Income Tax Appellate Tribunal - Raipur
Pioneer Carbon Co. Pvt. Ltd., Bhilai, ... vs Income Tax Officer, Ward-1(4), Bhilai, ... on 25 January, 2024
आयकर अपील य अ धकरण यायपीठ रायपुर म।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAIPUR BENCH, RAIPUR
BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER
AND
SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA Nos. 369 & 370/RPR/2023
नधारण वष / Assessment Years : 2013-14 & 2015-16
Pioneer Carbon Co. Pvt. Ltd.
8, Civic Centre,
Bhilai-490 006 (C.G.)
PAN: AABCP3472D
.......अपीलाथ / Appellant
बनाम / V/s.
The Income Tax Officer
Ward-1(4), Bhilai (C.G.)
...... यथ / Respondent
Assessee by : Shri S.R. Rao, Advocate
Revenue by : Shri Satya Prakash Sharma, Sr. DR
सन
ु वाई क तार ख / Date of Hearing : 10.01.2024
घोषणा क तार ख / Date of Pronouncement : 25.01.2024
2
Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.)
ITA Nos. 369 & 370/RPR/2023
आदे श / ORDER
PER RAVISH SOOD, JM:
The captioned appeals filed by the assessee company are directed against the respective orders passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 12.10.2023 and 23.11.2023, which in turn arises from the respective orders passed by the A.O under Sec.143(3)/147 AND 143(3) of the Income-tax Act, 1961 (in short 'the Act') dated 28.12.2017 for the assessment years 2013-14 & 2015-16, respectively. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, therefore, the same are being taken up and disposed off by way of a consolidated order.
2. We shall first take up the appeal filed by the assessee in ITA No. 369/RPR/2023 for assessment year 2013-14, wherein, the assessee company has assailed the impugned order on the following grounds of appeal:
"1) In the facts and circumstances of the case and in law, the action of ld.
Commissioner of Income-tax (Appeals) is not justified for he wrongly decided the ground that since the primary ground for which re-assessment proceedings were initiated ceased to survive, the additions on other grounds is illegal and without jurisdiction.
2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs.91,16,214/- as deemed dividend u/s.2(22)(e) of the Income-tax Act, 1961 in the hands of the assessee company.
3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs.1,23,312/- u/s.40(a)(ia) of the Income-tax Act, 1961.
3Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
4) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs.82,208/- out of interest expenses on estimate basis.
5) The impugned order is bad in law and on facts.
6) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice."
3. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not the A.O had validly assumed jurisdiction and framed the assessment in the case of the assessee company vide his order passed u/ss.
143(3)/147 of the Act dated 28.12.2017?
4. As is discernible from the record the case of the assessee company was reopened by the A.O based on the following "reasons to believe":
"Reasons for issuing Notice u/s.148 As per the information available on records of this office, the assessee was in receipt of Rs.7,21,147/- as interest on savings and TDS had been deducted at source during F.YR relevant to the assessment year under consideration. However, it is also on records that the assessee has not filed return of income for the said assessment year.
Thus, I have reasons to believe that investment and income to the extent of Rs.7,21,147/- has escaped assessment within the meaning of provision of Section 147 of the Income Tax Act, 1961 and therefore, I am satisfied that this is fit case to initiate proceedings u/s. 147.
Issue Notice u/s. 148.
Dated: 11.12.2015 Sd/-
S.D. Bhoskar ITO-1(1), Bhilai 4 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 It transpires on a perusal of the assessment order that the A.O while framing assessment had though not made any addition as regards the issue based on which the case of the assessee company was reopened u/s.147 of the Act, i.e., receipt of interest income by the assessee company at Rs.7,21,147/- but had made three independent additions/disallowances, viz. (i) addition of deemed dividend u/s.2(22)(e) of the Act : Rs.91,16,214/-; (ii) disallowance of interest expenditure u/s.40(a)(ia) of the Act : Rs.1,23,312/-; and (iii) disallowance of interest expenditure u/s.36(1)(iii) of the Act : Rs.82,208/-.
5. On appeal, the CIT(Appeals) approved the view taken by the A.O and dismissed the appeal of the assessee.
6. The assessee company being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
7. Shri S.R. Rao, Ld. Authorized Representative (for short 'AR') for the assessee company at the threshold of hearing of the appeal submitted that now when the A.O had not made any addition as regards the issue, based on which, the case of the assessee company was reopened, i.e., receipt of interest income of Rs.7,21,147/-; therefore, he had wrongly assumed jurisdiction and made independent additions/disallowances while assessing the income of the assessee company vide his order passed u/ss. 143(3)/147 of the Act dated 28.12.2017. The Ld. AR in support of his aforesaid contention placed reliance on the following judicial pronouncements:
5Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
(i) Commissioner of Income Tax-5, Mumbai Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.)
(ii) Assistant Commissioner of Income Tax Vs. Major Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh).
(iii) Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax (2011) 12 taxmann.com 74 (Delhi)
(iv) Ajay Kumar Agrawal Vs. ITO, Ambikapur, ITA Nos. 260 & 261/RPR/2016 dated 14.03.2022.
