Same point, in Delhi: if the recorded grounds fail, can the officer still tax an unrelated item?
No. Once the officer accepts that the recorded items did not escape assessment, it means he had no reason to believe, and the notice becomes invalid. Every new issue needs a fresh s.148 notice.
Decided by the High Court (Delhi High Court - A.K. Sikri and M.L. Mehta, JJ.) on 2011-06-03, reported as [2011] 12 taxmann.com 74 (Delhi) / (2011) 336 ITR 136 (Delhi) / (2011) 200 Taxman 242 (Delhi) / (2011) 242 CTR 117 (Delhi); IT Appeal No. 148 of 2008. It bears on section 147, section 148, section 148(2), section 80HH, section 80-I, section 143(1)(a), section 260A of the Income Tax Act 1961, in Reassessment & Reopening matters.
Worth holding alongside Jet Airways so the point is available in either jurisdiction. The added detail here is the requirement of a fresh notice for each new issue, which is a separate and often decisive objection.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, a pharmaceuticals manufacturer and trader, filed its return on 31 October 1994 and it was processed under s.143(1)(a) at the returned income. By notice dated 23 January 1998 under s.148 the Assessing Officer initiated reassessment, informing the assessee that club fees, gifts and presents, and a provision for leave encashment had escaped assessment. By letter dated 15 December 1998 the assessee explained that no income had escaped on those items, and the Assessing Officer accordingly made no disallowance in respect of them. During the reassessment, however, he found that deduction under ss.80HH and 80-I had been claimed on export incentives - duty drawback, profit on sale of REP licences and cash assistance - and reduced the claim. The Commissioner (Appeals) upheld the additions on merits. The Tribunal, by order of May 2007, upheld the validity of the reassessment, reasoning that it is immaterial to the validity of an action under s.147 whether the additions proposed in the recorded reasons were ultimately made. The assessee appealed under s.260A, and the appeal was admitted on a single substantial question.
The appeal was allowed, but the substantial question was answered in two parts (paras 21 and 22). The first part was answered in the affirmative and in favour of the revenue: the Assessing Officer did have jurisdiction to reassess issues other than those for which the proceedings were initiated. The second part was answered against the revenue: he was not so justified once the reasons for the initiation of those proceedings ceased to survive. So on these facts, the Assessing Officer having made no disallowance on club fees, gifts and presents and the provision for leave encashment, it was not permissible for him to reduce the ss.80HH and 80-I claims (para 20). Had he made the disallowance on the items for which reasons were recorded, Explanation 3 would have justified reducing those deductions as well (para 20). For every new issue coming before him during reassessment which he intends to take into account, a fresh notice under s.148 is required (para 18).
The Court traced Explanation 3, inserted by the Finance (No. 2) Act 2009 with retrospective effect from 1 April 1989, and the memorandum explaining it, which said the earlier view restricting reassessment to the recorded issues was contrary to legislative intent (paras 7 and 8). It held that after Explanation 3 the earlier decisions in Vipin Khanna v. CIT (2002) 255 ITR 220 (P&H) and Travancore Cements Ltd. v. Asstt. CIT (2008) 305 ITR 170 (Ker) no longer hold the field (para 9). It then followed the Bombay High Court in CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236, setting out that Court's construction of the words 'and also' in s.147 - that they are conjunctive and cumulative, so that the Assessing Officer must assess the income he had reason to believe had escaped, and only then may he also assess other income coming to notice; if he accepts the assessee's objections and does not assess the income that was the basis of the notice, he cannot independently assess income on some other issue, and a fresh s.148 notice would be needed (paras 11, 13 and 17). In its own words at para 18 the Court held that Explanation 3 makes the Assessing Officer competent to assess items not included in the recorded reasons, but that the legislature cannot be presumed to have given blanket power to keep making roving inquiry and to include items unconnected with the reasons to believe; for every new issue he intends to take into account he would be required to issue a fresh notice under s.148. Note that the extended 'and also' analysis in this judgment is the Bombay High Court's text quoted at paras 13 and 17, not the Delhi Bench's own composition; and para 18 as printed records agreement with 'the Division Bench of Bombay High Court in the case of V. Jaganmohan Rao', which is a slip - the Bombay Division Bench decision agreed with is Jet Airways.
the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.
