Delhi High Court

The Commissioner Of Income Tax Ii vs Software Consultants on 17 January, 2012

Author: Sanjiv Khanna

$~26.
*IN THE HIGH COURT OF DELHI AT NEW DELHI


+       ITA 914/2010


        THE COMMISSIONER OF INCOME TAX II..... Appellant
                    Through Mr. Kiran Babu, Sr. Standing
                    Counsel.

                        versus

        SOFTWARE CONSULTANTS               ..... Respondent
                   Through Mr. Salil Aggarwal, Advocate.


         CORAM:
         HON'BLE MR. JUSTICE SANJIV KHANNA
         HON'BLE MR. JUSTICE R.V.EASWAR

                      ORDER

% 17.01.2012

This appeal under Section 260A of the Income Tax Act,

1961 (Act, for short) impugns the order dated 26th September,

2008 passed by the Income Tax Appellate Tribunal (tribunal, for

short) in ITA No. 2554/D/2004 in the case of Software

Consultants (India) Private Limited. The appeal pertains to the

assessment year 1993-94.

2. By order dated 17th October, 2011, the following

substantial question of law was framed:

"Whether the tribunal was right in law in holding that the Commissioner of Income

Tax had wrongly invoked jurisdiction under Section 263 of the Income Tax Act, 1961."

3. The assessee is a company and for the assessment year

1993-94 did not file their return of income. During the course of

assessment proceedings for the assessment year 1997-98, it

was noticed that Central Bureau of Investigation had conducted

search in the premises in which FDRs worth Rs.20 lacs relating

to assessment year 1993-94 were found in possession of

Poonam Rani Singh, a director of the respondent company.

However, Poonam Rani Singh claimed that the FDRs though in

her name, actually belonged to the respondent assessee. This

stand was accepted by the CIT (Appeals) in his order dated 16th

February, 2001 in the appeal filed by Poonam Rani Singh.

4. Thereafter, the Assessing Officer in the case of the

respondent assessee issued notice under Section 148 of the Act

on 29th March, 2001. In response to this notice, the respondent

assessee on 16th August, 2001filed a return showing loss of

Rs.1,02,756/-. By assessment order dated 28th March, 2002 the

Assessing Officer accepted that the respondent assessee had

established and proved the source and their capacity to invest

Rs.20 lacs and accordingly no addition was made on this

account. The return filed by the assessee showing loss of

Rs.1,02,756/- was accepted. No addition was made.

5. In this assessment order dated 28th March, 2002, the

Assesssing Officer had also noted as under:-

" Scrutiny of the P&L A/c also revealed that during the year share application money was increased by Rs.47,00,000/-. In order to verify the geniuses of share application money summons u/s 131 of the IT Act was issued to person on random basis and statement was recorded for confirming of these investments made by them towards the assessee company."

6. The Commissioner of Income Tax vide order dated 25th

March, 2004 under Section 263 of the Act directed the

Assessing Officer to conduct further enquiries in respect of

share application money of Rs.47 lacs. He also held that the

Assessing Officer had erred in determining loss after issue of

notice under Section 148 of the Act.

7. With regard to the first aspect, the Commissioner of

Income Tax observed that only seven parties were issued

notices on random basis and their statements were recorded,

but notices were not issued to other share applicants. The

Commissioner of Income Tax in his order has mentioned

lacunas and defects in the statements of the seven share

applicants and the manner in which they were recorded.

Accordingly, he held that the Assessing Officer had failed to

make necessary verification and enquiries, which were required.

Direction was given to the Assessing Officer to carry out

investigation and enquiries regarding receipt of share application

money.

8. The assessee preferred an appeal before the tribunal,

which has been disposed of by the impugned order dated 26th

September, 2008. The tribunal has quashed the order under

Section 263 of the Act passed by the Commissioner of Income

Tax.

9. One of the contentions, which has been accepted by the

tribunal is that the order of the Assessing Officer cannot be

regarded as erroneous even if the Assessing Officer had failed

to carry out necessary verification and required enquiries in

respect of the share application money, as no addition has been

made on account of the reasons for reopening, which were

recorded before issue of notice under Section 148 of the Act. It

has been held that the Assessing Officer could not have made

an addition on account of share application money as no

addition has been made on account of FDRs of Rs.20 lacs. The

tribunal has noticed and recorded that in the reasons for

reopening it was mentioned that the assessee had made

investment in form of FDRs of Rs.20 lacs but in the assessment

order passed under Section 147/143(3) of the Act it has been

held that the respondent assessee had been able to show and

establish the genuineness of and capacity to make the said

investment.

10. Similar issue had arisen before this Court in Ranbaxy

Laboratories Limited versus CIT, (2011) 336 ITR 136 (Delhi).

In the said case, the Division Bench had also examined

Explanation 3 to Section 147, which was inserted by Finance

(No. 2) Act of 2009 with retrospective effect from 1st April, 1989.

Reference was made to the decision of the Bombay High Court

in CIT versus Jet Airways India Limited, (2011) 331 ITR 236

(Bom.) in which it has been held as under:

"The effect of section 147 as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148 ; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped

assessment 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 the section ; and (iv) though the notice under section 148(2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section."

11. Thereafter, the High Court referred to the decision of the

Rajasthan High Court in the case of CIT versus Shri Ram

Singh, (2008) 306 ITR 343 (Raj.) in which it has been observed

as under:

"It is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147.

To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any

assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."

12. The Division Bench in Ranbaxy Laboratories Limited

(supra)considered the judgment of the Supreme Court in the

case of V. Jagmohan Rao versus CIT and EPT, (1970) 75 ITR

373(SC) and CIT versus Sun Engineering Works Private

Limited, (1992) 198 ITR 297 (SC) and has then elucidated:

"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 (I) 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. Sub-section (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 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-I 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-I 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 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."

13. On the second aspect raised by the Commissioner of

Income Tax with regard to the Assessing Officer accepting the

loss return of Rs.1,02,756/-, we are of the view that the same did

not require exercise of revisionary power under Section 263 of

the Act. The observations of the Assessing Officer were only to

the extent of stating that he had accepted the return. Benefit of

carry forward of loss can be claimed in case a return is filed

under Section 139(1). It is not the case of the Revenue that the

assessee had tried to claim benefit of carry forward of loss on

the basis of the order passed under Section 147/143(3) of the

Act.

14. For exercise of power under Section 263 of the Act, it is