Validity of Reassessment of any other income coming to notice of AO during section 147 proceedings

Short Overview: As there was no whisper about escapement of income, i.e., loss created by misusing client’s code modification, in the reasons for reopening conveyed to the assessee, therefore, no addition in respect of this could be made without making any addition in respect of the item shown to have escaped assessment in the reasons recorded.

Assessee challenged jurisdiction of AO to reopen and assess the income/loss from client code modification without mentioning about it in the reason recorded to reopen assessment and without making any addition/disallowance on the production/suppression of iron ore which was the precise reason recorded in the reason to re-open alleging escapement of income. AO’s case was that after Explanation (3) to section 147 has been inserted by Finance No. 2 Act, 2009 retrospectively with effect from 1-4-1989 he was empowered to make addition even on the ground on which reassessment notice might not have been issued where during reassessment proceedings, he found that some other income had escaped assessment which comes to his notice during the course of proceedings for reassessment under section 148.

It is held that: After insertion of Explanation 3 to section 147, AO can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of proceedings. However, if after issuing a notice under section 148, he accepted the contention of assessee and holds that income as regards which he had initially formed a reason to as to having believe 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 assessee. In the instant case as there was no whisper about escapement of income, i.e., loss created by imisusing client’s code modification, in the reasons for reopening conveyed to the assessee, therefore, no addition in respect of this could be made without making any addition in respect of the item shown to have escaped assessment in the reasons recorded for reopening.

Decision: In assessee’s favour.

IN THE ITAT “B” KOLKATA BENCH

A.T. VARKEY, J.M. & A.L. SAINI, A.M.

Aryan Mining & Trading Corporation Ltd. v. Dy. CIT

I.T (SS).A. Nos. 122 & 123/Kol./2017

Assessment Years 2009-10 & 2010-11

26 February, 2019

A.T. Varkey, J.M.

Both these appeals of the revenue arise out of separate orders of the learned Commissioner (Appeals)-21, Kolkata for assessment year 2009-10 and 2010-11 dated 2-6-2017.

2. First we take up IT(SS)A No. 123/Kol/2017 for assessment year 2010-11. At the outset, itself, it has been brought to our notice that the total tax effect on the disputed addition raised by Revenue is only Rs. 17,67,639 which is below the taxable limit of Rs. 20 lacs prescribed by CBDT for filing an appeal by Revenue in the Tribunal, therefore, revenue’s appeal needs to be withdrawn as per CBDT Circular No.3/2018 dated 11-7-2018. Therefore, the appeal of the revenue is treated as dismissed being withdrawn.

3. Now we are coming to IT(SS)A No. 122/Kol/2017 for assessment year 2009-10. The main grievance of the revenue is against the action of the learned Commissioner (Appeals) in allowing the appeal of the assessee wherein the assessee had raised the legal issue by raising additional ground IT(SS)A Nos. 122 & 123/Kol/2017, Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 before the learned Commissioner (Appeals) wherein the assessee has challenged the jurisdiction of the assessing officer to reopen and assess the income/loss from client code modification without mentioning about it in the reason recorded to reopen the assessment and without making any addition/disallowance on the production/ suppression of iron ore which was the precise reason recorded in the reason to re-open alleging escapement of income.

4. Brief facts of the case are that assessee company is mainly engaged in the business of mining and trading of iron ore and Manganese ore had filed its return of income reflecting total income of Rs. 40,65,54,550 on 29-9-2009. The original scrutiny assessment under section 143(3) of the Act completed on 12-12-2011 at Rs. 50,60,22,409. Later a search and seizure operation was conducted against the assessee under section 132 of the Act on 13-9-2012 and the assessment under section 153A was completed on 28-4-2014 at a total income of Rs. 40,60,22,409.

5. Thereafter, notice under section 148 of the Act was issued on 17-2-2015 on the basis of comparison of the data after information regarding actual production of iron ore gathered from the report of Justice M.B. Shah Commission on illegal mining and statutory audited account of assessee. The reasons for reopening is found placed at page 51 of the paper book which is as under :–

