M/S MANOJ SERJICALS IND. LTD., v. THE ACIT 3 (1),

ITA 224/IND/2007 | 1995-1996
Pronouncement Date: 22-03-2010 | Result: Allowed

Appeal Details

RSA Number 22422714 RSA 2007
Assessee PAN UNDER1922A
Bench Indore
Appeal Number ITA 224/IND/2007
Duration Of Justice 3 year(s) 3 day(s)
Appellant M/S MANOJ SERJICALS IND. LTD.,
Respondent THE ACIT 3 (1),
Appeal Type Income Tax Appeal
Pronouncement Date 22-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 22-03-2010
Date Of Final Hearing 06-11-2009
Next Hearing Date 06-11-2009
Assessment Year 1995-1996
Appeal Filed On 19-03-2007
Judgment Text
PAGE 1 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI V.K. GUPTA ACCOUNTANT MEMBER PAN AABCM-1901-C I.T.A.NO.224/IND/2007 A.Y. : 2005-06 M/S MANOJ SURGICAL INDUSTRIES 102 PRINCES CENTRE 6/3 NEW PALASIA INDORE VS. ACIT 3(1) INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI MANOJ GUPTA C. A. RESPONDENT BY : SHRI V.K.KARAN SR. DR DATE OF HEARING : 20/01/2010 O R D E R PER V.K. GUPTA A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF O RDER OF LD. CIT DATED 19.12.2006 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PER USED THE MATERIAL ON RECORD. 3. IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWIN G GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE REOPENING OF THE CASE U/S 147/148 OF THE PAGE 2 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. INCOME-TAX ACT WHICH IS ILLEGAL AND BAD IN LAW AS IT IS LACKING SATISFACTION OF THE CONDITIONS LAI D DOWN U/S 147/148 OF THE INCOME-TAX ACT AND THE NOTICE SO ISSUED U/S 147/148 REQUIRES TO BE WITHDRAWN AND ASSESSMENT FRAMED U/S 144/147 ON THE BASIS OF THAT NOTICE REQUIRES TO BE QUASHED. WITHOUT PREJUDICE TO THE ABOVE 2(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS. 3 15 952/- U/S 69 OF THE INCOME- TAX ACT MADE BY THE ASSESSING OFFICER ON THE GROUND OF ALLEGED DIFFERENCE IN STOCK AS PER BOOKS AND AS PER STATEMENTS SUBMITTED TO BANK. (II) THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING TH E ACTION OF A.O. IN TREATING INTEREST OF RS. 3 87 114/- RECEIVED ON SHARE APPLICATION AND SHARE ALLOTMENT MONEY AS INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF THE APPELLANT AS INCOME FROM BUSINESS. PAGE 3 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. 4. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUN D WHICH READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAS ERRED IN CONFORMING THE ASSESSMENT ORDER PASSED U/S 144/147 OF THE IT ACT AS NO ADDITION WAS MADE B Y THE AO ON THE GROUND ON WHICH REOPENING OF THE CASE WAS MADE U/S 147/148 OF THE ACT AND ADDITION ON OTHER ISSUES HAVE ONLY BEEN MADE. THE ASSESSMENT ORDER IN AGAINST THE PROV ISION OF SECTION 147 OF IT ACT. IS THEREFORE BAD IN LAW AND REQUIRES TO BE QUASHED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE RAISED IN THIS ADDITIONAL GROUND WAS PURELY ON LEGA L NATURE AND NO FRESH INQUIRY INTO THE FACTS WAS REQUIRED HENCE IT COUL D BE ADMITTED AT THIS STAGE. IT WAS ALSO ON A QUERY FROM THE BENCH THE L EARNED COUNSEL SUBMITTED THAT THE ISSUE RAISED IN THIS ADDITIONAL GROUND WAS ON A DIFFERENT ASPECT AND NOT COVERED BY THE PROVISIONS OF EXPLANA TION 3 TO SECTION 147 OF THE ACT. 6. THE LD. DEPARTMENTAL REPRESENTATIVE HOWEVER OPPOS ED THE ADDITIONAL GROUND. 7. ON DUE CONSIDERATION OF THE CONTENTS OF THE ADDITIO NAL GROUND WE ADMIT THE SAME FOR ADJUDICATION. PAGE 4 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. 8. THE FACTS IN BRIEF ARE THAT ORIGINAL ASSESSMENT W AS COMPLETED U/S 143(3) ON 16.3.1998 WHICH WAS QUASHED BY THE LD .CIT(A). THE TRIBUNAL ALSO CONFIRMED THE SAID DECISION OF LD.CIT (A) VIDE ITS ORDER DATED 12.7.2006 FOR THE REASON THAT NOTICE U/S 143( 2) HAD NOT BEEN SERVED WITHIN THE LIMITATION PERIOD PRESCRIBED IN THE ACT. THEREAFTER PROCEEDINGS U/S 147 WERE INITIATED BY ISSUANCE OF NOTICE U/S 14 8 DATED 21.3.2001 FOR THE REASON THAT THE ASSESSEE HAD WRONGLY CLAIMED SE T OFF INVESTMENT ALLOWANCE TO THE EXTENT OF RS. 3 78 000/-. THE ASSE SSEE SUBMITTED THAT THE ORIGINAL RETURN FILED BY THE ASSESSEE SHOULD BE TRE ATED AS FILED IN RESPONSE TO NOTICE ISSUED U/S 148. THE ASSESSEE THEREAFTER SUBMITTED THAT NOTICE U/S 148 WAS NOT VALID HENCE SUCH PROCEEDINGS SHOULD B E DROPPED. THE AO HOWEVER REJECTED THIS GROUND OF THE ASSESSEE AND P ROCEEDED TO COMPLETE THE REASSESSMENT PROCEEDINGS ON THE BASIS OF MATERI AL ON RECORD AS THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNT NOR AGITA TED THE CASE ON MERITS. THE AO MADE AN ADDITION OF RS.120238/- ON ACCOUNT O F DISALLOWANCE OF INTEREST FOR DIVERSION OF HIGH INTEREST RATE FUNDS INTO LOANS BEARING LOWER RATE OF INTEREST.THE AO ALSO TREATED INTEREST OF RS .387114/- EARNED ON SHARE APPLICATION MONEY AS INCOME FROM OTHER SOURCE S AS AGAINST THE SAME BEING OFFERED BY THE ASSESSEE AS INCOME FROM B USINESS.THE AO ALSO MADE AN ADDITION OF RS. 315952/- ON ACCOUNT OF UNEX PLAINED INVESTMENT IN STOCK. THE AO HOWEVER DID MAKE ANY ADDITION ON ACCOUNT OF SET OFF PAGE 5 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. UNABSORBED INVESTMENT ALLOWANCE FOR THE REASON THA T THE ASSESSEE