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Section 147 – New Provision and pre-amended provision – Explanation 03
Abut By Author
CA. AJAY KUMAR AGRAWAL
Ajay Kumar AgrawalFCA, a science graduate and fellow chartered accountant in practice for over 26 years. Ajay has been in continuous practice mainly in corporate consultancy, litigation in the field of Direct and Indirect laws, Regulatory Law, and commercial law beside the Auditing of corporates and Banks. He has wide experience in variety of consulting matters of corporates and multinationals in the field of merger & acquisitions, corporate restructuring , across sectors , domestic and international taxation.
Litigation has been his favourite area of practice and he has advised corporates and multination’s corporates in the field of Direct Tax, FERMA& FDI Laws, Search and Seizure segments. He is also contributor to the professional publications. He was also associated as member with Professional development committee of NIRC of ICAI.
Issue : Whether the Substituted provision of Section 147 of the Income tax Act ( by Finance Act 2021) give power to inquire ANY ISSUE in respect of reopening for escapement of Income u/s 148 of the Income Tax Act?
|FIANCE ACT 2021
||PRIOR TO FINANCE ACT 2021
|Substitution of new section for section 147.
For section 147 of the Income-tax Act, the following section shall be substituted, namely:—
Income escaping assessment.
“147. If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153,
assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).
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
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 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, 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) :
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
|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.”.
||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.
- Delhi High Court in case of Ranbaxy Laboratories v. CIT (2011) 336 ITR 136 (Del):- Though Explanation 3 to
- 147 inserted by the F Y 2009 w.r. e.f 1.4.1989 permits the AO to assess or reassess income which has escaped assessment even if the recorded reasons have not been recorded with regard to such items, it is essential that the items in respect of which the reasons had been recorded are assessed. If the AO accepts that the items for which reasons are recorded have not escaped assessment, it means he had no “reasons to believe that income has escaped assessment” and the issue of the notice becomes invalid. If so, he has no jurisdiction to assess any other income.
- Mumbai High Court in CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) sets the right balance between the above twin aspects:- The words “and also” indicate that reassessment must be with respect to the income for which the AO has formed an opinion and also in respect of any other income which comes to his notice However, if the AO is satisfied with the objections of assessee as regards to the issue for which reason is recorded and does not assess the income which was the basis of the notice, it is not open to him to assess income under some other issue independently; the words ‘and also’ are used in a conjunctive and cumulative sense indicating that the other escaped incomes can be assessed only in conjunction with the escaped incomes on the basis of which notice u\s 148 had been issued.
- Explanation 3 to s. 147 was inserted to supersede the judgement in Vipin Khanna 255 ITR 220 (P&H) & Travancore Cements 305 ITR 170 (Ker) where it was held that the AO could not assess income in respect of issues unconnected with the issue for which the notice was issued. However, Explanation 3 does not affect the judgement in Ram Singh 306 ITR 343 (Raj) & Atlas Cycle Industries 180 ITR 319 (P&H) where it was held that if the AO accepted that the reasons for which the notice was issued were not correct, he would cease to have jurisdiction to proceed with the reassessment;
- Explanation 3 lifts the embargo inserted by judicial interpretation on the making of a s. 147 assessment in respect of items not referred to in the recorded reasons. However,it does not and cannot override the substantive part of 147 that the income for which the notice was issued must be assessable.
- Chhattisgarh High Court in case of ACIT v. Major Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh):- held- If the AO does not assess the income in respect of which the s. 148 notice was issued, it means there was no ‘reason to believe’ that income had escaped assessment. If so, the AO has no jurisdiction to assess any other escaped income that comes to his notice during the reassessment proceedings. Though in Sun Engineering 198 ITR 297 (SC), it was held that the AO had jurisdiction to assess other income, it was not a case where the AO had not assessed the income in respect of which the s. 148 notice was issued. Explanation 3 to s. 147 also contemplates that the income in respect of which the 148 notice is issued is assessed
- Gujarat High Court in case of CIT v. MohmedJunedDadani (2014) 355 ITR 172 147 empowers the AO to reopen an assessment if he has reason to believe that income has escaped assessment. If the requirements of giving jurisdiction to the AO to reopen the assessment are satisfied, he may also assess any other escaped income which comes to his notice subsequently in the course of the proceedings. Prior to the insertion of Explanation 3 to s. 147 by the Finance Act 2009 w.r.e.f. 1.4.1989, it was clear that if the reason for which the assessment is reopened fails, the AO could not proceed to assess other income which had escaped assessment. For assuming jurisdiction to frame an assessment u/s 147 what is essential is a valid reopening. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. Explanation 3 to s. 147 does not change this position. Explanation 3 to s. 147 was inserted to counter the view taken by some courts
(Atlas Cycle Industries 180 ITR 319 (P&H) & Travancore Cements 305 ITR 170 (Ker)) that even if the jurisdiction was validly exercised, the AO could not assess the other escaped income that was not referred to in the reasons. It merely clarifies the existing law and does not expand the powers of the AO u/s 147. If the AO drops the ground for which the notice for reopening was issued, it means he had no “reason to believe” that income had escaped assessment and so he has no jurisdiction to assess the other escaped income
- CIT Vs . Swarna Andhra Ijmii Integrated Township Development (P) (Andhra Pradesh High Court At Hyderabad):- Appeal Number : I.T.T.A. No. 165 of 2014
- DIT (IT) Black & Veatch Prichard, Inc. (2019) 107 taxmann.com 289 / 265 Taxman 93 (Bom.)(HC
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