ITA No. 421 of 2010 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No. 421 of 2010 Date of Decision: 13.9.2010 Manjinder Singh Kang ...Appellant Versus Commissioner of Income-Tax Amritsar and another ...Respondents CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present: Ms. Radhika Suri, Advocate for the appellant-assessee. AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the assessee against the order dated 11.12.2009, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, (in short “the Tribunal”) in ITA No. 343/ASR/2009 in respect of the assessment year 2001-02. The assessee has claimed the following substantial questions of law for determination by this Court: 1. Whether in the facts and circumstances of the case the order passed by the Hon’ble Income Tax Appellate Tribunal is contrary to the ratio of this Hon’ble Court in CIT Vs. Atlas Cycle Industries, 180 ITR 319 and that of Rajasthan High Court in 306 ITR 343? ITA No. 421 of 2010 -2- 2. Whether in the facts and circumstances of the case the Tribunal failed to consider that the jurisdiction of the Assessing Officer ended when no additions were made as per reasons recorded and thus, explanation 3 to Section 147 was not applicable to the facts of the case. 3. Whether in the facts and circumstances of the case the Tribunal could take a view contrary to its own decision in Pritpal Singh’s case, ITA No. 346 ASR 2009 where a similar controversy was in issue? The facts in brief are that the appellant-assessee filed his return on 29.8.2002 declaring income of Rs. 91,890/- plus agricultural income of Rs. 2,03,125/-. The income was subsequently revised to Rs. 17,60,641/- plus agricultural income of Rs. 2,03,125/- on 13.2.2003. The case of the assessee was processed under Section 143(1) on 18.3.2004 and, thereafter, reassessment proceedings were initiated under Section 147 read with Section 148. The assessing officer during the reassessment proceedings observed that the revision of return was made after filing of charge sheet by the Vigilance Department on 24.12.2002; the assessee has understated his income and a total amount of Rs. 5,29,86,224/- has been earned by the assessee by dubious means. It was further observed that during the accounting period relevant to the assessment year in question, the assessee was Chairman of the Punjab State Forest Development Corporation and he received payments of Rs. 1,23,429/- by transfer to his Bank Account No. 01190005761 which included regular transfer of Rs.2,500/- per ITA No. 421 of 2010 -3- month besides other amounts. According to the assessing officer, the said receipts in the sum of Rs. 1,23,429/- were assessable in the hands of the assessee under the head ‘salary’. Besides, the assessee in his capacity as Chairman of the aforesaid Corporation had enjoyed the facility of residential accommodation for which the Corporation paid monthly rent of Rs. 25,000/- and, thus, a total sum of Rs. 3,00,000/- was to be treated as perquisite of the assessee. The assessing officer after critically investigating and examining the matter came to conclude that he had the reason to believe that income chargeable to tax amounting to Rs. 1,41,27,702/- had escaped assessment within the meaning of Section 147 of the Act. It was noticed by the assessing officer that the assessee was also partner in various firms. The salary received by him from those firms and the interest accruing thereon would be chargeable to tax. On these premises, the assessing officer further observed that income on these counts and the income on account of purchases of assets acquired from income beyond the known sources of the assessee and chargeable to tax had escaped assessment under Section 147 of the Act. Certain cash deposits were detected during investigation made by the Department. After visualizing the entire scenario which was supported by documents and otherwise, the assessing officer vide its order dated 28.12.2007 (Annexure A-1) made an addition of Rs.1,05,30,200/- to the taxable income returned by the assessee. Proceedings for imposition of penalty under Section 271(1) (c) were also initiated against the assessee separately. The assessee preferred appeal before the Commissioner of Income-tax (Appeals) {in short “CIT(A)”}. The primary submission that ITA No. 421 of 2010 -4- was made on behalf of the assessee was that the assessing officer could not make additions in respect of the income which had not escaped assessment for which no notice had been given to the assessee under Section 148 read with Section 147 of the Act. To fortify this submission, reliance on behalf of the assessee was placed on the judgment of this Court in Vipin Khanna vs. CIT 255 ITR 226 and CIT vs. Atlas Industries, 180 ITR 319. The CIT(A) after conversing with the assessing officer held as under: “It is correct that no addition has been made in the assessment order on the issues, on which the case was reopened u/s 147. Hence, the judgment of Hon’ble Punjab and Haryana High Court in the case of Sh. Vipin Khanna (255 ITR 220) is squarely applicable to the facts of the case. In the case of Sh.Vipin Khanna, supra, their Lordship had adjudicated that the Assessing Officer was precluded from seeking general information on other issues, which could only be done by issuing a notice u/s 143 (2) within the stipulated period. The Assessing Officer is of the view that the facts of the case relied upon by the learned counsel for the appellant are different from the appellant’s case, but it is not so. In view of the decision of the jurisdictional High Court in the case of Vipin Khanna, cited supra and by respectfully following the same, the reassessment made in the case of the appellant is cancelled.” ITA No. 421 of 2010 -5- Appeal of the assessee was consequently allowed