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Handle my notice → Ask a CA on WhatsAppNo. Once the officer accepts that the recorded items did not escape assessment, it means he had no reason to believe, and the notice becomes invalid. Every new issue needs a fresh s.148 notice. This was decided by the High Court (Delhi High Court - A.K. Sikri and M.L. Mehta, JJ.) and bears on section 147, section 148, section 148(2), section 80HH, section 80-I, section 143(1)(a), section 260A of the Income Tax Act 1961. It is reported as [2011] 12 taxmann.com 74 (Delhi) / (2011) 336 ITR 136 (Delhi) / (2011) 200 Taxman 242 (Delhi) / (2011) 242 CTR 117 (Delhi); IT Appeal No. 148 of 2008. Worth holding alongside Jet Airways so the point is available in either jurisdiction. The added detail here is the requirement of a fresh notice for each new issue, which is a separate and often decisive objection. If it applies to you, the first step is this: List the items in the recorded reasons and the items finally added; a mismatch is the case.
The assessee, a pharmaceuticals manufacturer and trader, filed its return on 31 October 1994 and it was processed under s.143(1)(a) at the returned income. By notice dated 23 January 1998 under s.148 the Assessing Officer initiated reassessment, informing the assessee that club fees, gifts and presents, and a provision for leave encashment had escaped assessment. By letter dated 15 December 1998 the assessee explained that no income had escaped on those items, and the Assessing Officer accordingly made no disallowance in respect of them. During the reassessment, however, he found that deduction under ss.80HH and 80-I had been claimed on export incentives - duty drawback, profit on sale of REP licences and cash assistance - and reduced the claim. The Commissioner (Appeals) upheld the additions on merits. The Tribunal, by order of May 2007, upheld the validity of the reassessment, reasoning that it is immaterial to the validity of an action under s.147 whether the additions proposed in the recorded reasons were ultimately made. The assessee appealed under s.260A, and the appeal was admitted on a single substantial question. The matter was decided on 2011-06-03 by the High Court (Delhi High Court - A.K. Sikri and M.L. Mehta, JJ.). On those facts the High Court held as follows. The appeal was allowed, but the substantial question was answered in two parts (paras 21 and 22). The first part was answered in the affirmative and in favour of the revenue: the Assessing Officer did have jurisdiction to reassess issues other than those for which the proceedings were initiated. The second part was answered against the revenue: he was not so justified once the reasons for the initiation of those proceedings ceased to survive. So on these facts, the Assessing Officer having made no disallowance on club fees, gifts and presents and the provision for leave encashment, it was not permissible for him to reduce the ss.80HH and 80-I claims (para 20). Had he made the disallowance on the items for which reasons were recorded, Explanation 3 would have justified reducing those deductions as well (para 20). For every new issue coming before him during reassessment which he intends to take into account, a fresh notice under s.148 is required (para 18).
The Court traced Explanation 3, inserted by the Finance (No. 2) Act 2009 with retrospective effect from 1 April 1989, and the memorandum explaining it, which said the earlier view restricting reassessment to the recorded issues was contrary to legislative intent (paras 7 and 8). It held that after Explanation 3 the earlier decisions in Vipin Khanna v. CIT (2002) 255 ITR 220 (P&H) and Travancore Cements Ltd. v. Asstt. CIT (2008) 305 ITR 170 (Ker) no longer hold the field (para 9). It then followed the Bombay High Court in CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236, setting out that Court's construction of the words 'and also' in s.147 - that they are conjunctive and cumulative, so that the Assessing Officer must assess the income he had reason to believe had escaped, and only then may he also assess other income coming to notice; if he accepts the assessee's objections and does not assess the income that was the basis of the notice, he cannot independently assess income on some other issue, and a fresh s.148 notice would be needed (paras 11, 13 and 17). In its own words at para 18 the Court held that Explanation 3 makes the Assessing Officer competent to assess items not included in the recorded reasons, but that the legislature cannot be presumed to have given blanket power to keep making roving inquiry and to include items unconnected with the reasons to believe; for every new issue he intends to take into account he would be required to issue a fresh notice under s.148. Note that the extended 'and also' analysis in this judgment is the Bombay High Court's text quoted at paras 13 and 17, not the Delhi Bench's own composition; and para 18 as printed records agreement with 'the Division Bench of Bombay High Court in the case of V. Jaganmohan Rao', which is a slip - the Bombay Division Bench decision agreed with is Jet Airways. In the words reproduced by the source cited on this page: "the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148." The decision followed or applied CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom)(HC).