HAD CREATED THE REQUIRED RESERVE IN A.Y 96-97 AND ALLOW ED THE SET OFF OF SUCH UNABSORBED INVESTMENT ALLOWANCE RESERVE TO EXTENT T O THE AVAILABLE PROFITS AND CARRY FORWARD OF BALANCE UNABSORBED INVESTMENT ALLOWANCE. AGGRIEVED BY THIS THE ASSESSEE PREFERRED IN APPEAL BEFORE CIT (A) WHEREIN THE VALIDITY OF REASSESSMENT PROCEEDINGS WA S CHALLENGED ON THE GROUND THAT ADDITION IN RESPECT OF AN ESCAPED INCOM E OTHER THAN THE ESCAPED INCOME MENTIONED IN THE REASONS RECORDED FO R SUCH REOPENING COULD BE MADE ONLY WHEN SUCH OTHER ESCAPED INCOME C AME TO THE KNOWLEDGE OF AO IN THE COURSE OF PROCEEDING U./S 14 7 WHEREAS IN THE PRESENT CASE THESE ADDITIONS HAD ALREADY BEEN MADE IN THE ASSESSMENT ORDER U/S 143(3) DATED 16.3.1998 WHICH HAD BEEN QUA SHED HENCE NO ADDITION COULD BE MADE AS THESE DID NOT COME TO THE NOTICE OF A.O. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S 147. THE ASSES SEE ALSO PLEADED THAT EXPLANATION 2(B) TO SECTION 147 WAS ALSO NOT APPLIC ABLE BECAUSE THE ASSESSEE HAS DISCLOSED ALL THE PARTICULARS BUT THE DISALLOWANCES WERE MADE AS A DIFFERENT VIEW WAS TAKEN BY THE AO. IT WAS ALS O CONTENDED THAT THE PRESENT REASSESSMENT PROCEEDINGS WERE RESORTED JUST TO NULLIFY THE ASSESSMENT ORDER PASSED U/S 143 (3) WHICH HAD BEEN QUASHED BOTH BY THE LD CIT (A) AND TRIBUNAL. THE ASSESSEE ALSO RELIED O N VARIOUS JUDICIAL DECISIONS IN THIS REGARD. THE LD. CIT (A) HOWEVER HELD THAT ORIGINAL PAGE 6 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. ASSESSMENT HAVING BEING ANNULLED HENCE WHAT REMAI NED IN LAW WAS A MERE RETURN FILED BY THE ASSESSEE WHICH HAD BEEN SI MPLY PROCESSED BY THE AO U/S 143(1)(A) OF THE ACT. THE LD CIT (A) ALSO HO LD THAT NOTICE U/S 148 WAS ISSUED WITHIN FOUR YEAR FROM THE END OF THE REL EVANT ASSESSMENT YEAR ON THE GROUND OF INCORRECT SET OFF INVESTMENT ALLOW ANCE RESERVE RESULTING INTO EXCESS RELIEF HENCE THE ASSESSEES CASE WAS CLEARLY COVERED UNDER CLAUSE(B) OF EXPLANATION 2 SECTION 147. IN THIS REG ARD THE LD CIT (A) RELIED ON THE DECISION OF THE INDORE BENCH OF THE T RIBUNAL IN THE CASE OF ITO BHAGATRAM RAJIV KUMAR IN ITA NO. 427/IND/2004 D ATED 8.9.2006. THE LD. CIT ALSO HELD THAT ORIGINAL ASSESSMENT HAD BEEN CANCELLED ON TECHNICAL GROUND BOTH BY LD CIT(A) AS WELL AS BY TH E TRIBUNAL HENCE IT COULD NOT BE SAID THAT REASONS RECORDED BY THE AO F OR ISSUE OF NOTICE U/S 148 WERE MERELY A PRETENCE TO UPSET THE JUDGMENT OF A HIGHER AUTHORITY. THEREAFTER THE LD CIT(A) TOOK NOTE OF THE SCHEME O F ASSESSMENT W.E.F. 1.4.89 AND HELD THAT PROCESSING U/S 143(1)(A) WAS N OT ASSESSMENT HENCE THERE COULD NOT BE FORMATION OF ANY OPINION IN THE COURSE OF SUCH PROCEEDING AND THEREFORE FOR THIS REASON RE-ASSES SMENT PROCEEDINGS COULD NOT BE QUASHED. IN THIS REGARD THE LD CIT (A ) RELIED ON THE DECISION OF THE M.P HIGH COURT IN THE CASE OF INDRA NARAYAN ZALANI VS. UNION OF INDIA AS REPORTED IN 254 ITR 663 IN THE C ASE OF CIT VS OM PRAKASH BAGARDIA (HUF) AS REPORTED IN 287 ITR 523. THE LD. CIT(A) PAGE 7 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. ALSO RELIED ON THE DECISION OF THE HONBLE DELHI HI GH COURT IN THE CASE OF MAHANAGAR TELEPHONE NIGAM LTD. VS. CHAIRMAN CBDT A S REPORTED IN 246 ITR 173 APART FROM A FEW OTHER JUDICIAL DECISIO NS. THE LD. CIT(A) ALSO HELD THAT THE AO COULD BRING TO CHARGE ITEMS O F INCOME WHICH HAD ESCAPED ASSESSMENT OTHER THAN OR IN ADDITION TO THA T ITEM OR ITEMS WHICH HAD CAUSED THE ISSUANCE OF NOTICE U/S 148 AND FOR T HIS VIEW THE LD CIT(A) DREW SUPPORT FROM THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF SUN ENGINEERING WORKS PVT. LTD. AS REPORTED IN 198 ITR 297. THEREAFTER LD. CIT (A) ARE ALSO CONFIRMED THE ADDI TION MADE BY AO ON MERITS. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEA L BEFORE US. 9. THE LD COUNSEL FOR THE ASSESSEE NARRATED THE FACTS AND CONTENDED THAT THE REASON FOR REOPENING WAS THAT T HE ASSESSEE WRONGLY CLAIMED SET OFF OF INVESTMENT ALLOWANCE RESERVE CAR RIED FORWARD EARLIER YEARS HOWEVER ULTIMATELY NO ADDITION WAS MADE ON THIS SCORE. HE FURTHER SUBMITTED THAT AND ADDITIONS WHICH WERE MADE ULTIMA TELY WERE BASED ON 143(3) PROCEEDINGS WHICH HAD BEEN QUASHED AND THER EFORE SUCH ADDITIONS COULD NOT BE MADE IN THE COURSE OF REASSE SSMENT PROCEEDINGS AS THESE DID NOT COME TO THE NOTICE OF AO IN THE COUR SE OF REASSESSMENT PROCEEDINGS . HE FURTHER CONTENDED THAT THE REOPENI NG IN THE FACTS OF THE CASE WAS A MERELY CASE OF PRETENCE AS THERE WAS NO MATERIAL HAVING LIVE NEXUS WITH THE REASONS RECORDED BY THE AO AND THE REFORE REASSESSMENT PAGE 8 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. PROCEEDINGS WERE VOID FOR THIS REASON ALSO. IN THIS REGARD HE PLACED STRONG ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO AND OTHERS VS. LAKHMANI MEWALDASS HAS REPORTED IN 103 I TR 437. HE FURTHER CONTENDED THAT EVEN AFTER THE NEW PROVISIONS COMING INTO EFFECT FROM 1.4.1989 THERE WAS NO CHANGE IN LAW IN RESPECT OF THE ASPECT OF EXISTENCE OF MATERIAL AND LIVE NEXUS THEREOF WITH THE REASONS RECORDED BY THE AO IN VIEW OF THE FACT THAT THE WORDS REASON TO BELIEVE HAD BEEN RETAINED IN SECTION 147. THE LD COUNSEL FURTHER