(v) Shri Surendra K Sheth (HUF) Vs. ITO-17(3)(4), Mumbai, ITA No.4861/Mum/2019 dated 25.02.2021.
8. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities.
9. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
10. Admittedly, it is a matter of fact borne from record that the A.O while framing assessment vide his order passed u/s.143(3)/147 of the Act dated 28.12.2017 had not made any addition qua the very reason for which the case of the assessee company was reopened u/s.147 of the Act. Considering the aforesaid factual position, we find substance in the claim of the Ld. AR that in absence of any addition having been made by the A.O as regards the very reason based on which the case of the assessee company was reopened u/s.147 of the Act, then no valid jurisdiction could have there been assumed by him to frame assessment u/s.147 of 6 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 the Act. Our aforesaid view is fortified by the judgement of the Hon'ble High Court of Bombay in the case of CIT-5 Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom), wherein the Hon'ble High Court on the issue in hand had held as under:
"3. Section 147 of the Income Tax Act, 1961 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153 assess or reassess such income " 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 this section". The proviso deals with reopening of an assessment upon the expiry of a period of four years from the end of the relevant assessment year and does not fall for interpretation in this appeal. Explanation 3 to Section 147 was inserted by the Finance (No.2) Act of 2009, with effect from 1-4-1989. Explanation 3 provides as follows:
"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 subsection (2) of section 148.
4. Prior to its amendment with effect from April 1, 1989, section 147 provided as follows:
"147. Income escaping assessment.--If--
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income of recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)."
5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has "escaped assessment". Upon the formation of 7 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee, a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to assess or reassess such income "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 section 147.
6. The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 is that even though the notice that has been issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently, in the course of the proceedings. The reasons for the insertion of Explanation 3 are to be found in the Memorandum Explaining the Provisions of the Finance (No. 2) Bill of 2009. The Memorandum treats the amendment to be clarificatory and contains the following explanation:
"Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 to provide that the Assessing-Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148."
7. In order to appreciate the reasons for the amendment inserting Explanation 3, it would be necessary to advert to some of the judgments of the High Courts, prior to the Amendment.
The Punjab and Haryana High Court in its decision in Vipan Khanna v. CIT, [2002] 255 ITR 220 dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative. A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. Asst. CIT, [2008] 305 ITR 170, that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to relieve that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were 8 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows (page
178):
"The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after subsection (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which, he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads, income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings."
Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.
8. Parliament stepped in to correct what it regarded as an incorrect interpretation of the provisions of section 147. The Memorandum Explaining the Provisions of the Finance (No. 2) Bill of 2009 states in this background that some courts had held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment and that it was not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by Parliament as being contrary to legislative intent. Hence, Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147 though the reasons for such issue were not included in the reasons recorded in the notice under section 148(2).
9. 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 9 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 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 to the course of the proceedings under the section.
10. Now the submission of the learned counsel appearing on behalf of the assessee in the present case is that the words "and also" in section 147 postulate that the Assessing Officer may assess or reassess the income which he has reason to believe has escaped assessment together with any other income chargeable to tax which has escaped assessment and which comes to his notice during the course of the proceedings. In other words, unless the Assessing Officer assesses the income with reference to which he had formed a reason to believe within the meaning of section 147, it would not be open to him to assess or reassess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. On the other hand, it has been urged on behalf of the Revenue that even if during the course of assessment or, as the case may be, reassessment, the Assessing Officer does not assess or reassess the income which he has reason to believe has escaped assessment and which formed the subject-matter of a notice under section 148(2), it is none the less open to him to assess any other income which' during the course of the proceedings is brought to his notice as having escaped assessment.
11. The rival submissions which have been urged on behalf of the Revenue and the assessee can be dealt with both as a matter of first principle, interpreting the section as it stands and on the basis of precedent on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has power to assess or reassess the income which he has reason to believe had escaped assessment, and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and 10 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and" as well as "also" have been used together and in conjunction.
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 Assessing Officer, 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 Assessing:
Officer 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, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer 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 the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the 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. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess to 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 proceeding. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.
12. In Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd., [1992] 198 ITR 297 the Supreme Court dealt with the following question of law in the course of its judgment:
"Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income?"
The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income an assessee could seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of 11 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 section 147, as they stood prior to the amendment on April 1, 1989. The Supreme Court held that the expression "escaped assessment" includes both "non-assessment" as well as "underassessment". Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time made by resorting to the provisions of section 147. The expression "reassess" refers to a situation where, an assessment has already been made but the Assessing Officer has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao v. CIT/EPT, [1970] 75 ITR 373, which held that once an assessment is validly reopened, the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The court held that the object of section 147 ensures to the benefit of the Revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings.
The judgment in V. Jaganmohan Rao's case, [1970] 75 ITR 373 dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engineering Works, [1992] 198 ITR 297 (SC) interprets the provisions of section 147 as they stood prior to the amendment on April 1, 1989.
13. The effect of the amended provisions came to be considered, in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject matter of the notice under section 148. This view was adopted in the judgment of the Punjab and Haryana High Court in Vipan Khanna, [2002] 255 ITR 220 and in the judgment of the Kerala High Court in Travancore Cements Ltd., [2008] 305 ITR 170. This line of authority would now cease to reflect the correct position in law by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by the Finance (No. 2) Act of 2009. The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2).
12Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
14. The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT v. Shri Ram Singh, [2008] 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in section 147 particularly the words that the Assessing Officer may assess or reassess such income 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 section 147. The Rajasthan High Court held as follows :
".....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 add-on, 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."
15. Parliament, when, it enacted Explanation 3 to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd., [2008] 305 ITR 170 and of the Punjab and Haryana High Court in Vipan Khanna, [2002] 255 ITR 220 would, therefore, no longer hold the field. However, in so far as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343, Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab and Haryana High Court 13 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 in CIT v. Atlas Cycle Industries, [1989] 180 ITR 319. The decision in Atlas Cycle Industries, [1989] 180 ITR 319 held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or nonexistent. The decisions of the Punjab and Haryana High Court in Atlas Cycle Industries, [1989] 180 ITR 319 and of the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343 would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.
16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, 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 he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.
17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147 and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 14 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh, [2008] 306 ITR 343. Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147 as they stood after the amendment of April 1, 1989, continue to hold the field.
18. In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall accordingly stand answered against the Revenue and in favour of the assessee. The appeal is accordingly dismissed. There shall be no order as to costs."
At this stage, we may herein observe that the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Jet Airways (I) Ltd. (supra) had been followed by the Hon'ble High Court of Chhattisgarh in the case of Assistant Commissioner of Income Tax Vs. Najor Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh).
11. Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions vide his order passed u/s.
143(3)/147 dated 28.12.2017, we herein quash the same.
12. As we have quashed the assessment for want of valid assumption of jurisdiction by the A.O, therefore, we refrain from adverting to and therein, adjudicating the other contentions advanced by the Ld. AR as regards the merits of the case, which, thus are left open.
13. In the result, appeal of the assessee in ITA No.369/RPR/2023 for A.Y.2013- 14 is allowed in terms of our aforesaid observations.
15Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 ITA No.370/RPR/2023 A.Y. 2015-16
14. We shall now take up the appeal filed by the assessee company in ITA No.370/RPR/2023 for A.Y.2015-16, wherein, the assessee company has assailed the impugned order on the following grounds of appeal:
"1) In the facts and circumstances of the case and in law, the action of Id.
Commissioner of Income-tax (Appeals) is not justified in confirming additions made by ld. Assessing Officer on items not covered under scope of limited scrutiny and travelled beyond her jurisdiction is illegal and without jurisdiction.
2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs.47,53,851/- as deemed dividend u/s.2(22)(e) of the Income-tax Act, 1961 in the hands of the assessee company.
3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs.1,75,486/- u/s 40(a)(ia) of the Income-tax Act, 1961.
4) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming addition of Rs.1,16,990/- out of interest expenses on estimate basis.
5) The impugned order is bad in law and on facts.
6) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice."
15. Controversy involved in the present appeal lies in a narrow compass, i.e., validity of the jurisdiction assumed by the A.O for framing assessment u/s. 143(3) of the Act dated 28.12.2017.
16. Succinctly stated, the assessee company which is engaged in the business of manufacturing and trading of calcined petroleum cock, had e-filed its return of income for A.Y.2015-16 on 31.10.2015 declaring an income of Rs.4,45,530/-.
16Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 Subsequently, the case of the assessee company was selected through CASS for "limited scrutiny" for carrying out verification on the following issue:
(i) Large share premium received during the year (verify applicability of Section 56(2)(viib)
17. Assessment was, thereafter, framed by the A.O vide his order passed u/s.
143(3) dated 28.12.2017, wherein income of the assessee company was determined at Rs.54,91,857/-, after, inter alia, making the following additions/disallowances:
Sl. No. Particulars Amount
1. Addition towards deemed dividend u/s. Rs.47,53,851/-
2(22)(e) of the Act
2. Disallowance of the assessee's claim for Rs.1,75,486/-
deduction of interest expenditure u/s.
40(a)(ia) i.e. 30% of Rs.5,84,953/-
3. Disallowance of the assessee's claim for Rs.1,16,990/-
deduction of interest expenditure
(disallowance of excess amount)
18. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under:
"Ground of appeal no. 1
1. In the facts and circumstances of the case and in law the Id. Assessing Officer has erred in making additions on items not covered under s cope of 17 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 limited scrutiny thus travelled beyond her jurisdiction consequently the assessment is bad in law and without jurisdiction.
After perusal of the facts of the case it is observed that the assessment order passed by AO after obtaining the prior the prior approval of the competent authority. Hence, these grounds of the appellant is hereby dismissed.
Ground of appeal no. 2
2. The Id. Assessing Officer has erred in making addition of Rs.91,16,214 as deemed dividend u/s.2(22) (e) of the Income-tax Act, 1961 in appellant's own case.
As per Section 2(22(e)
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ;
but "dividend" does not include--
(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder GI the share is not entitled in the event of liquidation to participate in the surplus assets ;
(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ;
(ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off,.
18Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A13 of the Companies Act, 1956 (1 of 1956);
(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).