It was decided by the High Court on 2011-06-03 and is reported as [2011] 12 taxmann.com 74 (Delhi) / (2011) 336 ITR 136 (Delhi) / (2011) 200 Taxman 242 (Delhi) / (2011) 242 CTR 117 (Delhi); IT Appeal No. 148 of 2008. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 147, section 148, section 148(2), section 80HH, section 80-I, section 143(1)(a), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed, but the substantial question was answered in two parts (paras 21 and 22). The first part was answered in the affirmative and in favour of the revenue: the Assessing Officer did have jurisdiction to reassess issues other than those for which the proceedings were initiated. The second part was answered against the revenue: he was not so justified once the reasons for the initiation of those proceedings ceased to survive. So on these facts, the Assessing Officer having made no disallowance on club fees, gifts and presents and the provision for leave encashment, it was not permissible for him to reduce the ss.80HH and 80-I claims (para 20). Had he made the disallowance on the items for which reasons were recorded, Explanation 3 would have justified reducing those deductions as well (para 20). For every new issue coming before him during reassessment which he intends to take into account, a fresh notice under s.148 is required (para 18). It arises in Reassessment & Reopening matters, on section 147, section 148, section 148(2), section 80HH, section 80-I, section 143(1)(a), section 260A of the Income Tax Act 1961, and was decided by Delhi High Court - A.K. Sikri and M.L. Mehta, JJ.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where a new issue was picked up mid-proceeding, ask whether a fresh s.148 notice was issued for it. Note that this is Delhi and Jet Airways is Bombay — cite the one that binds your officer.
Validity check could not be completed. No later decision applying, following or affirming this judgment was read. The full report carries no citator entry, and nothing recording an SLP, a stay or a reversal appears either. The judgment follows the Bombay High Court in CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236 and expressly holds that Vipin Khanna v. CIT (2002) 255 ITR 220 (P&H) and Travancore Cements Ltd. v. Asstt. CIT (2008) 305 ITR 170 (Ker) no longer hold the field after Explanation 3. The same caution applies as for Jet Airways: the reasoning rests on the words 'and also' in the pre-2021 s.147, and a comparative analysis of the two reassessment regimes says the omission of that limb from the substituted s.147 takes away the foundation of this reasoning for notices issued on or after 1 April 2021. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
High Court - binding in Delhi, persuasive elsewhere. Cite it carefully, because it decides both ways. The substantial question was answered in two parts (para 21): the Assessing Officer does have jurisdiction to reassess issues beyond those for which the reassessment was initiated - that part went in favour of the revenue - but he was not justified in doing so once the reasons for the initiation ceased to survive, and that part went against the revenue. The Court did not hold that the s.148 notice becomes invalid; it upheld the assumption of jurisdiction and confined the consequence to the further additions. Two attributions to watch: the extended analysis of the words 'and also' comes from the Bombay High Court in Jet Airways and is quoted at paras 13 and 17, not composed by this Bench; and para 18 as printed records agreement with 'the Division Bench of Bombay High Court in the case of V. Jaganmohan Rao', which is a slip for Jet Airways - V. Jaganmohan Rao is a Supreme Court decision. The judgment does not state the assessment year; the return was filed on 31 October 1994. The judgment does not state the assessment year (the return was filed on 31 October 1994) or the amounts of the deductions reduced, and gives the Tribunal's order date only as 'May, 2007'. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed, but the substantial question was answered in two parts (paras 21 and 22). The first part was answered in the affirmative and in favour of the revenue: the Assessing Officer did have jurisdiction to reassess issues other than those for which the proceedings were initiated. The second part was answered against the revenue: he was not so justified once the reasons for the initiation of those proceedings ceased to survive. So on these facts, the Assessing Officer having made no disallowance on club fees, gifts and presents and the provision for leave encashment, it was not permissible for him to reduce the ss.80HH and 80-I claims (para 20). Had he made the disallowance on the items for which reasons were recorded, Explanation 3 would have justified reducing those deductions as well (para 20). For every new issue coming before him during reassessment which he intends to take into account, a fresh notice under s.148 is required (para 18).
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My return was only processed under 143(1). Does that stop the department reopening it later?
How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?
The sanctioning authority just wrote 'yes' and signed. Is that a sanction?
A reassessment was done in between. Does the two-year clock for s.263 restart from it?