PLACED STRONG R ELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF PRAVIN JIND AL INDORE VS. ITO AS REPORTED IN 12 ITJ 227 WHEREIN THE TRIBUNAL AFTER C ONSIDERING THE DECISION OF THIRD MEMBER IN THE CASE OF ACIT VS. O.P. CHAWLA AS REPORTED IN 114 ITD 69 HAD ALSO HELD SO. THE LD. COUNSEL ALSO CONT ENDED THAT THE DECISION OF THE HONBLE MP HIGH COURT IN THE CASE O F OMPRAKASH BAGARIA (HUF) (SUPRA) RELIED ON BY LD CIT (A) WAS NOT RELEV ANT AS IT WAS IN RESPECT OF VALIDITY OF AN ASSESSMENT MADE U/S 143(3 ) ON THE BASIS OF REVISED RETURN FILED BY THE ASSESSEE AFTER ISSUANCE OF INTIMATION U/S 143(1)(A) OF THE ACT. THE LD COUNSEL FURTHER CONTEN DED THAT THE DECISION OF THE HONBLE MP HIGH COURT IN THE CASE OF INDRANA RAYAN ZALANI(SUPRA) RELIED BY THE LD CIT(A) WAS ALSO NOT APPLICABLE A S IN THAT CASE THE HONBLE COURT HAD NOT HELD THAT IN VIEW OF ORIGINAL PROCEEDING BEING DONE U/S 143(1)(A) THE AO COULD INITIATE PROCEEDING U/S 147/148 WITHOUT PAGE 9 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGICA L INDUSTRIES INDORE. COMPLYING THE CONDITIONS SPECIFIED UNDER THOSE SECT IONS. THE LEARNED COUNSEL FURTHER PLACED RELIANCE ON THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHRI RAM SINGH AS REPORTED I N 217 CTR 345 FOR THE PROPOSITION THAT ONCE THE AO CAME TO THE CONCLU SION THAT THE INCOME WITH RESPECT TO WHICH HE HAD ENTERTAINED REASON TO BELIEVE TO HAVE ESCAPED ASSESSMENT WAS FOUND TO HAVE BEEN EXPLAINED HIS JURISDICTION CAME TO A STOP AT THAT AND HE DID NOT CONTINUE TO POSSES JURISDICTION TO PUT TO TAX ANY OTHER INCOME WHICH SUBSEQUENTLY CA ME TO HIS NOTICE IN THE COURSE OF REASSESSMENT PROCEEDINGS WHICH WERE FOUND BY HIM TO HAVE ESCAPED ASSESSMENT AND CONTENDED THAT IN THE PRESENT CASE NO ADDITION WAS MADE IN RESPECT OF ITEM OF INCOME ON W HICH THE AO HAD BELIEF TO HAVE ESCAPED ASSESSMENT AND THEREFORE TH E OTHER ADDITIONS MADE BY THE AO WERE BEYOND HIS JURISDICTION U/S 147. HE FURTHER CONTENDED THAT IN THE PRESENT CASE THE IMPUGNED ADDITIONS WE RE MADE BY AO ON THE BASIS OF ASSESSMENT DONE BY HIM U/S 143 (3) HENCE IT WAS NOT EVEN A CASE OF SOMETHING COMING TO HIS NOTICE IN THE COURSE OF REASSESSMENT PROCEEDINGS HENCE FOR THIS REASON ALSO THE A.O. S ACTION WAS BEYOND HIS JURISDICTION AS PROVIDED U/S 147 . HE ALSO RELI ED ON THE DECISION OF THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S K.J AGENCIES VS. DCIT AS REPORTED IN 8 ITJ 593 FOR THE PROPOSITION THAT W HEN NO ENQUIRY WAS PAGE 10 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. MADE ON THE GROUND ON THE BASIS ON WHICH THE REASSE SSMENT PROCEEDINGS WERE INITIATED THEN NO ADDITION COULD BE MADE ON OTHER ISSUES. 10. THE LD. DR BRIEFLY NARRATED THE FACTS AND MAINLY R ELIED ON THE ORDER OF CIT (A) IN ADDITION TO PLACING RELIANCE ON THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD AS REPORTED IN 291 ITR 500. 11. THE LD. COUNSEL IN THE REJOINDER CONTENDED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD (SUPRA) WAS VALID ONLY IN RESPECT OF PROPOSITION THAT REASSESSMENT PROCEEDINGS COULD NOT BE DECLARE NULL AND VOID FOR THE REASON OF CHANGE OF OPINION IN CASE OF ORIGINAL ASS ESSMENT BEING PROCESSED U/S 143(1)(A) AS IN THAT SITUATION THERE COULD NOT BE ANY OPINION AT THE FIRST STAGE. 12. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 13. IN THIS APPEAL SOME SUBSTANTIAL LEGAL ISSUES ARE INVOLVED. HENCE IT IS IMPERATIVE FOR US TO LOOK INTO THE HIS TORY OF SCHEME OF ASSESSMENT AND SCOPE OF PROVISIONS OF SECTION 147 O F THE ACT. AS PER THE PROVISIONS OF SECTION 2(8) OF THE ACT THE WORD AS SESSMENT HAS BEEN DEFINED AS TO INCLUDE REASSESSMENT. THE PROCESS OF ASSESSMENT HAS BEEN OUTLINED IN SECTION 143 AND 144 OF THE ACT. IT IS C OMMONLY KNOWN THAT PAGE 11 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. WORD ASSESSMENT HAS BEEN USED IN THE INCOME-TAX A CT AT DIFFERENT PLACES WITH DIFFERENT CONNOTATIONS SOMETIMES MEANI NG THE COMPUTATION OF INCOME SOMETIMES THE DETERMINATION OF AMOUNT OF TAX PAYABLE BY THE ASSESSEE AND SOMETIMES AS THE COMPLETE CODE OR PROC EDURE FOR IMPOSING LIABILITY ON THE TAX PAYER. THE ASSESSMENT PROCEDUR E AS CONTEMPLATED IN SECTION 143 AND 144 HAS ALSO BEEN SUBJECTED TO VARI OUS AMENDMENTS. THERE COULD BE SUMMARY ASSESSMENT OR A SCRUTINY ASS ESSMENT IN THE NORMAL COURSE. IF ANY INCOME REMAINS UN-ASSESSED OR UNDER-ASSESSED THEREAFTER THEN THE A.O. HAS BEEN GIVEN A JURISDIC TION TO REOPEN THE ASSESSMENT U/S 147 SUBJECT TO SATISFACTION OF CONDI TION SPECIFIED THEREIN. THE A.O. CAN ALSO MAKE AN ASSESSMENT U/S 147 IN CAS E OF CERTAIN SITUATIONS I.E. WHERE NO RETURN HAS BEEN FILED OR THE RETURN HAS BEEN FILED BUT NO ASSESSMENT HAS BEEN MADE. HOWEVER THE SCOPE OF SECTION 147 IS LIMITED TO ASSESSMENT/RE-ASSESSMENT OF AN ESCAPED I NCOME AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF SUN ENGINEERIN G WORKS PRIVATE LIMITED AS REPORTED IN 198 ITR 297 WHEREIN THE HON 'BLE SUPREME COURT HELD THAT WHEN THE PROCEEDINGS U/S 147 WERE INITIAT ED SUCH PROCEEDINGS WERE OPEN ONLY QUA ITEMS OF UNDER ASSESSMENT AND TH E FINALITY OF ASSESSMENT PROCEEDINGS ON OTHER ISSUES REMAINED UND ISTURBED WHEN