7. For invoking the provisions of section 2(22(e) there must be a payment by the company by way of advance or loan. Provisions of section 2(22)(e) of the Act come in to play only if the company makes a payment to such shareholder, by way of advance or loan and that too to the extent the company possesses accumulated profit, provided that his/her holding is not less that ten percent of voting power. From provisions of section 2(22)€ it is clearly evident that the provisions of this section come in to play.
In the instant case it is not disputed that the appellant assessee is a 40% shareholder in the company. Thus the appellant has a substantial interest in the company.
There has also been an advance in this case from the company in which the appellant has substantial interest.
Reliance are placed on following case laws.
1. [2019] 106 taxmann.com67(madras)High Court of Madras Bhagvathy Velan Vs. Dy. Commissioner of Income Tax, Corporate Circle-6(1), Chennai.
2. [2018]98 taxmann.com 543 (Bombay) High Court of Bombay Shri Sahir Sami Khatib Vs. Income Tax Officer, Mumbai.
3. [2021] 127 taxmann. Com 820 (Gujarat) High Court of Gujarat, Principal Commissioner of Income Tax Vs. Gladder Ceramics Ltd. 0 The conditions prescribed u/s 2(22)(e) satisfied in this case and the appellant is covered under the provision of section 2(22)(e) and is to be taxed accordingly. The ground of appeal is dismissed.
8. Ground of appeal no. 3 & 4
3. The Id. Assessing Officer has erred in making disallowance of Rs.1,23,312 u/s.40(a)(ia) of the Income-tax Act, 1961.
4. The Id. Assessing Officer has erred in making disallowance of Rs. 82,208 out of interest expenses on estimate basis.
As per Section 40 (a)(ia) 19 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 "Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--
(ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :
Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub- clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.
Explanation. --For the purposes of this sub-clause, --
(i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to section 194H;
(ii) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(iii) "professional services" shall have the same meaning 3s in clause (a) of the Explanation to section 194J;
(iv) "work" shall have the same meaning as in Explanation Ill to section 194C;
(v) "rent" shall have the same meaning as in clause 0) to the Explanation to section 194-1;
(vi) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9."
Section 40(a)(ia) provides for the consequences of default in the case where tax is deductible at source on any interest, commission, brokerage or fees but had not been so deducted, or had not been paid after deduction (during the previous year or in the subsequent year before expiry of the prescribed time) in the manner that the amount of such interest, commission, brokerage or fees shall not be deducted in computing the income chargeable under "profits and gains of business or profession". In 20 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 other words, it shall be computed as income of the assessee because of his default in not deducting the tax at source.
In the overall scheme of the provisions relating to collection and recovery of tax, it is evident that the object of legislature in introduction of the provisions like sub-clause (ia) of clause (a) of Section 40 had been to ensure strict and punctual compliance of the requirement of deducting tax at source. In other words, the consequences, as provided therein, had the underlying objective of ensuring compliance of the requirements of TDS. It is also noteworthy that in the proviso added to clause (ia) of Section 40(a) of the Act, it was provided that where in respect of the sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid in any subsequent year after the expiry of the time prescribed in Section 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
The purpose and coverage of this provision as also protection therein have been tersely explained by this Court in the case of Calcutta Export Company (supra), which has been cited by learned counsel for the appellant in support of another limb of submissions which we shall be dealing with in the next question. For the present purpose, we may notice the relevant observations of this Court in Calcutta Export Company as regards Section 40(a)(ia) of the Act as follows (at p. 662 of ITR): -
The purpose is very much clear from the above referred explanation by the Memorandum that it came with a purpose to ITA No.467/CTK/2017 ensure tax compliance. The fact that the intention of the Legislature was not to punish the assessee is further reflected from a bare reading of the provisions of Section 40(a)(ia) of the Income- tax Act. It only results in shifting of the year in which the expenditure can be claimed as deduction. In a case where the tax deducted at source was duly deposited with the Government within the prescribed time, the said amount can be claimed as a deduction from the income in the previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the Government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the Government."
"A Division Bench of the Calcutta High Court in CIT v. Crescent Export Syndicate [2013] 216 Taxman 258 (Cal) held:
The term "shall" used in all these sections make it clear that these are mandatory provisions and applicable to the entire sum contemplated under the respective sections. These sections do not give any leverage to the assessee to make the payment without making TDS. On the contrary, the intention of the Legislature is evident from the fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at the time of 21 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 credit in the account of payee or at the time of payment to payee, whichever is earlier.
The liability to deduct tax at source is, therefore, mandatory."
The above amendments made by the Finance Act, 2008 thus provided that no disallowance under Section 40(a)(ia) of the Income-tax Act shall be made in respect of the expenditure incurred in the month of March if the tax deducted at source on such expenditure has been paid before the due date of filing of the return. It is important to mention here that the amendment was given retrospective operation from the date of April 1,2005, i.e., from the very date of substitution of the provision.