vide order dated 27.5.2009 (Annexure A-2). Aggrieved by the order of the CIT(A), the Revenue preferred appeal before the Tribunal. The submissions raised on behalf of the Revenue before the Tribunal were two-fold, one that the CIT(A) was not justified in ignoring the remand report of the assessing officer which contained detailed facts and arguments in respect of all the issues involved. The second submission raised was that at the time of initiating proceedings under Section 147 read with Section 148 of the Act, only a prima facie satisfaction of the assessing officer was required and in support of this submission, reliance on behalf of the Revenue was placed on a decision of the apex Court in Raymond’s Woolen Mills Ltd. Vs. ITO (1999) 236 ITR 34 (SC). A specific reference was also made by the Revenue to the Explanation 3 inserted by Finance (No.2) Act, 2009 with effect from 1.4.1989 in support of the second submission. The Tribunal made a marathon exercise and exhaustively delved upon issues with reference to judicial enunciations produced on record by both the sides. The Tribunal held that the issues of additions qua the reasons were not adjudicated by the CIT(A) and the assessment was cancelled purely on legal grounds without adjudicating the case on merit and the case of Vipin Khanna (supra) did not advance the case of the assessee. In order to appreciate the issues raised herein, it is worthwhile to incorporate as what was held by the Tribunal, in nut-shell: “Thus, it is evident from the above discussions that the present case had been decided by the CIT(A) ITA No. 421 of 2010 -6- only on legal grounds and not on merits. The remand report of the A.O. has not been considered by the CIT(A) though officers of the Department were present at the time of proceedings before the CIT(A). Natural justice demands that the submissions made by the parties, must be considered and appreciated by the quasi judicial authority. Having regard to the above legal and factual discussions as also to advance the cause of justice, we are of the considered opinion that the case be restored to the file of the CIT(A), for fresh adjudication. Accordingly, we restore the case to the file of the CIT(A), with the direction to decide the case afresh, both on legal grounds and on merit of the case, having regard to the relevant provisions of the Act and the case laws quoted and relied upon by the contending parties including the remand report/submissions made by such parties. Further, it is incumbent on the CIT(A) to afford reasonable and proper opportunity to both the parties before adjudicating the case afresh. Accordingly, the appeal of Revenue is allowed for statistical purposes.” This is how the assessee is before us in present appeal. Learned counsel for the assessee submitted that the assessing officer had re-opened the assessment by issuing notice under Section 148 of the Act on the ground that the income from salary, ITA No. 421 of 2010 -7- perquisites and unexplained cash deposits in various accounts along with interest thereon had escaped assessment. The counsel uged that the assessing officer, however, while passing re-assessment order had sought to make addition of another amount without any addition having been made on the ground on the basis of which reassessment had been initiated. According to the learned counsel, no reassessment order could be passed by the assessing officer. Learned counsel for the assessee relied upon following observations made by this Court in CIT v. Atlas Cycle Industries (1989) 180 ITR 319:- “We are of the view that the Tribunal was right in cancelling the reassessment as both the grounds on which reassessment notice was issued were not found to exist, and the moment such is the position, the Income-tax Officer does not get the jurisdiction to make a reassessment.” Support was also drawn from the decision of Rajasthan High Court in Commissioner of Income-tax v. Shri Ram Singh, (2008) 306 ITR 343 (Raj.) wherein judgment of this Court in Atlas Cycle Industries's case (supra) was followed. We have given our thoughtful consideration to the submission of the learned counsel for the assessee and do not find any merit in the same. Explanation 3 to Section 147 has been inserted by Finance (No.2) Act, 2009 retrospectively with effect from 1.4.1989. It reads thus:- “Income escaping assessment. ITA No. 421 of 2010 -8- 147. XX XX XX 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.” A plain reading of Explanation 3 to Section 147 clearly depicts that the assessing officer has power to make additions even on the ground on which re-assessment notice might not have been issued in case during reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice during the course of proceedings for re-assessment under Section 148 of the Act. The provision no where postulates or contemplates that it is only when there is some addition on the ground on which re-assessment had been initiated, that the assessing officer can make additions on any other ground on the basis of which income may have escaped assessment. The reassessment proceedings, thus, in the present case cannot be held to be vitiated. Referring to the judgment of this Court in Atlas Cycle Industries’s case (supra) and Rajasthan High Court in Shri Ram Singh's case (supra), it may be noticed that these were the judgments rendered by the Courts prior to the insertion of Explanation-3 to Section ITA No. 421 of 2010 -9- 147 of the Act. In view of insertion of Explanation 3 to Section 147 by Finance (No.2) Act, 2009 w.e.f. 1.4.1989, the aforesaid judgments do not advance the case of the assessee any longer. Accordingly, we find no merit in the appeal. Consequently, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) September 13, 2010 JUDGE rkmalik/gbs