“After comparing the information regarding actual production gathered from the Report of Justice M. B. Shah Commission on illegal mining and Statutory Audited Account of the assessee company, it was observed that the assessee company has suppressed its actual quantity of production of iron ore to the tune of 8,78,079. MT valued at Rs.1,79,41,61,259 (taking the rate of gross sale/turnover of assessee company as reflected in their Annual Account which comes to Rs. 2043.28 per MT). The assessee company has shown production of Iron Ore of 10,98,385 MT in its statutory audited account for the FY 2008-09 relevant to assessment year 2009-10 whereas from the M. B. Shah Commission Report at Page No. 291, Annexure-7, Vol. II A of 1st report on Odisha, it reveals that actual production of Iron Ore of the assessee company in the same period was 19,76,464 MT. Hence, the production of iron ore remains undisclosed in the books of account of the assessee company, worked out to 8,78,089 MT valued at Rs.1,79,41,61,259 for the assessment year 2009-10. Considering the above, I have reason to believe that income to the tune of Rs.1,79,41,61,259 chargeable to tax has escaped assessment in assessment year 2009-10.”

A bare perusal of the reasons recorded reveals that the assessing officer had reopened the assessment on the belief that there has been escapement of income, since there is suppression in the actual. IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 quantity of production of iron ore to the tune of 8,78,079 MT valued at Rs.1,79,41,61,259. However, during the reassessment proceedings, the assessing officer at page 3 has dropped the reassessment on this issue after taking note of the letter from the Directorate of Mines, Orissa, Bhubaneswar by stating at page 3 of assessment order “In view of the fact discussed, it is accepted that the production data for FY 2008-09 is 1098385 MT as same is reflected in the Returns filed by the assessee with the DG Mines (H1 form) for the relevant year and confirmed by the letter of Directorate of Mines, Odisha. Hence, no adverse inference so far as production of Iron Ore by the assessee is being drawn.”

[Emphasis given by us]

6. Thereafter, the assessing officer proceeded on another issue of artificial loss created by misusing client’s code modification as per information received from the Directorate of Income-tax (I&CI), Mumbai and thereafter, he disallowed the claim made by assessee of loss of Rs. 2,30,62,270 and made an addition of the said amount. Aggrieved, the assessee preferred an appeal before the learned Commissioner (Appeals) who was pleased to allow the legal issue raised by the assessee against the jurisdiction to reopen and assess the new issue [artificial loss created by misusing client’s code modification], without making any addition/disallowance for which reason was recorded to re-open [suppression in the actual quantity of production of iron ore]. The learned Commissioner (Appeals) has relied on the following judgments :–

i) CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 0236 (Bom.) : 2011 TaxPub(DT) 0218 (Bom-HC);

ii) CIT v. Ranbaxy Laboratories Ltd. (ITA No. 148/2008 dated 3-6-2011)(Del. High Court) : 2011 TaxPub(DT) 1457 (Del-HC);

iii) CIT v. Sri Ram Singh (2008) 306 ITR 343 (Raj.) : 2008 TaxPub(DT) 2035 (Raj-HC);

iv) DCIT v. Takhshila Educational Society (2016) 284 CTR 0306 (Pat.) : 2015 TaxPub(DT) 4827 (Pat-HC) 

v) Oriental Bank of Commerce v. ACIT (204) 272 CTR 56 (Del) : 2014 TaxPub(DT) 3944 (Del-HC) Aggrieved, the revenue is before us.

7. The learned CIT, DR assailing the decision of the learned Commissioner (Appeals) contended that after the Explanation (3) to section 147 has been inserted by Finance No. 2 Act, 2009 retrospectively with effect from 1-4-1989, and the learned Commissioner (Appeals) erred in allowing the legal issue raised by the IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 assessee. For that he relied on the order of the Hon’ble Punjab & Haryana High Court in the case of Majinder Singh Kang v. CIT (2012) 25 taxmann.com 124 (P&H) : 2012 TaxPub(DT) 2028 (P&H-HC) and also the decision of the Hon’ble High Court of Punjab & Haryana in the case of CIT v. Mehak Finvest (P.) Ltd. (2014) 52 taxmann.com 51 (P&H) : 2014 TaxPub(DT) 4080 (P&H-HC) wherein the Hon’ble High Court held after considering scope of Explanation (3) to section 147 of the Act that the assessing officer is empowered to make addition even on the ground on which reassessment notice might not have been issued where during reassessment proceedings, he finds that some other income has escaped assessment which comes to his notice during the course of proceedings for reassessment under section 148 of the Act. According to the Hon’ble High Court, the provision nowhere postulates or contemplates that the assessing officer cannot make any addition or any other ground unless some addition is made on the ground on which reassessment had been initiated. It was pointed out to us by the learned DR that the decision in Majinder Singh Kang (supra) was challenged by the assessee by Special Leave Petition no. 13028 of 2011 which was dismissed and has been followed by the subsequent order of the Hon’ble P&H High court in the CIT v. Mehak Finvest (P.) Ltd., (supra). So, it was contended by the learned DR that the learned Commissioner (Appeals)’s order is legally not sustainable and has to be interfered with and the appeal has to be restored back to the file of the learned Commissioner (Appeals) for adjudication on merits. On the other hand, the learned AR for the assessee supported the order of the learned Commissioner (Appeals) and does not want us to interfere in the order of the learned Commissioner (Appeals).

