the judgments for and against, the Ld. court has followed the judgements and has quashed the assessment on the ground that when no addition was made on the issue for which the assessment was reopened no addition can be made on any other issue. Needless to state that the judgment of jurisdictional High court is binding on the authorities working under the jurisdiction of the Ld. Court. Hence, the assessment is liable to be quashed on this issue alone.

Furthermore, the appellant in order to strengthen its argument, has quoted the Judgement given in following cases as well:

Ranbaxy Laboratories Limited vs CIT [2011] ITA No. 148/2008 (Del): “The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-I which as per our discussion was not permissible.”

CIT vs Jet Airways (I) Limited [2010] 195 Taxmann 117 (Bom): ” 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 Act (No.2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the 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 assessee 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 ta 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.”

In view of the above the appeal is decided in favour of the assessee and the assessment is quashed.

Since, I have decided the appeal on the aforesaid technical issue in favour of the assessee; I am not inclined to decide on other issues which are kept open.

5. The appeal is allowed.”

4. Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal.

5. Rival contentions were heard and the submissions made have been examined. The Ld. DR relied upon the order of the Ld. AO and requested that the same may be upheld. During the course of the appeal before the Tribunal, the assessee filed written submissions, which are extracted as under:

“14 The transaction relating to sale of investments was duly recorded in the books of account and reflected and credited in disclosed bank account. Copy of Audited Balance Sheet & Bank Statement attached)

15. The Ld. Assessing Officer has reopened the proceedings and the reasons cited was credible information was received from Insight Portal that the assessee has been involved in fictitious transactions by receipt of 2.5 Crs from EASTERN NAVIGATION AND LOGISTICS PRIVATE LIMITED, whose credential is doubtful.” Copy of reasons for reopening attached.

16. It is submitted that as per provision of section 148 of the Income Tax Act the Ld. Assessing Officer who having added a sum of Rs. 2.5 crores received from disclosed Sale of investments from EASTERN NAVIGATION & LOGISTICS PRIVATE LIMITED while completing the assessment, may make other additions also.

17. But the Id. Assessing Officer has not made any addition on this account as per body of the order. There is no additions for “foundational reason for reopening” as per copy of reasons for reopening attached.

18. Rather during the course of assessment proceedings the Ld. Assessing Officer issued notice u/s 142(1) on 15.2.2022 (copy of notice attached) and asked to explain some other transactions from two other companies namely, Blue Shine Creation Private Limited for a sum of Rs. 2.5 crs and Om Infra Realty Private Limited Rs.1.70 crs respectively.

19. These are not the reason recorded for reopening but the Ld. Assessing Officer has gone to make addition to the returned income not on foundational reason of reopening but he has added items which are not reasons for reopening i.e. amount received from Blue Shine Creation Private Limited 2.5 crs and Om Infra Realty Private Limited for Rs.3.45 crs. Though in the notice u/s 142(1) he has asked all details of Rs.1.70 cr received from Om Infra Reality Pvt. Ltd.

20. The investments sold were duly assessed for assessment year 2012-13 and these were sold in assessment year 2013-14 and duly recorded in the regular books of accounts, disclosed bank account and Audited Balance Sheet.

21. The companies from whom the amount of sale of investment was received are corporate entity, having PAN, who are in regular in filing the income tax return and ROC returns.

22. The Ld. Assessing Officer had no doubt shout genuineness of the transactions, creditworthiness of the company or their capacity to pay as per the body of the order. He had only made suspicious and doubtful allegation and on the basis of which without proper application of mind he has gone to make addition for reasons other than the foundation reason.

23. The reassessment 148/147 highlights that it was completed only on the basis of suspicious, surmises, conjectures, presumptions, assumptions as per Pt. 22 of our submission which is not allowed in reassessment proceedings u/s 147 and considering the same Ld. C.I.T.(A.) had deleted the additions made by Ld. AO in the Order u/s 147.

Reliance is placed in the case law of: –

• • Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures.
  • CIT (Central), Kolkata v/s. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon’ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstances unerringly and reasonably raising an interference to that effect.
  • Umar Charan Shah and Bros. vs CIT 37 ITR 271 SC “in this case it was held that suspicion howsoever strong cannot take the place of evidence.

24. Earlier paper book and submissions were made before the Ld. Commissioner of Income Tax (Appeals)-20, Kolkata which is already submitted before your honour and the Ld. Commissioner of Income Tax (Appeals) following the decision of

• • Ranbaxy Laboratories Limited vs CIT [2011] ITA No. 148/2008 (Del)
  • CIT vs Jet Airways (1) Limited [2010] 195 Taxmann 117 (Bom)

concluded that the Ld. Assessing Officer has not made addition of Rs. 2.5 crores received from Eastern Navigation & Logistics Private Limited which was the foundational reason for re-opening but has gone on to make addition on some other grounds and hence the reopening proceedings by issue of notice u/s 148 of the Act and the order passed u/s 147/143(3) was rightfully quashed by the Ld. Commissioner of Income Tax (Appeals)-20, Kolkata.