Therefore, the assesses were, after the said amendment in 2008, classified in two categories namely: one, those who have deducted that tax during the last month of the previous year and two, those who have deducted the tax in the remaining eleven months of the previous year. It was provided that in the case of assessees falling under the first category, no disallowance under Section 40(a)(ia) of the Income-tax Act shall be made if the tax deducted by them during the last month of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of section 139(1) of the Income-tax Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under Section 40(a)(ia) of Income-tax Act where the tax was deducted before the last month of the previous year and the same was credited to the Government before the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only.
The amendment though has addressed the concerns of the assesses falling in the first category but with regard to the case falling in the second category, it was still resulting into unintended consequences and causing grave and genuine hardships to the assesses who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns under section 139(1) of the Income-tax Act. The disability to claim deductions on account of such lately credited sum of TDS in assessment of the previous year in which it was deducted, was detrimental to the small traders who may not be in a position to bear the burden of such disallowance in the present assessment year.
In order to remedy this position and to remove hardships which were being caused to the assessees belonging to such second category, amendments have been made in the provisions of section 40(a)(ia) by the Finance Act, 2010.
22Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 Thus, the Finance Act, 2010 further relaxed the rigors of Section 40(a)(ia) of the Income-tax Act to provide that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income. The idea was to allow additional time to the deductors to deposit the TDS so made. However, the Memorandum.
Explaining the Provisions of the Finance Bill, 2010 expressly mentioned as follows: "This amendment is proposed to take effect retrospectively from April 1, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years."
Since the amendments made by the Finance Act, 2008 provided that no disallowance u/s 40(a)(ia) of the I.T. Act shall be made in respect of the expenditure incurred in the tax deducted at source on such expenditure has been paid before the due date.
Thus, the appellant assessee was under obligation to deduct tax as per section 194H and 1941 on payment made by it under head "rent and commission ". The appellant assessee not having deducted TDS payments in question was rightly disallowed deduction while computing the total income of the appellant assessee by the A.O. Reliance is placed on the following case laws:-
1. [2017] 84 taxmann.com 233 (Jammu & Kashmir) HIGH COURT OF JAMMU AND KASHMIR Principal Commissioner of Income-tax v. Manzoor Ahmed Walvir*
2. [2018] 91 taxmann.com 293 (Kerala)/[2018] 254 Taxman 419 (Kerala)/[2018] 403 ITR 74 (Kerala)HIGH COURT OF KERALA Academy of Medical Sciences vs. Commissioner of Income-tax.
3. [2017] 81 taxmann.com 43 (SC)/[2017] 247Taxman379 (SC)42017] 394 ITR 300 (SC) 42017] 295 CTR 1 (SC)) SUPREME COURT OF INDIA Palam Gas Service v. Commissioner of Income-tax
4. [2020] 118 taxmann.com 47 (SC){2020] 272 Taxman 472 (SC) SUPREME COURT OF INDIA Shree Choudhary Transport Company vs. income Tax Officer.
10. Ground of appeal No. 5 & 6 are general in nature no needs adjudication.
11. As a result, the appeal is hereby dismissed."
19. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.23
Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
20. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
21. Shri S.R. Rao, Ld. Authorized Representative (for short 'AR') for the assessee company at the threshold had assailed the validity of the jurisdiction that was assumed by the A.O for framing of the assessment vide his order passed u/s.
143(3) of the Act. Elaborating on his contention, the Ld. AR submitted that though the case of the assessee company was selected for "limited scrutiny" for the purpose of verifying the applicability of Section 56(2)(viib) of the Act regarding the amount share premium that it had received during the year but additions/disallowances were made on certain extraneous issues which had never formed the basis for picking up the case for "limited scrutiny". Carrying his contention further, the Ld. AR had drawn our attention to the additions/disallowance which were made by the A.O while framing the assessment vide his order passed u/s. 143(3) dated 28.12.2017. Backed by the aforesaid facts, the Ld. AR submitted that as it was not the case that the A.O had extended the scope of the scrutiny assessment by obtaining approval of the Pr.CIT, therefore, the A.O was clearly divested of his jurisdiction to have made the aforesaid disallowances/additions while framing the assessment. It was submitted by the Ld. AR that as per CBDT Instruction No.20 of 2015, dated 29.12.2015, scrutiny in the cases which are selected through CASS has to be confined only to the specific 24 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 reasons and issues for which the case has been picked up for limited scrutiny. The Ld. AR in support of his aforesaid contention relied on the following judicial pronouncements:
(i) Danone Asia Pte Limited, Singapore Vs. ACIT, Int Tax-1(2)(2), New Delhi, ITA No.376/Del/2021
(ii) ACIT, Circle-5(2), New Delhi Vs. Trehan Promoters and Builders Pvt. Ltd., ITA No.9872/Del/2019
(iii) Shri Kumjal Chandrakant Mehta Vs. the ITO, Ward-5(3)(1), Ahmedabad, ITA No.2183/Ahd/2018
(iv) Suresh Jugraj Mutha Vs. Addl. CIT, Range-3, Dhule, ITA No.05/PUN/2016
(v) Ajay Kumar Agrawal Vs. ITO, Ambikapur, ITA Nos. 260 & 261/RPR/2016 dated 14.03.2022
(vi) Shri Surendra K Sheth (HUF) Vs. ITO-17(3)(4), Mumbai 2021 (2) TMI 1148- ITAT Mumbai.
22. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities.
23. We have thoughtfully considered the aforesaid issue in the backdrop of the contentions of the Ld. authorized representatives of both the parties. As is discernible from the assessment order the case of the assessee company was selected for "limited scrutiny" for the following reason:
"(i) Large share premium received during the year (verify applicability of Section 56(2)(viib)"
Admittedly, it is a matter of fact borne from record which has not been rebutted by the Ld. DR that the A.O at no stage of the assessment proceedings had obtained 25 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 approval of the Pr. CIT for converting the "limited scrutiny" into "complete scrutiny"
as provided by the CBDT Circular No. 20/2015 [F. No.225/269/2015-ITA-II], dated 29.12.2015. Considering the aforesaid facts, we find, that as stated by the Ld. AR, and rightly so, the scope of jurisdiction of the A.O while framing the "limited scrutiny" was circumscribed by the very purpose/reason, for which, the case of the assessee company was selected for scrutiny assessment. Accordingly, we find substance in the claim of the Ld. AR that the A.O had clearly exceeded his jurisdiction by making disallowances/additions which never formed the basis for selection of the case of the assessee company for "limited scrutiny". Our aforesaid view is fortified by the order of the Co-ordinate Bench of the Tribunal, Raipur in the case of Aryadeep Complex (P) Ltd. Vs. Pr. Commissioner of Income Tax, ITA No.85/RPR/2020 dated 05.08.2022, wherein the Tribunal relying on the order of the ITAT, Bombay in the case of Su-Raj Diamond Dealers (P) Ltd. Vs. Pr. CIT (2020) 203 TTJ ( Mumbai) 137 had held as under:
"8. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. As the Pr. CIT had held the order passed by the Assessing Officer u/s.143(3) of the Act, dated 21.04.2016 as erroneous in so far it was prejudicial to the interest of the revenue on two grounds, therefore, we shall deal with them in a chronological manner as herein below :
(A).Claim of loss from derivatives :-
9. Ostensibly, the Pr. CIT had, inter alia, qua the aforesaid issue held the order passed by the Assessing Officer u/s. 143(3) of the Act, dated 21.04.2016 as erroneous in so far it was prejudicial to the interest of the revenue u/s.263 of the Act, for the reason that 26 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 the AO had failed to verify the assessee's claim of loss from derivatives of Rs.26,90,317/-.
10. After giving a thoughtful consideration, it transpires, that as stated by the Ld. AR, and rightly so, as the case of the assessee was selected for limited scrutiny under CASS for certain specific reasons and, examination of its claim for loss from derivatives was not one of those reasons for which the case was selected for such limited scrutiny assessment, therefore, the Pr. CIT could not have held the order passed by the Assessing Officer as erroneous, for the reason that the latter while framing the assessment had failed to verify the assessee's claim of loss from derivatives i.e, an issue which was extraneous to the reasons for which the case was selected for limited scrutiny under CASS. In sum and substance, now when pursuant to the selection of the assessee's case for limited scrutiny under CASS the jurisdiction of the Assessing Officer was circumscribed qua only those issues which had formed the reason for picking up of its case for such scrutiny, therefore, the failure on his part in not making verification or examination of any other extraneous issue by no means could have justifiably formed a reason for holding the order passed by him as erroneous in so far it was prejudicial to the interest of the revenue u/s 263 of the Act. As per CBDT Instruction No. 20/2015, dated 29.12.2015, scrutiny in cases which are selected through CASS has to be confined only to the specific reasons and issues for which the case has been picked up for scrutiny. Accordingly, now when the Assessing Officer pursuant to the selection of the case of the assessee for limited scrutiny through CASS was not vested with any jurisdiction for adverting to and therein dealing with issues which did not form part of the reasons for which the case was picked up for limited scrutiny assessment under CASS, thereupon, the Pr. CIT could not have justifiably stepped in to hold the order passed by the Assessing Officer u/s.143(3) of the Act, dated 21.04.2016 as erroneous, for the reason, that he had failed to verify and examine such unrelated issues while framing the assessment. Our aforesaid view is fortified by the decision of the co-ordinate Bench of the Tribunal in the case of M/s Su-Raj Diamond Dealers Pvt. Ltd Vs. Pr. CIT, (2020) 203 TTJ 137 (Mum.) (of which one of us i.e., Judicial Member was a party), wherein it was held as under :
"6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the case of the assessee was selected for limited scrutiny through CASS for two reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. Insofar 27 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 the fact that the case of the assessee was selected for limited scrutiny for the aforesaid reasons is concerned, the same as observed by us hereinabove is not disputed and is clearly discernible from the order passed by the Pr. CIT under Sec. 263 of the Act. In fact, we find, that the Pr. CIT in his order had categorically observed that the case of the assessee was not selected for examination on the issue relating to „closing stock‟, but was selected for limited scrutiny for the aforesaid two reasons viz. (i). Large other expenses claimed in the P&L A/c.;and (ii). Low income in comparison to High Loans/advance /Investment in shares. We find that as per the CBDT Instruction No. 20/2015, dated 29.12.2015, scrutiny in cases selected through Computer Aided Scrutiny Selection (CASS) is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. In order to appreciate the issue under consideration, we deem it fit to cull out the CBDT instruction No. 20/2015, dated 29.12.2015., which reads as under:
"INSTRUCTION NO. 20/2015, DATED: 29-12-2015 29/12/2015 Subject : Scrutiny Assessments-some Important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection ('CASS') - Reg.-
The Central Board of Direct Taxes ('CBDT'), vide Instruction No. 7/2014 dated 26.09.2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS Further clarifications have been sought regarding the scope and applicability of the aforesaid instruction to cases being scrutinized.