8. We have heard rival submissions and gone through the facts and circumstances of the case. The learned AR has brought to our notice that the assessing officer while invoking his jurisdiction to reopen the completed assessment recorded in the reasons recorded the issue of production/suppression of iron ore by the assessee as the reason for escapement of income was for reopening the completed assessment. However, assessing officer has not made any addition or disallowance on this specific issue (i.e. for production/suppression of iron ore) on the basis of which reopening was initiated. According to the learned AR, the assessing officer could not have proceeded to make any other addition, without making any addition/disallowance on the issue for which he based his belief in respect of the escapement of income, and for IT(SS)A Nos. 122 & 123/Kol/2017, Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 which he resorted to re-opening. For that proposition he relied upon the order of the Hon’ble Bombay High Court in CIT v. Jet Airways (I) Ltd. (2010) 195 Taxman 117 (Bombay) : 2011 TaxPub(DT) 0218 (Bom-HC). We note that the legal issue which is before us is no longer res integra and the Hon’ble High Court after taking note of the Explanation 3 inserted by the Finance Bill 2009 has held in favour of the assessee by holding as under :–

2. The two appeals by the revenue pertain to assessment years 1994-95 and 1995-96. The Tribunal has noted that an identical issue was agitated by the assessee for assessment year 1997-98 and that the Tribunal, while allowing the claim of the assessee, held that the re-opening of the assessment was not valid in law. The Court has been informed that the appeal against the order of the Tribunal for assessment year 1997-98 has been dismissed for non-compliance of a conditional order of removing office objections. Be that as it may, having regard to the nature of the question of interpretation involved, we have heard arguments on the question of law as framed in these appeals and proceed to answer it on merits.

3. Section 147 of the Income-tax Act, 1961 provides that 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 148 to 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”. The proviso deals with reopening of an assessment upon the expiry of a period of four years from the end of the relevant assessment year and does not fall for interpretation in this appeal. Explanation 3 to section 147 was inserted by the Finance (No. 2) Act of 2009, with effect from 1-4-1989. Explanation 3 provides as follows :–

“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.”

4. Prior to its amendment with effect from 1-4-1989, section 147 provided as follows :–
“147. Income escaping assessment :–

(a) If – the Income tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 he may, subject to the provisions of sections 148 to 153, assess or reassess such income or re-compute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).”

5. 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 or a reason to believe, the assessing officer, before making the assessment, reassessment or re-computation under section 147 has to serve on the assessee a notice 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 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.

6. The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 is that even though the notice that has been 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, 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 Explanation 3 are to be found in the Memorandum explaining the provisions of Finance (No. 2) Bill of 2009. The Memorandum treats the amendment to be clarificatory and contains the following Explanation :–

“Some courts have held that the assessing officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for re-opening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.

With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 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 this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148.”

7. In order to appreciate the reasons for the amendment inserting Explanation 3, it
would be necessary to advert to some of the judgments of the High Courts, prior to the amendment.

The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 220 (P&H) : 2002 TaxPub(DT) 0096 (P&H-HC) dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the assessing officer would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative. IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11. A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 (Ker) : 2008 TaxPub(DT) 0308 (Ker-HC), that upon the issuance of a notice under section 148(2), when proceedings were initiated by the assessing officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, it was not open to the assessing officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the assessing officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows :–

“…The assessing officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads, income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings. But if both the items are unconnected and totally alien then the assessing authority has to follow sub-section (2) of section 148 with regard to the escaped income which comes to his knowledge during the course of the proceedings.”

Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the assessing officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.

8. Parliament stepped in to correct what it regarded as an incorrect interpretation of the provisions of section 147. The Memorandum explain-ing the provisions of Finance (No. 2) Bill of 2009 states in this background that some courts had 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 was not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by Parliament as being contrary to legislative intent. Hence, 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 were not included in the reasons recorded in the notice under section 148(2). IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11.