25. Hence it clearly shows the reassessment was in violation to sec. 142(3) of the Income Tax Act as the addition was made for the reason which was not provided during the course of hearing.

26. Ld. AO had also failed to issue show cause and thereby not granted final opportunity to rebut why Rs.5.95 cr. could not be added to the income of the AY-2013-14, so it is a violation to principal of equity and natural justice.

Reliance is placed in the case

• • Andaman Timber industries Vs. CCE (2018) 62 com 3 (SC): According to us not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.
  • Commissioner of Income Tax (1) Vs. M/s Chain House International (P) Ltd. (SC) Special Leave Petition (Civil Diary No(s). 1992/2019)
  • CIT V/s. Rajesh Kumar, 306 ITR 27 (Delhi) wherein, it has been held that no addition could be made on the basis of statements recorded behind back of the assessee, without providing any opportunity for cross-examination.
  • Nisihit Agarwal Beneficiary Trust Vs. ACIT CC-3(1) Kolkata ITA No. 983/kol/2018, “firstly the principles of natural justice have been violated while carrying out the assessment proceedings in the case of the assessee(s) since no opportunity for cross-examination was provided for those persons whose statements have been relied upon by the assessing officer for making the alleged additions”.

27. Entire addition of Rs.5.95 cr. was u/s. 68 of the Income Tax Act as unexplained cash credit, but Ld. AO failed to notice that entire transaction was duly accounted and recorded in books of accounts and assessed u/s 143(3) by himself which was duly mentioned in our replies during reassessment proceedings.

28. AO had forgotten that he himself in the scrutiny assessment u/s 143(3) had considered the same transaction of Rs.5.95 cr. to be genuine.

29. The additions made under section 68 of the Income Tax Act which is not applicable in the case of the appellant/assessee as he has received the money 30. by selling some investments to the persons paying the money, should be deleted.

30.One asset is created “BANK BALANCE” and one asset is extinguished “SALE OF INVESTMENTS”.

31. All the transactions of sale of shares were done through account payee cheques and receipt of sale of shares were in disclosed bank accounts and recorded in regular books of accounts. Hence the transaction of sale of shares is fully disclosed and genuine and provision of Section 68 does not apply.

Reliance is placed in the following case laws :-

• • Shree Sanand Textiles Industries Ltd. Vs DCIT (ITAT Ahmedabad): “The ITAT Ahmedabad has harped upon the mechanical practices adopted by the Assessing Officers to make addition u/s 68. The main point is that a sale which already forms part of books of account cannot be added again u/s 68 due to the reasons that: Sales are already recorded addition of the same amounts to double taxation. 1. A prejudiced view on sale cannot be drawn when purchases are accepted without any reservation.”
  • Bhagwant Merchants Private Limited Vs ITO (ITAT Kolkata): “ITAT states that the assessee has disclosed the sale of shares in its books of account. Once the sale is declared as income by the assessee, the question of treating the same amount as a cash credit u/s 68 of the Act results in double addition. Thus, the addition is also bad on merits. Hence, the appeal of the assessee is allowed.”

32. Relying on the above submissions we would request that appeal of department may be dismissed.

33. The assessee company fully relies on the order of the Ld. CIT.(A) and request your honour to kindly dismiss the appeal of the department.

Thanking You.

Yours Faithfully

For Somani Services Pvt. Ltd.”

6. It was argued by the Ld. AR that no addition was made for the reason on which the assessment was reopened and the assessee relied upon the decision of Hon’ble Bombay High Court in the case of Commissioner of Income-tax-5, Mumbai vs. Jet Airways (I) Ltd. [2010] 195 Taxman 117 (Bombay)/[2011] 331 ITR 236 (Bombay)/[2011] 239 CTR 183 (Bombay)[12-04-2010] wherein it has been held as under:

“The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation of a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147, has to serve a notice on the assessee requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to assess or to reassess such income ‘and also’ any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147. [Para 5]

The effect of the Explanation 3 which was inserted by the Finance (No. 2) Act, 2009 is that, even though the notice issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, yet the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. The reasons for the insertion of the Explanation 3 are to be found in the memorandum explaining the provisions of the Finance (No. 2) Bill, 2009. [Para 6]

The memorandum states that some of the Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by the Parliament as being contrary to the legislative intent. Hence, the Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147, though the reasons for such issue have not been included in the reasons recorded in the notice under section 148(2). [Para 8]