2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014.
ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameters) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said instruction would not apply.
iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these 28 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 cases can only be conducted as per the guidelines and procedures stated in Instruction No 7/2014 iv Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned
3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-- one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under:
a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned.
b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny Further, the scope of enquiry shall be restricted to the Limited Scrutiny' issues.
c. These cases shall be completed expeditiously in a limited number of hearings.
d. During the course of assessment proceedings in 'Limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr CIT/CIT concerned. However, such an approval shall be accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case Such cases Shalt be monitored by the Range Head concerned The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata. Bengaluru, Hyderabad and Ahmedabad.
4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing 29 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show- cause notice.
5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance.
Now, the case of the assessee before us was selected for limited scrutiny through CASS, for the reasons, that there were viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares.. Accordingly, it can safely be concluded that the assessment framed by the A.O fell within the realm of the limited purpose for which its case was selected for scrutiny assessment viz. viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares.
7. As observed by us hereinabove, as per the CBDT instruction No. 20/2015, dated 29.12.2015, in a case which had been selected for scrutiny assessment on the basis of Computer Aided Scrutiny Selection ('CASS'), the scrutinising of such case would be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax, where it is felt that apart from the CASS information there is potential escapement of income of more than Rs.10,00,000/-. Accordingly, the CBDT had in clear and unequivocal terms clarified that for broadening the scope of a case selected for limited scrutiny as per CASS information the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax would be required. In the case before us, it is an admitted fact that the case of the assessee was selected for "limited scrutiny" under CASS,for the reasons, viz. (i). Large other expenses claimed in the P&L A/c.; and
(ii). Low income in comparison to High Loans/advance /Investment in shares. In fact, it is neither a fact nor the case of the revenue that the said case was thereafter taken up for complete scrutiny with the approval of the administrative commissioner. In the backdrop of the aforesaid facts, we are of the considered view that as the scope of the assessment framed by the A.O under Sec. 143(3), dated 08.12.2016 was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, therefore, he was absolutely divested of his powers from traversing on issues 30 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 which did not fall within the realm of the said limited purpose for which the said case was selected for being scrutinised.
8. We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec. 263. As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the issue of valuation of the "closing stock as reflected in the audited accounts of the assessee. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case was selected for limited scrutiny under CASS. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under Sec. 143(3), dated 08.12.2016 is erroneous, therefore, „set aside‟ his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the ld. A.R on the merits of the case, which thus are left open."
On the basis of our aforesaid observations, we are of a strong conviction, that as stated by the Ld. AR, and rightly so, the Pr. CIT had clearly traversed beyond the scope of his jurisdiction and revised the order passed by the Assessing Officer by holding the same as erroneous, for the reason that he had while framing the assessment failed to look into and carry out necessary verification and examination of the assessee's claim of loss from derivatives i.e, 31 Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 an issue which was never the subject matter for selection of the case of the assessee for limited scrutiny under CASS.
(B). Investment in unquoted equity shares and in unsecured loans/advances:-
11. As observed by us hereinabove, it is the claim of the Pr. CIT that the Assessing Officer had while framing the assessment erred in not verifying and examining the investments that were made by the assessee company in unquoted equity shares and unsecured loans/advances. As stated by the Ld. AR, and rightly so, the amount of the aforesaid investments as on 31.03.2015 was Rs.15 crores not Rs.15.25 crores as had been mentioned by the Pr. CIT in the impugned order.
12. Adverting to the claim of the ld. AR that as the AO in the course of the assessment proceedings had vide notice(s) issued u/s.