9. 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 on the assessee a notice 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, 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.

10. Now the submission of the learned counsel appearing on behalf of the assessee in the present case is that the words “and also” in section 147 postulate that the assessing officer may assess or reassess the income which he has reason to believe has escaped assessment together with any other income chargeable to tax which has escaped assessment and which comes to his notice during the course of the proceedings. In other words, unless the assessing officer assesses the income with reference to which he had formed a reason to believe within the meaning of section 147, it would not be open to him to assess or reassess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. On the other hand, it has been urged on behalf of the revenue that even if, during the course of assessment or, as the case may be reassessment, the assessing officer does not assess or reassess the income which he has reason to believe has escaped assessment and which formed the subject-matter of a notice under section 148(2), it is nonetheless open to him to assess any other income which, during the course of the proceedings is brought to his notice as having escaped assessment.

11. The rival submissions which have been urged on behalf of the revenue and the assessee can be dealt with, both as a matter of first principle, interpreting the section as it stands and on the basis of precedents on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the 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 Parliament otiose. 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 those words as being conjunctive and cumulative. It is of some significance that 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. IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11. 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 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 season 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 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.

12. In CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC) : 1992 TaxPub(DT) 1434 (SC), the Supreme Court dealt with the following question of law in the course of its judgment :–

“Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income?”

The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of section 147, as they stood prior to the amendment on 1-4-1989. The Supreme Court held that the expression “escaped assessment” includes both “non-assessment” as well as “under assessment”. Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression “assess” refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147. The expression “reassess” refers to a situation where an assessment has already been made but the assessing officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 the Judgment in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 (SC) : 1970 TaxPub(DT) 0155 (SC), which held that once an assessment is validly reopened, the previous under assessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of section 147 enures to the benefit of the revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings.The judgment in V. Jaganmohan Rao’s case (supra) dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P.) Ltd.’s case (supra) interprets the provisions of section 147 as they stood prior to the amendment on 1-4-1989.

13. The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the assessing officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject-matter of the notice under section 148. This view was adopted in the Judgment of the Punjab and Haryana High Court in Vipan Khanna’s case (supra) and in the judgment of the Kerala High Court in Travancore Cements Ltd.’s case (supra). This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an assessing officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2).

14. The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT v. Shri Ram Singh (2008) 306 ITR 343 (Raj.) : 2008 TaxPub(DT) 2035 (Raj-HC). The Rajasthan High Court construed the words used by Parliament in section 147 particularly the words that the assessing officer ‘may 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 section 147. The Rajasthan High Court held as follows :–

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

To clarify it 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, IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 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.”

15. Parliament, when it enacted the 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.’s case (supra) and of the Punjab & Haryana High Court in Vipan Khanna’s case (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh’s case (supra), 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 & Haryana High Court in CIT v. Atlas Cycle Industries [1989] 180 ITR 319 (P&H) : 1989 TaxPub(DT) 1149 (P&H-HC). The decision in Atlas Cycle Industries’ case (supra) 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 non-existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries’ case (supra) and of the Rajasthan High Court in Shri Ram Singh’s case (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.

16. Explanation 3 lifts the embargo, which was 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 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 assess or reassess the income (“such income”) which escaped assessment and which was the basis of the formation of belief and if he IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 does so, he can also assessee 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(1) 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(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 Parliament. Our view has been supported by the background which led to the insertion of 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’s case (supra). 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(1) as they stood after the amendment of 1-4-1989 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.