The effect of section 147, as it now stands after the amendment of 2009, can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve a notice on the assessee under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also 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; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, yet he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. [Para 9]

Interpreting the provision as it stands without adding or deducting from the words used by the Parliament, it is clear that upon formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words ‘and also’ cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by the Parliament otiose. The Parliament having used the words “assess or reassess such income and also any other income chargeable to tax which has escaped assessment”, the words ‘and also’ cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard these words as being conjunctive and cumulative. It is of some significance that the Parliament has not used the word ‘or’. The Legislature did not rest content by merely using the word ‘and’. The words ‘and’ as well as ‘also’ have been used together and in conjunction. Evidently, therefore, what the 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 used by the 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 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. The Parliament, when it enacted the provisions of section 147 with effect from 1-4-1989, clearly stipulated that the Assessing Officer has to assess or 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 proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter. [Para 11]

The Explanation 3 to section 147 lifts the embargo inserted by judicial interpretation on the making of an assessment or 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 the Explanation 3 by the Finance (No. 2) Act, 2009. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the 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 to render the substance and core nugatory. Section 147 has the 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 accepts the contention of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and 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. [Para 16]

Section 147(1), 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 the Parliament. This view has been supported by the background which led to the insertion of the Explanation 3 to section 147. The Parliament must be regarded as being aware of the interpretation placed on the words ‘and also’, by the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. The Parliament has not taken away the basis of that decision. While it is open to the Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1), as they stood after the amendment of 1-4-1989, continue to hold the field. [Para 17]

The question of law would, accordingly, stand answered against the revenue and in favour of the assessee. The appeal was, accordingly, to be dismissed.

[Para 18].” {emphasis supplied}

6. This case has also been referred to in the case of Ranbaxy Laboratories Ltd. vs. Commissioner of Income-tax [2011] 12 taxmann.com 74 (Delhi)/[2011] 200 Taxman 242 (Delhi)/[2011] 336 ITR 136 (Delhi), wherein it has been held as under:

“The crux of section 147 is the escapement of income which may be assessed or reassessed as well as any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Explanation 3 makes it clear that the Assessing Officer may assess or reassess the income in respect of issue which has escaped assessment, if such issue comes to his notice in the course of proceedings under this section even though said issue did not find mention in the reasons recorded and the notice issued under section 148. Since there was confusion prevailing with regard to the powers of the Assessing Officer to assess or reassess on the issues for which no reasons were recorded, this Explanation came to be inserted as clarificatory. [Para 8]

After the insertion of Explanation 3, the position is that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice, subsequently, in the course of proceedings under section 147, though the reasons for such issue were not included in the reasons recorded in the notice under section 148(2) on the basis of which he had initiated proceedings under section 147. [Para 11]

The heading of section 147 is “income escaping assessment” and that of section 148 is “issue of notice where income escaped assessment”. Section 148 is supplementary and complimentary to section 147. Sub-section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub­section (1) thereof mandates service of notice to the assessee before the

Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby would include different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. [Para 18]

In the instant case, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He, consequently, while not making additions on those items of club fees, gifts and presents, etc., reduced deductions under sections 80HH and 80-I. [Para 19]

The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which was not permissible. Had the Assessing Officer proceeded to make disallowance in respect of the items of club fees, gifts and presents, etc., then he would have been justified as per Explanation 3 to section 147 to reduce the claim of deduction under sections 80HH and 80-I as well. [Para 20]

In view of above discussion, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. [Para 21]”

7. Since the reasons for reopening stated that a sum of ₹2,50,00,000/- was received from Eastern Navigation and Logistics Pvt. Ltd., whose credentials were doubtful and this income had escaped assessment and no addition was made on this account in the assessment order, but the sums received from M/s Blue Shine Creation Pvt. Ltd. and M/s Om Infra Reality Pvt. Ltd. were added, the amounts from which were mentioned at ₹2,50,00,000/- and ₹1,70,00,000 respectively in the show cause notice issued while the final addition was made in respect of these 2 entities at ₹2,50,00,000 and ₹3,45,00,000/-respectively; hence in view of the decision in the case of Jet Airways (supra) and Ranbaxy Laboratories Ltd. (supra) and the decision of the Hon’ble Calcutta High Court in the case of CIT(Exemption) Vs. B.P. Poddar Foundation for Education ITAT No. 143 of 2021 (IA No: GA/02/2021) order dated 13.09.2022 relied upon by the Ld. CIT(A) as well, we have no hesitation in confirming the findings of the Ld. CIT(A) whose order is confirmed and the appeal of the revenue is dismissed as no addition was made for the reason on which the assessment was reopened and therefore, the additions in respect of the other 2 entities could not have been made. Hence, all the grounds of appeal are dismissed.

8. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open Court on 4th February, 2026.