142(1) of the Act, dated 04.04.2017 and 28.10.2016 specifically queried about the details of the investments reflected in its "balance sheet" a/w the source of the same (Page 42 to 44 of the APB), and had only after duly applying his mind to the requisite details and the explanation furnished by the assessee accepted the same, therefore, the Pr. CIT in exercise of his revisional jurisdiction could not have substituted his view as as against the possible and plausible view that was arrived at by the AO as regards the aforesaid issue under consideration, we are unable to persuade ourselves to subscribe to the same. Ostensibly, the Pr. CIT on a perusal of the assessment records noticed that the assessee company had during the year under consideration made substantial investment in unquoted equity shares. Observing, that the AO had not made any enquiry as regards the investments made by the assessee in unquoted equity shares during the year, the Pr. CIT held the assessment framed by the AO vide his order passed u/s 143(3), dated 21.04.2017, to the said extent, as erroneous in so far it was prejudicial to the interest of the revenue under Sec. 263 of the Act, observing as under :
" 1. The case of the assessee was selected for the reason 'Low income in comparison to very high investment' and 'Large increase in investment in unlisted equities during the year'. From the balance sheet of the assessee it is seen that as at 31st March, 2015, the total investment of the assessee in unquoted equity shares was Rs. 15,00,00,000/- and the same stood at Rs. 11,42,00,000/- as at 31/03/2014. The assessing officer vide notice under section 142(1) dated 04/04/2017 has simply asked the assessee to furnish the details of investment.32
Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 Counsel for the assessee vide his reply, received by the AO on 10/04/2017, has furnished list of investment. The list shows that during the year under consideration assessee has made substantial investment in unquoted equity shares. It is seen that the assessing officer has not made any enquiry in this regard. He has not asked the assessee to furnish the detail ledger of investment. He has not asked for the relevant documents such as broker's details, ledger account of the assessee in the broker's books of account etc,, He has not made any enquiry so as to enquire that whether the assessee company, director or family members of the assessee company in which the investment has been made by the assessee. Thus the AO has not properly examined the issue."
On a perusal of the order passed by the Pr. CIT u/s 263 of the Act, it transpires that the Assessing Officer vide his notice u/s. 142(1) of the Act, dated 04.04.2017 had in the course of the assessment proceedings simply asked the assessee to furnish the details of investment. In reply, the assessee had vide its letter dated 10.04.2017 furnished with the AO the bifurcated details of its investments. Ostensibly, though the AO in the course of the assessment proceedings had queried as regards the investments reflected in the balance sheet of the assessee, and, the assessee in its reply had furnished the details of said investments, but in our considered view such furnishing of bare basic details can by no means be brought within the realm of making of inquiries or carrying out verifications qua the issue in hand by the AO. Be that as it may, the view of the Pr. CIT that the AO had passed the order without making inquiries or verifications which should have been made as regards the aforesaid issue i.e, substantial investments in unquoted equity shares made by the assessee company during the year under consideration, therein, renders the order passed by him as deemed to be erroneous in so far it is prejudicial to the interest of the revenue is supported by the "Explanation 2(a)" of Sec. 263, which reads as under (relevant extract) :
"Explanation 2 - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, -
(a). the order is passed without making inquiries or verification which should have been made.
(b) to (d)..........................................................................."33
Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023 We, thus, in terms of our aforesaid observations are principally in agreement with the view taken by the Pr. CIT that the order passed by the AO under Sec. 143(3), dated 21.04.2017 is erroneous in so far it is prejudicial to the interest of the revenue under Sec. 263, on the said count i.e, failure on the part of the AO in carrying out verifications as regards the substantial investments made in equity shares by the assessee during the year under consideration. Although, we have principally concurred with the Pr. CIT on the aforesaid issue, but at the same time find some substance in the claim of the ld. AR, that as stated by the assessee before the AO in the course of the assessment proceedings, as the fresh investment of Rs. 3.58 crores [Rs. 15 crore (-) Rs.11.42 crores] in unquoted equity shares made by the assessee company during the year under consideration was sourced out of its old loans and advances of Rs. 3.65 crore (supra) that were received back during the year, therefore, the same were made out of it duly disclosed sources. Be that as it may, having principally concurred with the order passed by the Pr. CIT under Sec. 263 qua the aforesaid issue in hand i.e, failure on the part of the AO in carrying out verifications as regards the substantial investments made in equity shares by the assessee during the year under consideration, we herein direct the AO to consider the aforesaid claim of the assessee in the course of the set-aside proceedings."
24. Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions/disallowances vide his order passed u/s. 143(3) dated 28.12.2017, we herein vacate the same.
25. As we have vacated the additions/disallowances made by the A.O for want of valid assumption of jurisdiction on his part, therefore, we refrain from adverting to and therein adjudicating the other contentions advanced by the Ld. AR as regards the merits of the case, which, thus are left open.
26. In the result, appeal of the assessee in ITA No.370/RPR/2023 for A.Y.2015- 16 is allowed in terms of our aforesaid observations.
34Pioneer Carbon Co. Pvt. Ltd. Vs. ITO, Ward-1(4), Bhilai (C.G.) ITA Nos. 369 & 370/RPR/2023
27. Resultantly, both the appeals of the assessee company in ITA No.369/RPR/2023 for A.Y.2013-14 and ITA No.370/RPR/2023 for A.Y. 2015-16 are allowed in terms of our aforesaid observations.
Order pronounced in open court on 25th day of January, 2024.
Sd/- Sd/-
ARUN KHODPIA RAVISH SOOD
(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)
रायपुर/ RAIPUR ; दनांक / Dated : 25th January, 2024.
SB
आदे क त ल प अ े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.)
4. The Pr. CIT, Raipur-1 (C.G)
5. वभागीय त न ध, आयकर अपील य अ धकरण, रायपुर बच,
रायपुर / DR, ITAT, Raipur Bench, Raipur.
6. गाड फ़ाइल / Guard File.
आदे शानुसार / BY ORDER,
// True Copy //
नजी स चव / Private Secretary
आयकर अपील य अ धकरण, रायपरु / ITAT, Raipur.