AO Cannot Assess 'Other Incomes' If No Addition Is Made On Account Of 'Reasons' For Which Reassessment U/S 147 Of IT Act Was Initiated: Delhi HC

The Delhi High Court has made it clear that an Assessing Officer (AO) cannot assess other incomes of an Assessee in a case where no addition is made on account of the “reasons” for which reassessment under Section 147 of the Income Tax Act, 1961 was initiated. Section 147 empowers the AO to assess or reassess income and also any other income, if he has “reason to believe” that any income chargeable to tax has escaped assessment for any assessment year. The controversy in the case at hand arose with respect to power to assess “any other income”. Explanation 3 to the provision, inserted by Finance Act, 2009, stipulates that AO may assess or reassess the income which comes to his notice subsequently in the course of the proceedings, notwithstanding that the reasons for such issue were not included in the reasons recorded. The Assessee in this case argued that addition of Rs. ₹6,01,00,000/- as security premium to its income was not sustainable since the reassessment notice issued to it only pertained to a transaction, whereby the Assessee had allegedly received a sum of ₹88,00,000/- from various entities but no addition was made in that regard by the AO. The ITAT had ruled in Assessee's favour. Hence, the Revenue preferred this appeal. The Assessee contended that since no addition had been made on account of the reasons on the basis of which the reopening of the assessment was sustained, no other addition was permissible. It relied upon Ranbaxy Laboratories Limited v. CIT (2011) where the High Court had interpreted the import of the word “and also any other income chargeable to tax” and had concluded that other income could be brought to tax provided an addition was made on the ground on which the assessment was reopened. Agreeing, the division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma observed, “It is well established that Section 147 of the Act enables the reopening of concluded assessments only in exceptional cases, where there the AO has reason to believe that Assessee's income for the relevant period has escaped assessment. It is trite law that concluded assessment should not be lightly interfered with. If the ground on which the concluded assessment is sought to be re-opened, cannot be sustained, there would be little rationale for expanding the reassessment proceedings. In our view, it would not be apposite to accept an expansive interpretation to the provision of Section 147 of the Act. Given that the nature of the proceedings is to unsettle concluded assessment, a strict interpretation of the plain language of Section 147 of the Act, is warranted. ” It cited ATS Infrastructure Ltd. v. ACIT (2024) where it was held that if during the course of proceedings under Section 147, 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. Court then proceeded to consider Explanation 3 and observed that it merely clarified that the AO would assess or reassess the income in respect of the issue which had escaped assessment and such other issue, which came to the notice subsequently. However, it added, the said explanation does not control the import of the plain language of Section 147 of the Act. The Court observed, “Explanation 3 to Section 147 of the Act, merely clarifies that the jurisdiction of the AO was not confined to assessing or reassessing of the income of an Assessee only in respect of the issue, which formed a part of the reasons recorded for reopening the assessment. The said explanation cannot be interpreted to mean that the AO could assess other incomes of the Assessee even in cases where no addition is made on account of the reasons for which reassessment was initiated.” It relied upon Commissioner of Income Tax v. Jet Airways (I) Limited (2011) where the Bombay High Court held that 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 ...

AO Cannot Assess 'Other Incomes' If No Addition Is Made On Account Of 'Reasons' For Which Reassessment U/S 147 Of IT Act Was Initiated: Delhi HC

Kapil Dhyani

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