SUCH ISSUES HAD BECOME FINAL IN AN ASSESSMENT ORDER PASS ED U/S 143(3) OF THE ACT OR DUE TO NON ISSUE OF NOTICE U/S 143(2) OF THE ACT WITHIN THE PAGE 12 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. STIPULATED PERIOD OF TIME. HAVING STATED SO WHEN W E LOOK AT THE LEGISLATIVE HISTORY OF PROVISIONS OF SECTION 147 W E FIND THAT ORIGINALLY AS PER PROVISIONS OF SECTION 34 OF 1922 ACT THE REASS ESSMENT COULD BE DONE IF THE A.O. AS A CONSEQUENCE OF INFORMATION IN HIS POSSESSION HAD REASON TO BELIEVE THAT SOME INCOME HAD ESCAPED ASSESSMENT OR REMAINED UNDER- ASSESSED. THEREAFTER IN 1948 SECTION 34 WAS RE-CA ST TO OMIT THE WORDS DEFINITE INFORMATION COMING INTO THE POSSESSION OF THE A.O. AND AS A CONSEQUENCE THEREOF DISCOVERY OF ESCAPED INCOME OF UNDER-ASSESSED INCOME BY THE ASSESSING OFFICER WHICH WERE BROUGHT ON STATUTE IN 1939. THE SCOPE OF POWERS WAS ALSO RELATED TO THE PERIOD UP TO WHICH BACK ASSESSMENTS COULD BE REOPENED. IN 1961 THE ORIGINA L SECTION 34 WAS SPLIT INTO SECTIONS 147 TO 153. HOWEVER THERE WAS NO MAT ERIAL DEPARTURE OR ALTERATION FROM THE SCHEME THAT PREVAILED UNDER 192 2 ACT. THE LEGISLATURE THEREAFTER THROUGH DIRECT TAX LAWS (A MENDMENT) ACT 1987 MADE VARIOUS CHANGES IN THE SCHEME OF ASSESSM ENT/RE-ASSESSMENT AND CONSEQUENTLY REWORDING OF PROVISIONS OF SECTIO N 147. IN THE PROPOSED SCHEME THE WORDS REASON TO BELIEVE DID NOT FIGURE IN THE NEW 147 SECTION. HOWEVER THE LEGISLATURE BY THE AMEND MENT ACT OF 1989 RE- INTRODUCED THE EXPRESSION HAS REASON TO BELIEVE W ITH RETROSPECTIVE EFFECT TO ALLAY THE FEARS THAT THE A.O. COULD REOPE N PASSED ASSESSMENT ON MERE CHANGE OF OPINION OR FOR OTHER FRIVOLOUS REASO NS. THUS UNDERLING PAGE 13 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. SPIRIT THAT HAS REMAINED THERE IN THE STATUTE THROU GH-OUT IS THAT THE POWERS GIVEN TO THE A.O. U/S 147 SHOULD NOT BE USED IN AN ARBITRARY MANNER SO AS TO DISTURB THE FINALITY OF CONCLUDED ASSESSMENTS. 14. FURTHER IN THE SCHEME OF ACT THERE IS A PROVISIO N OF ONE ASSESSMENT FOR ONE YEAR MEANING THEREBY THAT THE I NCOME OF ONE YEAR CANNOT BE ASSESSED IN ANOTHER YEAR AND THERE CANNOT BE TWO ASSESSMENTS FOR THE SAME ASSESSMENT YEARS IN RESPECT OF TWO TYP ES OF INCOME. THIS FEATURE ALSO RESULTS INTO CONCLUSION THAT SECTION 1 47 IS INTENDED ONLY TO MAKE ASSESSMENT OF THE INCOME WHICH HAVE NOT BEEN ASSESSED EARLIER OR HAVE BEEN UNDER-ASSESSED SO THAT INCOME ASSESSED E ARLIER PLUS INCOME ASSESSED U/S 147 MAKES ONE ASSESSMENT FOR THAT PART ICULAR ASSESSMENT YEAR. 15. IT IS ALSO A SETTLED JUDICIAL OPINION THAT THERE MU ST EXIST SOME MATERIAL HAVING LIVE NEXUS WITH THE PLEA OF THE A.O . REGARDING THE ESCAPEMENT OF INCOME AND IT SHOULD NOT BE A MERE PR ETENCE THOUGH SUFFICIENCY OR ADEQUACY OF MATERIAL CANNOT BE LOOKE D INTO BY THE COURTS. IN THIS REGARD A REFERENCE CAN BE MADE OF THE DECI SIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT COMP ANY LIMITED VS. ITO 41 ITR 191 ITO VS. LAKHMANI MEWALDAS 103 ITR 437. THERE WAS ALSO A VIEW THAT ONCE PROCEEDINGS U/S 147 WERE VALI DLY INITIATED ENTIRE ASSESSMENT WAS OPENED BEFORE THE A.O. MEANING THERE BY THAT THE A.O. PAGE 14 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. COULD EXERCISE POWERS OF ASSESSMENT IN RESPECT OF A LL ITEMS. THIS VIEW FOUND ITS SOURCE IN THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF JAGAN MOHAN RAO (V) VS. CIT AS REPORTED IN 75 I TR 373. HOWEVER IN THE CASE OF CIT VS. SUN ENGINEERING WORKS PRIVATE L IMITED ( SUPRA ) HON'BLE SUPREME COURT AFTER CONSIDERING THE AFORESA ID DECISION HELD THAT THE A.OS JURISDICTION U/S 147 WAS CONFINED ONLY TO SUCH INCOME WHICH HAD ESCAPED TAX OR HAD BEEN UNDER ASSESSED AND DID NOT EXTEND TO REVISING REOPENING AND RECONSIDERING THE WHOLE ASS ESSMENT OR PERMITTING THE ASSESSEE TO RE-AGITATE QUESTION WHICH HAD ALR EADY BEEN DECIDED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IN THIS LEGAL BACK GROUND NOW WE HAVE TO LOOK INTO THE SPECIFIC ISSUES RAISED BEFORE US. 1. WHETHER THE A.O. IN THE PRESENT CASE HAS HAVING REGARD TO REASONS RECORDED BY HIM CORRECTLY ASSUMED JURISDIC TION U/S 147 ? 2. WHETHER ITEMS OF DISALLOWANCES MADE IN SUCH QUAS HED ASSESSMENT ORDERS CAN BE SAID TO HAVE COME TO THE N OTICE OF A.O. IN THE COURSE OF PROCEEDINGS U/S 147 ? 3. WHETHER PROVISIONS OF EXPLANATION 2(B) OF SECTIO N 147 ARE APPLICABLE I.E. DUE TO QUASHING OF ASSESSMENT ORDER PASSED UNDER SECTION 143(3) THE CASE SHOULD BE TREATED AS A CASE OF PAGE 15 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. NO ASSESSMENT BEING MADE AFTER FILING OF RETURN BY THE ASSESSEE ? 4. HOW THE A.O. SHOULD PROCEED TO COMPLETE THE ASSESSMENT/REASSESSMENT U/S 147 AFTER ASSUMING JURI SDICTION U/S 147 ? 5. WHETHER THE A.O. CAN MAKE ADDITION IN RESPECT OF ITEMS OTHER THAN ITEMS MENTIONED IN THE REASONS RECORDED BY HIM FOR REOPENING THE ASSESSMENT WHEN NO ADDITION IS M ADE ON THE ITEM(S) WHICH FORMED THE BASIS OF REOPENING ( REFER ADDITIONAL GROUND ). 