INCOME TAX ACT, 1961

Section 147

Reassessment - Validity - Non-assessment of income forming the basis of reason to believe - AO made addition of other income coming to his notice subsequently during the course of the proceedings

AO received information from Investigation Wing that assessee has routed its unaccounted income to the tune of Rs. 40,00,000 and, took bogus accounts entry/entries for non-existent transactions from Divya Drishti group which was in the business of providing accommodation entries to various beneficiaries. Accordingly, AO reopened assessment. A perusal of the assessment order under section 147 showed that during the course of assessment proceedings itself, assessee made it clear that it had not received Rs. 40 lakhs from Divya Drishti Group and pointed out that the credit entry of Rs. 40 lakhs represented the amount received from sister concern Abhinandan Trafin (P) Ltd. made addition of Rs. 7 crores as unsecured loans under section 68 which was based upon the copy of ledger account of M/s. Abhinandan Trafin (P) Ltd. Thus, computation of assessed income is totally devoid of any addition which was basis for AO to believe that income had escaped assessment i.e., Rs. 40 lakhs. Assessee challenged this. AO took plea of Expln. to section 147. Held: Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that AO 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. 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 AO, 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 AO 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, escapement of which was the basis of formation of reason to believe was not assessed or reassessed, it would not be open to AO 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 issuance of a notice under section 148(2), AO accepts the objections of 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.

Relied:CIT v. Jet Airways (I.) Ltd. (2011) 331 ITR 236 (Bom-HC) : 2011 TaxPub(DT) 218 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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