M/s Boost Sheet Metals (P) Ltd. vs Income Tax Officer, Ward-5(1)

“1.

That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned reassessment order u/s 147/143(3) without assuming jurisdiction under law and without recording valid reason in the eyes of law and without recording requisite sanction/approval of the higher authority as prescribed under the law and without complying with the other mandatory conditions u/s 147 to 151 as envisaged under the Income Tax Act, 1961.

2.

That in any case and in any view of the matter, action of Ld.CIT(A) in confirming the action of Ld. AO in framing the impugned reassessment order u/s 147/143(3), is bad in law and against the facts and circumstances of the case.”

“A survey operation under Section 133A of the Act was carried out on the premises of Irish Group of concerns on 21^st November, 2013. The Irish Group is in the business of real estate development and Shri Navneet Jhamb is the key promoter of the group.

During the survey, various incriminating documents were found and impounded having the details of various properties purchased and sold by the promoters of Irish Group. The details of properties and agreement have been tabulated below:

S.No.

Name and Address of Seller

Name and address of buyer

Land particular

Price-Value of total

Date of agreement

Placed at Annexure and page

				agreement		No.
1.	Sh. Chandi S/o Sh. Horam S/o Sh. Harbakash Jharshetly, Ballabgarh	Boost Sheet Metals Pvt.Ltd. and Focus Fabrication Pvt.Ltd.	1 Acress	1,30,00,000	27.07.2007	A-9, Page No.78-84

From the above table and purchase/sale deed placed on file, it is clear that assessee has purchased the above property during the F.Y. 2007-08 in which its share is `65 lakhs.

On perusal of return of the assessee for the A.Y. 2008-09, it is seen that the company was incorporated on 25^th July, 2007 and the agreement vide which above property was purchased is dated 27^th July, 2007 i.e., two days after incorporation. The value of the property purchased is Rs.1,30,00,000/- and assessee shares is `65,00,000/- being 50%. It is also seen that the assessee has shown receipt of share application money to the tune of `1,10,10,000/-. The source of funds in the form of share application money must have been received between 25^th July, 2007 to 27^th July, 2007 which is strange as to how in a short span of time of 2 days on incorporation funds are generated by the assessee. Therefore, I have reason to believe that unaccounted money have been introduced in the garb of share application money/unsecured loans, which was used for purchase of above property. Therefore, I have reason to believe that income to the tune of `65 lakhs has escaped assessment. As per records, no scrutiny assessment was completed in this case. However, since more than 4 years from the end of the relevant assessment year have elapsed, approval of Joint Commissioner of Income Tax, Range-5, New Delhi is solicited in terms of the provisions of Section 151(2) of the Act.”

“16.

With the above remarks, the taxable income of the assessee is computed as under:-Business income Loss (on account of expenses) Rs. 25,000/-Income from other sources : Agricultural income Rs. 52,500/-(held as income from undisclosed Rs. 27,500/- Rs, 27,500/-Sources) Additions u/s. 68 ( As discussed) Unexplained share application money Rs. 1,10,10,000/-Unexplained loans Rs. 40,00,000 Total taxable income Rs. 1,50,37,500/-“

“18.

We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (1) Limited (2011) 331 ITR 236 (Bom). We may also note that the heading of section 147 is "income escaping assessment and that of section 148 "Issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Subsection (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course ofproceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148’’

“30.

We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A(b) and Section 148 A(d) of the Act are /clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened.

31.

Explanations 3, or for that matter, the Explanation which presently forms part of Section 147, would come into play only once it is found that the power of reassess had been validly invoked and the formation of opinion entitled to be upheld in light of principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the Assessing Officer in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated.

32.

Explanation 3, cannot consequently be read as enabling the Assessing Officer to attempt to either deviate from the reasons originally recorded for initiating action under Section 147/148 of the Act nor can those Explanations be read as empowering the Assessing Officer to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions. 33. The writ petitions are accordingly allowed and the impugned notices and orders in each of the above-captioned writ petitions are quashed.”

“18….We may also note that the heading of section 147 is “income escaping assessment” and that of section 148 of notice where income escaped assessment”. Section 148 is supplementary and complimentary to section 147. Sub-section (2) of section 148 mandates reasons for issuance of notice to the assessee before the Assessing officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation (3) if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.

19.

In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-1 as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under sections 80HH and 80-1 and accordingly reduced the claim on these accounts.

20.

The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-I as well.

21.

In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of revenue and the second part of the question against the revenue.”