16. TO ANSWER THESE QUESTIONS WE DEEM IT FIT TO REPRO DUCE THE SECTION 147 AS UNDER : 147. IF THE 23 [ASSESSING] OFFICER 24 [HAS REASON TO BELIEVE 25 ] THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT 25 FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PRO VISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS 25 SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION O R RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESS MENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT PAGE 16 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE 26 ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS 26 NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR: 27 [ PROVIDED FURTHER THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME OTHER THAN THE INCOME INVO LVING MATTERS WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL REFERENCE OR REVISION WHICH IS CHARGEABLE TO TAX A ND HAS ESCAPED ASSESSMENT.] EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVE RED BY THE ASSESSING OFFICER WILL NOT NECESSARILY 26 AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROV ISO. EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT NAMELY : ( A ) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TO TAL INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE I S ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX ; ( B ) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESS EE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS DEDUCTION ALLOWANCE OR RELIEF IN THE RETURN ; ( C ) WHERE AN ASSESSMENT HAS BEEN MADE BUT PAGE 17 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED ; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT ; OR (III) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED.] (IV) 27A [ EXPLANATION 3. FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION THE ASSESSING OFFI CER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISS UE WHICH HAS ESCAPED ASSESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB -SECTION (2) OF SECTION 148 . ] 17. FROM THE PERUSAL OF THE ABOVE PROVISIONS IT IS NO TED THAT THESE PROVISIONS ARE MORE ELABORATE OR WIDER IN SCOPE AS COMPARED TO EARLIER PROVISIONS AS THESE COVER SITUATIONS OF BOTH ASSE SSMENT OR NO ASSESSMENT. THIS IS SO BECAUSE UNDER THE NEW SCHEME OF ASSESSMENT IT IS NOT NECESSARY THAT IN EACH AND EVERY CASE ASSESSME NT ORDER IS PASSED U/S 143(3) OF THE ACT. HENCE IN MAJORITY OF THE CASES THERE WILL NOT BE ANY APPLICATION OF MIND BY THE ASSESSING OFFICER AFTER THE RETURN IS FILED. IT IS BECAUSE OF THIS REASON WHEN JURISDICTION U/S 147 I S EXERCISED WITHIN 4 PAGE 18 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. YEARS FROM THE EXPIRY OF RELEVANT ASSESSMENT YEAR SUCH JURISDICTION CANNOT BE CHALLENGED ON THE GROUND THAT THE ASSESSE E HAD DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS. FURTHER THESE CANNOT BE A CASE OF CHANGE OF OPINION WHERE RETURN HAS BEEN ACCEPTED U/S 143(1) O F THE ACT. IT IS FURTHER NOTICEABLE THAT ASSESSMENT OF ANY ESCAPED INCOME CO MING TO THE NOTICE OF A.O. SUBSEQUENTLY DURING THE COURSE OF PROCEEDINGS UNDER THIS SECTION CAN ALSO BE INCLUDED IN ASSESSMENT MADE UNDER THIS SECTION WHICH WAS THE POSITION IN THE OLD PROVISIONS ALSO. APART FROM THIS THERE IS EXPLANATION 2 WHICH PROVIDES FOR DEEMED ESCAPED IN COME GIVING POWERS TO A.O. TO EXERCISE JURISDICTION U/S 147 WHICH IS WIDER THAN PROVISIONS OF ERSTWHILE EXPLANATION 1. 18. NOW WE SHALL TAKE UP EACH QUESTION. Q.NO. 1: 19. IN THIS REGARD WE CONSIDER IT NECESSARY TO REPROD UCE THE REASONS RECORDED BY THE ASSESSING OFFICER BEFORE IS SUING NOTICE U/S 148 ON 21.3.2001 AS UNDER :- ON SCRUTINY OF CASE RECORDS OF THE ASSESSEE FOR AS SESSMENT YEAR 1993-94 IT IS FOUND THAT WITHIN THE MEANING OF SEC TION 147 OF INCOME-TAX ACT 1961 . INCOME OF ASSESSEE CHARGEABL E TO TAX HAS BEEN ESCAPED ASSESSMENT AS UNDER :- THE CLAIM OF INVESTMENT ALLOWANCE WAS ALLOWED CONSIDERING THE APPLICATION OF THE ASSESSEE U/S 154 OF THE PAGE 19 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ACT THE SET OFF OF INVESTMENT ALLOWANCE WAS INCORR ECT AND IRREGULAR. HENCE ASSESSEE HAS CLAIMED EXCESS SET-O FF OF INVESTMENT ALLOWANCES TO THE EXTENT OF RS. 3 78 754 /-. EXPLANATION 1 & 2 TO SECTION 147 OF THE ACT ARE ALS O FOUND APPLICABLE TO THE FACTS OF THE CASE. IN VIEW OF THE MATTER STATED ABOVE AND DIRECTION OF CIT GIVEN VIDE ORDER U/S 263 DATED 19.3.2001. I HAVE REASON TO BELIEVE THAT AT L EAST INCOME AMOUNTING TO RS. 3 78 754/- RELATING TO ASS ESSMENT YEAR 1995-96 CHARGEABLE TO TAX HAS ESCAPED ASSESSME NT. 20. THE PERUSAL OF THE ABOVE REFLECTS THE CASUAL APPRO ACH OF THE A.O. IN AS MUCH AS THAT ONCE THE ASSESSMENT FRAMED U/S 143(3) HAD BEEN CANCELLED BY LD. CIT(A) VIDE ORDER DATED 30.11.1999 THEN HOW THE PROVISIONS OF EXPLANATION 1 ARE APPLICABLE BECAUSE PROVISIONS OF SUCH EXPLANATION ARE RELEVANT TO THE FIRST PROVISO OF SE CTION 147 U/S 143(3) AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVA NT ASSESSMENT YEAR. FURTHER THE A.O. HAS NOT SPECIFICALLY POINTED OUT AS TO WHICH CLAUSE OF EXPLANATION (2) TO SECTION 147 IS APPLICABLE. IT IS FURTHER NOTED THAT THE A.O. HAS ALSO TAKEN COGNIZANCE OF THE FACT OF DIREC TIONS GIVEN BY THE CIT(A) IN THE COURSE OF PROCEEDINGS INITIATED U/S 263 WHICH WERE ULTIMATELY DROPPED FOR THE REASON THAT THERE WAS NO ORDER OF ASSESSMENT WAS IN EXISTENCE AT THE RELEVANT POINT OF TIME. THU S THE A.OS PROJECT IN PAGE 20 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. THE PRESENT CASE IS NOT OF HIS OWN AND FOR THIS RE ASON ALSO THE REOPENING IS NOT VALID. 