Re-assessment order upheld despite where no addition was made for reasons on the basis of which the reassessment was initiated.
In a recent judgment, Hon’ble Guwahati High Court has upheld the re-assessment order where no addition was made in regard to the reasons on the basis of which the reassessment was initiated. The High Court followed the decision of Punjab and Haryana and High Court of Karnataka in interpreting Explanation to Section 147
ABCAUS Case Law Citation:
4460 (2025) (03) abcaus.in HC
In a recent case, the Guwahati High Court has interpreted Explanation 3 to erstwhile section 147 of the Income Tax Act, 1961 (the Act). The Explanation 3 was inserted to Section 147 of the Income Tax Act through the Finance (No.2) Act, 2009, retrospectively with effect from 01.04.1989. It is notable that section 147 has been substituted by the Finance Act 2021 w.e.f. 01.04.2021.
The said Explanation 3 provided as under:
“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.”
A similar Explanation exists in the amended section 147 which is reproduced as under:
“Explanation – For the purposes of assessment or reassessment or recomputation 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, irrespective of the fact that the provisions of section 148A have not been complied with.”
In the instant case, the Assessing Officer (AO) had re-opened the assessment under Section 148 of the Income Tax Act while disclosing the reasons for re-opening contending that he had reason to believe that an amount chargeable to tax, had escaped assessment for the year under consideration and the same needed to be brought under the ambit of taxation and action was being initiated under Sections 147 and 148 of the Income Tax Act.
The AO completed the assessment by making two addition u/s 68 and under section 69 of the Act. However, no addition has been made in regard to the reasons on the basis of which the reassessment was initiated.
On appeal, the CIT(A) allowed the appeal concluding that the addition made were liable to be deleted when no addition had been made in regard to the reasons on the basis of which the reassessment was initiated.
The Income Tax Appellate Tribunal (ITAT/Tribunal) observed that the expression ‘and also any other income chargeable to tax which has escaped assessment’ and which comes to his notice subsequently has fallen for consideration before various Hon’ble High Courts, namely Hon’ble Bombay High Court, Hon’ble Delhi High Court, Hon’ble Gujarat High Court and Hon’ble Calcutta High Court. All the High Courts were unanimous that expression ‘and also’ employed in section 147 cannot be read as being in the alternative. It means that if no addition is being made on an item for which assessment was reopened, then Assessing Officer cannot add any other item. In other words, he ought to have reopened the assessment again for the purpose of adding those escaped item because that creates an independent circumstance for proceeding against an assessee.
In view of the above, the appeal of the Revenue was dismissed by the Tribunal holding that the Assessing Officer could not have made addition of any other item which was detected during the reassessment of the escaped income, which had not been specified in the reopening order.
Feeling aggrieved with the order passed by the ITAT, the Revenue challenged it before the Hon’ble Guwahati High Court and the appeal was admitted on the following question;
“Whether the findings recorded by the Hon’ble ITAT is contrary to the provisions of Explanation-3 of Section 147 of the Income Tax Act, 1961 that if no addition is made on the issue which was mentioned for reopening of the case, the Assessment Officer cannot reassess in a case of escaped assessment?”
In their support the Revenue placed reliance upon the Division Bench decision of the Punjab and Haryana High Court and the decision rendered by the Division Bench of the High Court of Karnataka.
It was submitted that the High Court of Punjab and Haryana as well as the High Court of Karnataka have held that the Assessing Officer can assess the income chargeable to tax which has escaped assessment and which has not specifically been pointed out in the reopening order and comes to his notice subsequently in course of proceedings under Section 147 of the Income Tax Act.
It was submitted that the judgments rendered by the High Court of Punjab and Haryana and the High Court of Karnataka have neither been reversed nor modified and the same still hold good.
The High Court of Punjab and Haryana had held that the Assessing Officer is empowered to make additions even on the ground on which reassessment notice might not have been issued where during the reassessment proceedings, he concludes that some other income has escaped assessment which comes to his notice during the course of the proceedings for reassessment under section 148 of the Act. The provision nowhere postulates or contemplates that the Assessing Officer cannot make any additions on any other ground unless some addition is made on the ground on which reassessment had been initiated. Special Leave Petition against the earlier decision was dismissed.
Further, the Guwahati High Court noted that the High Court of Karnataka in while relying on earlier decision of the High Court of Punjab and Haryana had come to the conclusion that the Assessing Officer can take into consideration any other income which may have escaped assessment but discovered during the re-opening process, however, was not specifically mentioned in the reopening order.
The High Court of Karanata had considered the judgments of Bombay High Court, Delhi High Court and also the Gujarat High Court where it had been held is that ‘such income’ in the first part of section 147 is joined with ‘any other income’ of the second part of the section by the phrase “and also” which is used in a “cumulative and conjunctive sense”. However, the Karnataka High Court with due respect to the view taken in the aforesaid cases, expressed its inability to follow the same.
The Karnataka High Court had held that 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’ (of 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. Circular 5 of 2010 issued by the CBDT also makes this position clear. In our view, 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.
The Karnataka High Court held that two parts of section 147 (one relating to ‘such income’ and the other to ‘any other income’) are to be read independently. The phrase ‘such income’ used in the first part of section 147 is with regard to which reasons have been recorded under section 148(2) of the Act, and the phrase ‘any other income’ used in the second part of the section is with regard to where no reasons have been recorded before issuing notice and has come to the notice of the Assessing Officer subsequently during the course of the proceedings, which can be assessed independent of the first part, even when no addition can be made with regard to ‘such income’, but the notice on the basis of which proceedings have commenced, is found to be valid.
After a thoughtful consideration on the said decisions and the provisions of Sections 147 as well as Section 148 of the Income Tax Act, the Hon’ble Guwahati High Court expressed its agreement with the view taken by the High Court of Punjab and Haryana as well as the decision rendered by the High Court of Karnataka.
Resultantly, the question of law framed was answered in favour of the appellant/Revenue.
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