In this article it is tried to explain that proceedings under section 147 are not identical to proceedings under section 143(2).
Due to use of word AND in main limb of section 147 and also in explanation 3 (highlighted) in a number of cases addition made on secondary issue which came on the file of Assessing Officer where Primary additions were either not made or deleted by Appellate Authorities was also deleted. One such case is explained in following case law :
INS Finance & Investment P. Ltd IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C” NEW DELHI I.T.A. No.9266/DEL/2019 Assessment Year 2010-11 Date of pronouncement: 26 10 2020
Important Part is reproduced below :
30. In the present case, the reasons were recorded only with respect to issue of share of capital of Rs. 2.50 crores from M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) and same having been deleted by us, the remaining addition of Rs. 5,12,40,000/- has no legs to stands and is hereby ordered to be deleted.
31. However, for sake of completeness and keeping in mind the gravity of issue, we feel appropriate to decide the legality of additions made over and above the reasons recorded in the light of scope of proceedings u/s 147 of the Act. As mentioned earlier, the provisions of section 147 are potent and its application is restricted to deserving cases having satisfied the defined criteria i.e. existence tangible material evidencing escapement of income and application of mind. Further, the act has inbuilt checks and balances to ensure proper exercise of power u/s 147 which included prior approval of superior authority.
32. It is the argument of the Ld. AR appearing for the appellant assessee that once the assessing officer records reason and obtains approval for issue of notice u/s 148, the scope of proceedings u/s 147 gets laid down and it is not open to assessing officer to make roving and fishing enquiry and arbitrarily enhance the scope of reassessment proceedings as per whims and fancies. It was further contended that Explanation 3 to section 147 does not provide unfettered power to assessing officer to go beyond the reasons and same has to be read in conjunction with principle provision of section 147, 148 and 151. The upshot of argument of Ld. AR is that for making any further enquiry or addition, the following conditions must be satisfied: i. There must be some tangible material coming to the notice of assessing officer during the course of assessment which shows escapement of income in respect of some other item (other than one referred in the reasons). ii. The assessing officer must record reasons for including such other item in the scope of ongoing reassessment proceedings u/s 147 iii. Fresh approval must be obtained u/s 151 and notice u/s 148 must also be issued.
33. In support of above proposition, the ld. AR has relied upon the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. v. CIT 336 ITR 136 (Del) and coordinate bench in the case of Sh. Devki Nandan Bindal v. ITO (ITA No. 4271/D/19 dated 18/12/2019).
34. We have given careful thought to the argument of the Ld. Counsel and find ourselves in agreement with same. The intention of legislature behind enacting provisions of section 147 is not to create a parallel assessment proceeding akin to regular assessment framed u/s 143(3) of the Act. The purpose of section 147 is to catch in the tax net income escaping assessment based on tangible material. The requirement of tangible material and approval u/s 151 is to keep check on arbitrary exercise of power u/s 147 which necessarily means that assessing officer cannot convert reassessment proceedings into regular scrutiny proceedings at his/her sweet will. It goes without saying that Explanation cannot defeat the intention and purpose of a section and as such the application of Explanation 3 will have to be in accordance with checks and balances which are applicable at the time of issuance of notice u/s 148.
35. In the present case, in respect of share capital of Rs. 5,12,40,000/- received from 18 parties, the assessing officer initiated fresh enquiry during the course of reassessment proceedings on the basis of books of account of the appellant. There is no dispute that very same material was in existence when assessing officer recorded reasons and it is neither the case of the assessing officer that there was any failure or omission on part of the appellant in disclosing any information nor any case of fresh information coming to the notice of the assessing officer. The original action u/s 148 was on the basis of some information which was has already been affirmed by us. However, in respect of other items, the assessing officer himself made random enquiry which is absolute misuse of power in the context of scope of section 147 as well as settled legal principle.
36. It is further noted that there is no iota of material or information with regard to share capital of Rs. 5,12,40,000/- received from 18 parties. In fact the assessing officer gathered the information after calling for bank statement from the bank as evident from para 10 of the assessment order. It is classic case of roving enquiry where the assessing officer is exceeding its jurisdiction in total disregard to scheme and intent of section 147 of the act. Such action of the assessing officer not only renders the purpose of approval u/s 151 otiose but also strikes at the root of section 147 of the Act. Accordingly, we are of the view that assessing officer was not justified in expanding the scope of reassessment proceedings u/s 147 without following the due course and as such the addition of Rs. 5,12,40,000/- is in the teeth of provisions of section 147 of the Act and liable to deleted. As a result, Ground No. 3 and 5 are allowed.
Section 147 does not give parallel powers to Assessing Officer which are there in proceedings under section 143(2). In Proceedings under section 147 the Assessing Officer is not allowed to make roving enquiries. In proceedings under section 143(2) the Assessing Officer enjoys vast powers which are curtailed in proceedings under section 147. If legislature had inserted word OR instead of AND in Section 147 and also in Explanation 3, then that would have given a right to Assessing Officer to reopen any case on any issue and make addition on any other issue detected during the proceedings. Section 147/148 Proceedings would have become parallel to proceedings under section 143(2). Therefore the legislature has in its wisdom used the word AND in Section 147 and also in Explanation 3.
Both the sections are reproduced below :
143(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:
Provided that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.
Income escaping assessment.
147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148to 153, assess or 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 this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but—
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
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.
Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.
I hope the article shall be useful to readers.