21. IT IS AN UNDISPUTED FACT THAT IN THE PRESENT CASE THE ORIGINAL ASSESSMENT HAS BEEN QUASHED ON TECHNICAL GROUND AND THE ADDITIONS MADE U/S 147 ARE THE SAME WHICH WERE MADE IN SUCH QUASH ED ASSESSMENT ORDER. THE JURISDICTION U/S 147 CAN GENERALLY BE ASSUMED O NLY ON THE BASIS OF SOME INFORMATION/MATERIAL. THOUGH THE TERM INFORMA TION IN GENERAL SENSE CANNOT BE PRECISELY DEFINED BUT IT CAN BE S AID THAT INFORMATION IS SYNONYMOUS WITH KNOWLEDGE OR AWARENESS IN CONTRA-DI STINCTION TO APPREHENSION SUSPICION OR MIS-GIVING. ITS MEANING MUST DEPEND UPON AND MUST NECESSARILY VARY WITH THE CIRCUMSTANCES OF EACH CASE. IT HAS ALSO BEEN HELD THAT INFORMATION MAY COME FROM EXTERNAL S OURCES OR EVEN FROM MATERIAL ALREADY ON RECORD OR MAY BE DERIVED FROM D ISCOVERY OF NEW AND IMPORTANT MATTERS OR FRESH FACTS. IT IS ALSO RELEVA NT TO MENTION THAT A DETAILS AVAILABLE TO THE A.O. IN THE PAPERS ALREADY FILED BEFORE HIM DOES NOT BECOME AN ITEM OF INFORMATION BY ITS MERE AVAIL ABILITY BUT IT IS TRANSMITTED INTO AN ITEM OF INFORMATION WHEN ITS E XISTENCE IS REALIZED OR ITS IMPLICATIONS ARE RECOGNIZED. TO PUT IT DIFFEREN TLY INFORMATION ALSO MEANS SOMETHING THAT THE MIND HAS ACQUIRED. IN THE PRESENT CASE THE REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED FOR TH E REASON THAT THE PAGE 21 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ASSESSEE WAS ALLOWED SET OFF OF UNABSORBED INVESTME NT ALLOWANCES WRONGLY IN AN APPLICATION FILED BY THE ASSESSEE U/S 154. HOWEVER ULTIMATELY NO ADDITION HAS BEEN MADE ON THIS COUNT IN THE ORDER PASSED U/S 144/147 AND THE ADDITIONS WHICH HAD BEEN MAD E IN THE QUASHED ASSESSMENT ORDER PASSED U/S 143(3) HAVE ONLY BEEN MADE. AS REGARDS THE WRONG SET OFF OF UNABSORBED INVESTMENT ALLOWANCES IT IS NOTED THAT THE ASSESSEE IN THE BALANCE SHEET FOR THE RELEVANT YEAR HAS ALREADY SHOWN CREATION OF RELEVANT RESERVE AND UTILIZATION THEREO F AND THE A.O. IN ORDER PASSED U/S 154 HAS ACCEPTED THIS CLAIM OF THE ASSES SEE AND NO OTHER MATERIAL CAME INTO THE POSSESSION OF THE A.O. THERE AFTER TO SHOW THAT ORDER OF A.O. U/S 154 WAS NOT CORRECT IN LAW NOR IT IS THE CASE OF A.O. THAT CASE RECORDS FOR ASSESSMENT YEAR 1993-94 WERE NOT C ONSIDERED BY THE ASSESSING OFFICER WHILE ACCEPTING THE CLAIM OF ASSE SSEE. THUS IN OUR OPINION NO INFORMATION OR MATERIAL EXISTS HAVING N EXUS WITH REASONS RECORDED BY THE ASSESSING OFFICER. THUS IN OUR OPI NION REASSESSMENT PROCEEDINGS ARE NULL AND VOID FOR THIS REASON ALON E. 22. IN SECTION 147 AND IN EXPLANATION 2(B) THERETO TH E WORDS COMES TO HIS NOTICE HAVE BEEN USED TO ENVISAGE A SITUATION OF AN ESCAPEMENT OF INCOME OR UNDER ASSESSMENT OF AN INCO ME. IN OUR OPINION THE WORD NOTICE DENOTES A SITUATION WHERE ESCAPE MENT OF INCOME IS PAGE 22 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. EASILY SEEN OR CLEAR OR DEFINITE MEANING THEREBY GE NERALLY THERE CANNOT BE ANY OTHER VIEW ON THAT ISSUE. FURTHER IN SECTION 1 47 OR IN EXPLANATION 2(B) THERETO THE STAGE OF NOTICE IS SUBSEQUENT TO AN ASSESSMENT OR FILING OF RETURN OF INCOME WHERE NO ASSESSMENT HAS BEEN MADE . HENCE IN OUR HUMBLE OPINION THERE MUST EXIST SOME MATERIAL/INFO RMATION WHICH MAY RESULT INTO A SOME OF THE DEFINITE CONCLUSION OF ES CAPEMENT OR UNDER ASSESSMENT OF INCOME AND SIT SHOULD NOT BE CASE OF MAY BE OR MAY NOT BE. TO PUT IT DIFFERENTLY WHEN ANY ADDITION IS SOUGHT TO BE MADE ON ITEMS OTHER THAN ITEMS RECORDED IN THE REASONS FOR ASSUM ING JURISDICTION U/S 148 IN CASE OF ASSESSMENT BEING MADE THE A.O. CANNOT H AVE A PRIMA FACIE OPINION OR VIEW OF ESCAPEMENT RATHER THE A.O. SHOUL D BE CERTAIN ABOUT THE FACT OF ESCAPEMENT OR UNDER ASSESSMENT OF SUCH ITEM OF INCOME. SIMILARLY IN A CASE COVERED BY EXPLANATION 2(B) TO SECTION 147 THE FACT OF ESCAPEMENT OF INCOME SHOULD ALSO BE APPARENT AND SPECIFIC. HAVING STATED SO IT IS AN UNDISPUTED FACT THAT REASSESSME NT PROCEEDINGS U/S 147 HAVE BEEN COMPLETED U/S 144 AND ADDITIONS MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL DISALLOWANCE OF INTE REST OR UNEXPLAINED INVESTMENT IN STOCK ARE MERELY A CASE OF REPETITION OF THE SAME DISALLOWANCES MADE IN THE COURSE OF QUASHED ASSESSM ENT PROCEEDINGS UNDERTAKEN BY THE ASSESSING OFFICER U/S 143(3) OF T HE ACT. HENCE IT CANNOT BE SAID THAT THE SAME HAS COME TO THE NOTICE OF A.O. IN THE COURSE PAGE 23 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. OF PROCEEDINGS U/S 147 AND ALSO THESE ARE CASES OF DIFFERENT LEGAL VIEW IN RESPECT OF WHICH THERE CAN BE ANOTHER VIEW ALSO OF THE MATTER HENCE IT CANNOT BE CONSIDERED AS A CASE OF INCOME ESCAPING A SSESSMENT AS WELL. THUS WE ACCEPT THE CONTENTIONS OF THE ASSESSEE IN THIS REGARD. Q.NO.3 : 23. YES BECAUSE THE QUASHED ASSESSMENT RESULTS INTO A SITUATION OF NO ASSESSMENT BEING MADE. Q.NO. 4: 24. AS STATED EARLIER THE SCOPE OF POWER U/S 147 IS L IMITED. IT STARTS WITH