Additions made on grounds other than reasons to believe recorded u/s 148-matter referred to Full Bench

Additions made on grounds other than reasons to believe recorded u/s 148-SC dismisses SLP of the assessee. Due to difference between Courts, High Court referred issue for Full Bench

In the instant appeal, the assessee had challeneged legality of re-assessment proceedings on three counts. First, non furnishing of copy of “reasons to believe” , second, absence of “tangible material” and thirdly, additions made on grounds other than what constituted “reasons to believe” under Sections 147/148 of the Income Tax Act, 1961 (the Act)

ABCAUS Case Law Citation
ABCAUS 2351 ( 2018) 05 HC

Important Case Laws Cited/relied upon by the parties:
Tupperware India vs. Commissioner of Income Tax, 284 CTC 68 Delhi
Bayer Materials Science Pvt. Ltd. vs. Deputy Commissioner of Income Tax, (2016) 382 ITR 333
GKN Driveshafts (India) Ltd. vs. Commissioner of Income Tax, (2003) 259 ITR 19
Indu Lata Rangwala vs. Deputy Commissioner of Income Tax, (2016) 384 ITR 337
Commissioner of Income Tax vs. Zuari Estate Development and Investment Co. Ltd., (2015) 373 ITR 661 (SC)
Commissioner of Income-Tax vs. Jet Airways (I) Ltd., (2011) 331 ITR 236
Ranbaxy Laboratories Limited vs. Commissioner of Income Tax, (2011) 336 ITR 136 DLI
Commissioner of Income Tax (Exemption) vs. Monarch Educational Society, (2016) 387 ITR 416 (Delhi)
Govind Raju vs. Income Tax Officer, Ward-8(2), Bangalore, (2015) 377 ITR 243

Non furnishing of reasons to believe

The Hon’ble High Court held that on view of the fact that the judgment of the Supreme Court has not been assimilated through statute and in the absence of a consequence spelt out either by statute or through judgment, it could not be said that invariably every assessee would suffer the same amount of prejudice as to nullify or invalidate the entire assessment proceedings; much will depend on the circumstances of the case. It was observed that the assessee was issued with questionnaires calling for particulars, which it complied with. Therefore, there was no prejudicial consequence.

Lack of “tangible material”

The Court noticed that the original assessment was completed or framed under Section 143(1) of the Act. The notice under Section 147 of the Act was issued within the four years period. Thus, the framing of assessment itself did not result in judicial application of mind and an order.

Also as held by the Supreme Court, e filing under Section 143(1) of the Act does not result in any expression of judicial opinion.

Additions on grounds other than reasons to believe

It was observed that the Bombay High Court had held that if reassessment proceedings do not culminate in an order that adds the amounts relatable to the reassessment notice, and rather makes addition on other issues, the reassessment orders would be invalid. The Court emphasised the expression “and also” in Section 147 of the Act. The Delhi High Court relying on the observations of the Bombay High Court approved them. Subsequently, the Delhi High again followed the two previous decisions.

However it was observed that the Karnataka High Court had differed with the view of the Bombay High Court and Delhi High Court. The Karnataka High Court after expressly citing the decision of the Bombay High Court and the Delhi High Court opined that that the insertion of the Explanation in a provision is for a purpose different than the insertion of a proviso. It was stated that any explanation only clarifies the provision and cannot go beyond or against the main provisions of the Act.

It was observed that the Karnataka High Court opined that the insertion of Explanation 3 to section 147 does not in any manner override the main section and has been added with no other purpose than to explain or clarify the main section so as to also bring in ‘any other income’ as appearing  in the second part of section 147 within the ambit of tax, which may have escaped assessment, and comes to the notice of the Assessing Officer subsequently during the course of the proceedings.

The Karnataka High Court had opined that the Circular 5 of 2010 issued by the CBDT also makes this position clear. Thus, there is no conflict between the main section 147 and its Explanation 3. This Explanation has been inserted only to clarify the main section and not curtail its scope. Insertion of Explanation 3 is thus clarificatory and is for the benefit of the Revenue and not the assessee.

It was further observed that the Karnataka High Court in view of Section 147 being interpreted differently by different High Courts, had clarified that the phrase “and also” in section 147 is not conjunctive and assessment of ‘any other income’ can be made independent of income for which reasons are given in notice under section 148.

The Hon’ble High Court  opined that the view taken by the Karnataka High Court is a more accurate one. The Court opined that interpretation of words “and also” by the Bombay High Court undermines the essential objective of Section 147 of the Act and unduly restricts and narrows it where the circumstance clarifies existence of an additional power to bring to tax other sums.

Accordingly, the Hon’ble High Court referred the issue for reference to the Full Bench by Chief Justice.

The SLP filed by the assessee against the judgment has been dismissed by the Supreme Court

Download Full Judgment Click Here >>

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