9. It should be kept in mind that the concept of assessment is governed by the time-barring rule and the assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment is the Fundamental Rule and exception to this rule is Re-opening of assessment by assessing officer under section 147 or exercise of Revisional jurisdiction by CIT under section 263 of the Act. Therefore, the Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to assessing officer; and revisional jurisdiction of CIT by providing condition precedent which is sine qua non for assumption/usurpation of jurisdiction. In the case of reopening of assessment, the reason to believe escapement of income is the jurisdictional fact and law (mixed question of fact and law) and for revisional jurisdiction the order of the assessing officer should be erroneous as well as prejudicial to the revenue. IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11. Unless the condition precedent is not satisfied, the assessing officer or the CIT can exercise their reopening jurisdiction or revisional jurisdiction respectively. The legislative history in respect to the reopening under section 147 of the Act, is that the Parliament by Direct Tax Laws (Amendment) Act 1987 with effect from 1-4-1989 had substituted “for reason to believe escapement of income” to ‘for reasons to be recorded by him in writing, is of the opinion’’ which gave unbridled subjective satisfaction to the assessing officer was later substituted back to ‘reason to believe escapement of income’’, by the Direct Tax Laws (Amendment) Act, 1989. The Hon’ble Apex Court as well as the Hon’ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact and law (mixed question of fact and law) the reason to believe escapement of income (supra). For reopening the assessment by the assessing officer the condition precedent of reason to believe escapement of income is sine qua non. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information, still there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon’ble Supreme Court in Ganga Saran & Sons P. Ltd. v. ITO (1981) 130 ITR 1 (SC) : 1981 TaxPub(DT) 0952 (SC) held that the expression “reason to believe” occurring in section 147 “is stronger” than the expression “if satisfied” and such requirement has to be met by the assessing officer in the reasons recorded before usurping the jurisdiction under section 147 of the Act. We note that before the assessing officer assumes jurisdiction to re-open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., assessing officer should record “reason to believe” that the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied at the first place, then it cannot be said the assessing officer has validly assumed jurisdiction under section 147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the assessing officer, he could have validly usurped the jurisdiction to reopen and reassess the assessee on a different issue which has not found place in the reason recorded, when the fact is that the precise basis (issue) recorded in reasons to believe escapement of income has disappeared or dropped. For that it has to be seen as to whether the assessing officer on the basis of whatever material before IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 him, [which he had indicated in his “reasons recorded”] the assessing officer had reasons warrant holding a belief that income chargeable to tax has escaped assessment. It is important to remember that the reasons recorded by assessing officer to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed, while adjudicating the legal issue of assessing officer’s usurpation of jurisdiction under section 147 of the Act. Moreover, the Parliament has given power to assessing officer to reopen the assessment, if the condition precedent as discussed above is satisfied, and not otherwise. It has to be kept in mind that the jurisdictional fact and law is the ‘income’ which according to assessing officer, escaped assessment, which he has to spell out while recording reasons for reopening under section 147 of the Act. This “income” which has escaped assessment and which according to him, constituted the basis/foundation for reopening is precisely the jurisdictional fact and law which empowered him to usurp the jurisdiction to reopen and reassess the escaped income as contemplated under section 147 of the Act. We note that in the present case in hand notice under section 148 for reopening was issued on 17-2-2015 and the reasons recorded for reopening the assessment was that the assessee has suppressed the actual production of iron ore to the tune of 8,78,079 MT valued at Rs.1,79,41,61,259 thereby escapement of income happened and for which precise reason recorded assessing officer invoked the reopening jurisdiction after the assessment was framed under section 153A/143(3) of the Act on 28-4-2014 (supra). However, we note that at page 3 of the reassessment order the assessing officer has accepted the contention of the assessee after going through the Form HI filed before DG, Mines and has recorded that he is not drawing any adverse inference so far as production of iron ore by the assessee and did not make any addition/disallowance on this issue for which purpose only he invoked his reopening jurisdiction under section 147 of the Act. So, we note that here is a case wherein the assessing officer invoked the reopening jurisdiction for a specific purpose which issue was dropped, then according to assessee and rightly so, the condition precedent for assuming jurisdiction has disappeared/absent, then the assessing officer lacks jurisdiction to proceed further to reassess any other income which he has not taken note in the reasons recorded to reopen. Therefore, the assessing officer ought not to have proceeded to reassess the assessee on a new issue of artificial loss created by misusing the client’s code modification. And, therefore, the jurisdictional fact which is IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 sine qua non to assume jurisdiction is found to be lacking/absent and, therefore, the very invocation of jurisdiction to reopen itself is not existing and, therefore, when the foundation on which reopening was initiated is non-existing then the assessing officer’s assumption of jurisdiction is without jurisdiction and so all subsequent action is a nullity in the eyes of law. At the cost of repetition we say that assessing officer without satisfying the condition precedent as stipulated under section 147 of the Act cannot have successfully usurped the reopening jurisdiction, so as discussed above the precise fact for which the assessing officer re-opened in this case disappeared after assessing officer dropped the same, thereafter ideally the assessing officer should have dropped the reassessment proceedings and ought not to have proceeded to reassess the assessee on an issue which he did not refer at all in the reasons recorded to justify re-opening. The Explanation (3) to section 147 of the Act, will come to the aid of the assessing officer/department only when the assessing officer has successfully usurped/assumed the reopening jurisdiction on the strength of the reasons recorded by him to re-open the assessment. So without successfully satisfying the condition precedent to reopen i.e. reason to believe escapement of income, which can be discerned from reading of the reasons recorded by the assessing officer that too on a stand alone basis, the assessing officer cannot proceed to make any other additions without making any additions on the facts specifically stated in the reasons recorded for which he decided to reopen. We would like to make it clear that in this case when the assessing officer realized that the reason for re-opening i.e, suppression of iron ore production is non-existing, then the assessing officer should have first dropped this reassessment; and thereafter ought to have recorded reasons indicating escapement of income on account of misuse of client code modification and issued fresh notice u/s 148 of the Act and initiated reassessment for the same. We note that the Hon’ble Bombay High Court in Jet Airways (I) Ltd. (supra) have discussed all the case laws on the issue and considered various Hon’ble High Courts decisions. However, we note that the Hon’ble Punjab & Haryana High court in Majinder Singh Kang (supra) has not delved into the ratio decidendi laid by the Hon’ble Bombay High Court decision in Jet Airways (I) Ltd. (supra). The Hon’ble Punjab &Haryana High court in the case of CIT v. Mehak Finvest (P) Ltd. (supra) has followed the Division bench order in Majinder Sing IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 Kang (supra) since it was binding on the same High Court and taking into consideration that the SLP against the Majinder Singh Kang has been dismissed.