THE RECORDING OF REASONS WHEREIN THE A.O. MEN TIONS ITEMS OF ESCAPED INCOME OR UNDER-ASSESSED INCOME. THE FIRST STEP FOR ASSUMING JURISDICTION U/S 147 IS TO RECORD THE REASONS AND T O SUPPLY THE SAME TO THE ASSESSEE AND TO DEAL WITH THE OBJECTIONS IF ANY R AISED BY THE ASSESSEE. IT IS ALSO WORTHWHILE TO MENTION THAT PROCEEDINGS U/S 147 CAN BE DROPPED AT THAT STAGE ONLY AND NO FURTHER ENQUIRY NEED TO BE M ADE IF THE A.O. IS SATISFIED WITH THE OBJECTIONS/EXPLANATIONS OF THE A SSESSEE AND PROCEEDINGS U/S 147 STOOD CONCLUDED AT THAT STAGES IS NOT SO THEN THE NEXT STEP IN THE COURSE OF SUCH PROCEEDINGS IS NECESSAR ILY AN ENQUIRY BY THE ASSESSING OFFICER ON THE ISSUE(S) RECORDED BY HIM I N THE REASONS FOR ASSUMING JURISDICTION U/S 147. TO PUT IT DIFFERENTL Y THE A.O. CANNOT MAKE ENQUIRIES INITIALLY ON OTHER ITEMS BECAUSE A GENER AL ENQUIRY REGARDING PAGE 24 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. VERACITY AND CORRECTNESS OF THE CLAIMS MADE BY THE ASSESSEE CAN BE EXAMINED BY THE ASSESSING OFFICER U/S 143. IF THE A .O. DOES NOT MAKE ANY ENQUIRY AT THE FIRST INSTANCE OF THE ITEMS MENT IONED IN THE REASONS RECORDED BY HIM AND HE MAKES ENQUIRY ON OTHER ITEMS THEN THAT WOULD RESULT INTO A SITUATION OF IMPROPER EXERCISE OF HIS JURISDICTION U/S 147 OR RATHER IT WOULD BE A CASE OF A.OS ACTION BEYOND HI S JURISDICTION U/S 147. HENCE THE PROCEEDINGS IN SUCH A SITUATION COULD B E QUASHED FOR THIS REASON ONLY BECAUSE IT WILL RESULT INTO A SITUATIO N OF MAKING OF FISHING/ROVING ENQUIRIES OR AN EXERCISE IN THE REAL M OF REASON TO SUSPECT AND NOT TO BELIEVE. THIS MAY ALSO BE TERMED AS AN E XERCISE OF POWERS IN ARBITRARY MANNER OR ABUSE OF POWER. THIS VIEW IS DU LY SUPPORTED BY THE DECISION OF THE HON'BLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF VIPIN KHANNA VS. CIT AS REPORTED IN 255 ITR 220 A ND THE RELEVANT FINDINGS ARE REPRODUCED AS UNDER :- THE NEXT QUESTION FOR OUR CONSIDERATION IS WHETHER AFTER INITIATING THE PROCEEDINGS U/S 147 OF THE ACT ON TH E GROUND THAT THE PETITIONER HAD CLAIMED DEPRECIATION AT A H IGHER RATE THE A.O. WOULD BE JUSTIFIED IN LAUNCHING INQUIRY IN TO THE ISSUES WHICH WERE NOT CONNECTED WITH THE CLAIM OF T HE DEPRECIATION. DURING THE COURSE OF ARGUMENTS THE P ETITIONER HAS TIME AND AGAIN EMPHASIZED THAT THE ORIGINAL ASSESSMENTS FOR THE ASSESSMENT YEAR 1992-93 AND 199 3-94 HAD BEEN FRAMED U/S 143(1)(A) OF THE ACT ON MARCH 3 1 1994 AND MAY 5 1994 RESPECTIVELY. AT THE OUT-SET WE MAY MENTION THAT UNDER THE NEW PROCEDURE OF ASSESSMENT INTRODUCED WITH EFFECT FROM APRIL 1 1989 THE PROC ESSING OF A RETURN UNDER SECTION 143(1)(A) OF THE ACT CANNOT BE EQUATED PAGE 25 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. WITH FRAMING OF AN ASSESSMENT. PRIOR TO THE AMENDME NT THE A.O. COULD FRAME AN ASSESSMENT UNDER SECTION 143(1) OF THE ACT WITHOUT REQUIRING THE PRESENCE OF THE ASSESSEE. ALTERNATIVELY HE COULD ISSUE A NOTICE UNDER SUB SE CTION (2) OF SECTION 143 OF THE ACT AND REQUIRE THE ASSESSEE TO PRODUCE HIS BOOKS OF ACCOUNT AND OTHER EVIDENCE IN SUPPORT OF THE RETURN FILED BY HIM AND THEREAFTER FRAME AN ASSESSMENT UNDER SUB SECTION (3) OF SECTION 143 OF THE ACT. THEREFORE IT WAS NECESSARY THAT AN ASSESSMENT ORDE R EITHER UNDER SUB SECTION (1) OR UNDER SUB-SECTION (3) OF S ECTION 143 OF THE ACT HAD TO BE PASSED. HOWEVER AFTER AME NDMENT MADE WITH EFFECT FROM APRIL 1 1989 THE POSITION HA S MATERIALLY CHANGED. NOW THE A.O. INITIALLY PROCESSE S THE RETURN U/S 143(1)(A) OF THE ACT AND DETERMINES THE AMOUNT PAYABLE OR REFUNDABLE ON THAT BASIS. IT IS NOT NECE SSARY FOR HIM TO FRAME AN ASSESSMENT IN EACH AND EVERY CASE. HOWEVER IN CASE HE CHOOSES TO VERIFY THE RETURN AN D FRAME AN ASSESSMENT HE HAS TO ISSUE A NOTICE UNDER SUB S ECTION (2) OF SECTION 143 AND REQUIRE THE ASSESSEE TO PROD UCE HIS BOOKS OF ACCOUNT AND OTHER MATERIAL IN SUPPORT OF T HE RETURN. THEREAFTER HE CAN MAKE AN ASSESSMENT UNDER SUB-SEC TION (3) OF SECTION 143 OF THE ACT. ANOTHER IMPORTANT CH ANGE INCORPORATED IN SUB-SECTION (2) OF SECTION 143 OF T HE ACT IS THAT NOTICE UNDER THIS SUB-SECTION CANNOT BE SERVED ON AN ASSESSEE AFTER THE EXPIRY OF 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN IS FURNISHED. THEREFORE IN A CASE WHERE A RETURN IS FILED AND IS PROCESSED UNDER SECT ION 143(1)(A) OF THE ACT AND NO NOTICE UNDER SUB-SECTIO N (2) OF SECTION 143 OF THE ACT THEREAFTER IS SERVED ON THE ASSESSEE WITHIN THE STIPULATED PERIOD OF 12 MONTHS THE ASSE SSMENT PROCEEDINGS U/S 143 COME TO AN END AND THE MATTER BECOMES FINAL. THUS ALTHOUGH TECHNICALLY NO ASSESS MENT IS FRAMED IN SUCH A CASE YET THE PROCEEDINGS FOR ASSE SSMENT STAND TERMINATED. THE CENTRAL BOARD OF DIRECT TAXES VIDE ITS CIRCULAR NO.549 DATED OCTOBER 31 1989 [1990] 182 IT R (ST) 1 HAS EXPLAINED THE NEW PROCEDURE OF ASSESSMENT IN PARAS 5.12 AND 5.13 AS UNDER : ( PAGE 24 ) :- 5.12 SINCE UNDER THE PROVISIONS O F SUB-SECTION (1) OF THE NEW SECTION 143 AN ASSESSMENT IS NOT TO BE MADE NOW T HE PROVISIONS OF SUB- SECTION (1) OF THE NEW SECTION 143 AN ASSESSMENT I S NOT TO BE MADE NOW THE PROVISIONS OF SUB-SECTIONS (2) AND (3) HAV E ALSO BEEN RECAST AND