10. However, we note that the Hon’ble Bombay High Court in the case of Jet Airways (supra) has considered at length the effect of the insertion of Explanation (3) to section 147 of the Act by the Finance No. 2 Act, 2009 retrospectively with effect from April 1, 1989 and has laid down the ratio decided of the issue before us. We note that the jurisdictional High Court i.e. Hon’ble Calcutta High Court in ITAT No. 60 of 2014 in GA No. 1736 of 2014 CIT v. M/s. Infinity Infotech Parks Ltd. has concurred with the view taken by the Hon’ble Delhi High Court judgment in Ranbaxy Laboratories v. CIT (2011) 336 ITR 136 (Del.) : 2011 TaxPub(DT) 1457 (Del-HC) and Hon’ble Bombay High Court in CIT v. Jet Airways India Ltd. (2011) 331 ITR 236 (Bom.) : 2011 TaxPub(DT) 0218 (Bom-HC) approved the Tribunal’s view on the same which is reproduced as under :–

“We further find that similar view was taken by the Hon’ble Bombay High Court in the case of CIT v. Jet Airways India Ltd. (supra) and the Hon’ble Delhi High Court in the case of Ranbaxy Laboratories India Ltd. (supra). The ratio laid down in these decisions is that reassessment must be in the first place, be in respect of income escaped assessment for which the reasons were recorded and only thereafter in respect of some other items of escaped income. If, however, the income, escapement of which was the foundation for recording of reasons to believe, is not assessed or reassessed in the order under section 147, then it is not mere open to the assessing officer to independently assess any other income, which comes to his notice subsequently.”

(Emphasis given by us)

11. Since we have taken note that there is no whisper about the escapement of income i.e. loss created by misusing client’s code modification has been mentioned in the reasons for reopening conveyed to the assessee vide letter dated 19-3-2015 no addition in respect of this can be made without making any addition in respect to the item shown to have been escaped assessment in the reasons recorded by ibid letter dated 19-3-2015. During reassessment when the assessing officer finds that the item on the basis of which he reopened does not survive, then the reasons recorded to reopen loses its significance and the fall out is that the assessing officer’s jurisdiction to reassess is without jurisdiction and therefore is illegal and fragile in the eyes of law; and thereafter he should have dropped the reassessment proceeding there only as discussed supra. Therefore, after having no jurisdiction to reassess his further action of a new fact finding in the absence of any item specified in the reasons recorded which is the IT(SS)A Nos. 122 & 123/Kol/2017 Aryan Mining & Trading Corpn. Ltd., assessment year 2009-10 & 2010-11 foundation on which he reopens when no longer subsists, the assessing officer’s action is hit being ‘Quarum non-judice’ and, therefore, the impugned addition is non-est in the eyes of law and so it has to necessarily go. Therefore, the appeal of the Revenue is devoid of any merits and, we find that the legal issue has been rightly decided in favour of the assessee and the action of the learned Commissioner (Appeals) is upheld. Since we have decided the legal issue, the merits of the case have become academic in nature and needs no adjudication.

12. In the result, both the appeals of the revenue are dismissed.