PAGE 26 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ARE ENTIRELY DIFFERENT FROM THE OLD PROVISIONS. A N OTICE UNDER SUB SECTION (2) WHICH WILL BE ISSUED ONLY IN CASES PICKED UP FO R SCRUTINY IS NOW ISSUED ONLY TO ENSURE THAT THE ASSESSEE HAS NOT UND ERSTATED HIS INCOME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NOT UNDER PAID THE TAX IN ANY MANNER WHILE FURNISHING HIS RETURN OF INCOME. THIS MEANS THAT UNDER THE NEW PROVISIONS IN AN ASSESSMENT ORDER PASSED U/S 1 43(3) IN A SCRUTINY CASE NEITHER THE INCOME NOR LOSS CAN BE ASSESSED AT A FIGURE HIGHER THAN THE RETURNED LOSS NOR A FURTHER REFUND CAN BE GIVEN EXCEPT WHAT WAS DUE ON THAT BASIS OF THE RETURNED INCOME AND WHICH WOULD HAVE ALREADY BEEN ALLOWED UNDER THE PROVISIONS OF SECTION 143(1) (A)(II). 5.13 A PROVISO TO SUB SEC TION (2) PROVIDES THAT A NOTICE UNDER THE SUB SECTION CAN BE SERVED ON THE ASSESSEE ONLY DURING THE FINANCIAL YEAR IN WHICH TH E RETURN IS FURNISHED WHICHEVER IS LATER. THIS MEANS THAT THE DEPARTMENT MUST SERVE THE SAID NOTICE ON THE ASSESSEE WITHIN THIS PERIOD IF A CASE IS PICKED UP FOR SCRUTINY. IT FOLLOWS THAT IF AN ASSESSEE AFTER FURNISHING THE RETURN OF INCOME DOES NOT RECEIVE A NOTICE U/S 143(2) FROM THE DEPARTMENT WITHIN THE AFORESAID PERIOD HE CAN TAKE IT THAT THE RETURN FI LED BY HIM HAS BECOME FINAL AND NO SCRUTINY PROCEEDINGS ARE TO BE STARTED IN RESPECT OF THAT RETURN (EMPHASIS SUPPLIED) THUS IT IS EVIDENT THAT THE BOARD ITSELF CONCEDES THAT IF THE ASSESSEE AFTER FURNISHING THE RETURN OF INCO ME DOES NOT RECEIVE A NOTICE U/S 143(2) OF THE ACT WITHIN T HE STIPULATED PERIOD HE CAN TAKE IT THAT THE RETURN FI LED BY HIM HAS BECOME FINAL AND NO SCRUTINY PROCEEDINGS ARE TO BE STATED IN RESPECT OF THAT RETURN. HERE IT NEEDS TO BE CLARIFIED THAT IN THE BOARDS CIRCULAR (SEE [1990] 182 ITR (S T.) 1 THE STIPULATED PERIOD HAS BEEN REFERRED TO AS SIX MONTH S AS IT WAS THE PERIOD SPECIFIED ORIGINALLY WHEN THE NEW PR OVISION WAS INTRODUCED WITH EFFECT FROM APRIL 1 1989. HOW EVER VIDE AMENDMENT MADE BY THE FINANCE (NO.2) ACT 199 1 PAGE 27 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. THIS PERIOD WAS ENHANCED TO TWELVE MONTHS WITH EFFE CT FROM OCTOBER 1 1991. IN THE PRESENT CASE IT IS AN ADMITT ED POSITION THAT NO NOTICE U/S 143(2) OF THE ACT HAD B EEN SERVED TO THE PETITIONER WITHIN THE STIPULATED PERIOD AND AS SUCH HIS RETURN HAD BECOME FINAL. IN THE BACKGROUND OF THIS SETTLED POSITION WE MAY N OW EXAMINE THE VALIDITY OF THE LETTER DATED JULY 30 19 98 (ANNEXURE P-5) ISSUED BY THE ASSISTANT COMMISSION ER WHICH HAS BEEN UPHELD BY THE DY. COMMISSIONER VIDE HIS ORDER DATED OCTOBER 26 (ANNEXURE P-7). THERE CAN B E NO DISPUTE ABOUT THE ARGUMENT ADVANCED ON BEHALF OF TH E REVENUE THAT IN VIEW OF THE AMENDMENT MADE IN SECTI ON 147 OF THE ACT WITH EFFECT FROM APRIL 1 1989 THE A.O. COULD NOT ONLY ASSESS OR REASSESS THE ESCAPED INCOME IN R ESPECT OF WHICH PROCEEDINGS U/S 147 HAVE BEEN INITIATED BU T ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH MAY HAVE ESCAPED ASSESSMENT AND WHICH COMES TO HIS KNOWLEDGE SUBSEQUENTLY IN THE COURSE OF SUCH PROCEEDINGS. THI S PROPOSITION IS NOT EVEN DISPUTED BY LEARNED COUNSEL FOR THE PETITIONER. HOWEVER WHAT IS DISPUTED IS THE ACTION OF THE A.O. IN EMBARKING UPON FRESH INQUIRIES ON ISSUES WH ICH ARE UNCONNECTED WITH THE ISSUE WHICH FORMS THE BASIS OF PROCEEDINGS U/S 147 OF THE ACT. FROM THE LETTER DAT ED JULY 30 1998 IT IS EVIDENT THAT THE A.O. WAS SEEKING GE NERAL INFORMATION ON OTHER ISSUES MERELY TO VERIFY THE RE TURN. AS ALREADY OBSERVED SUCH GENERAL INQUIRY COULD NOT BE MADE BY ISSUING A NOTICE UNDER SUB SECTION (2) OF SECTION 1 43 WITHIN THE STIPULATED PERIOD WHICH IN THE PRESENT CASE HAD ALREADY EXPIRED. ADMITTEDLY IT IS NOT THE CASE OF THE REVE NUE THAT DURING THE COURSE OF PROCEEDINGS U/S 147 OF THE ACT IT HAD COME ACROSS ANY MATERIAL RELATING TO THE ITEMS MENT IONED IN THE IMPUGNED LETTER DATED JULY 30 1998 SUGGESTING ESCAPEMENT OF INCOME UNDER ANY OF THOSE HEADS. IN T HIS VIEW OF THE MATTER THE PETITIONER WOULD BE JUSTIFI ED IN CLAIMING THAT THE LETTER DATED JULY 30 1998 ISSUED BY THE ACIT IS TANTAMOUNT TO MAKING FISHING INQUIRIES ON C ONCLUDED MATTERS UNCONNECTED WITH THE ISSUE ON THE BASIS OF WHICH PROCEEDINGS U/S 147 HAD BEEN INITIATED. THIS INDEED IS NOT PERMISSIBLE UNDER THE LAW. THE PETITIONER HAS RIGHT LY RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS PVT.LTD. [1992] 198 ITR 297 TO CO NTEND THAT THE JURISDICTION OF THE ITO IN PROCEEDINGS U/S 147 OF THE ACT IS CONFINED ONLY TO SUCH INCOME WHICH HAS ESCAP ED TAX OR HAS BEEN UNDER-ASSESSED AND DOES NOT EXTEND TO PAGE 28 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. REVISING REOPENING OR RECONSIDERING THE WHOLE ASSE SSMENT. IN THE PRESENT CASE THE IMPUGNED LETTER DATED JULY 30 1998 REQUIRING THE PETITIONER TO FURNISH INFORMATION ON ISSUES IN RESPECT OF WHICH THERE IS NO ALLEGATION OF ANY ESCA PEMENT OR UNDERASSESSMENT OF INCOME EITHER IN THE REASONS REC ORDED OR DURING THE COURSE OF PROCEEDINGS U/S 147 OF THE ACT IS TANTAMOUNT TO REVIEWING THE WHOLE ASSESSMENT. THIS COULD NOT BE DONE. THE RETURNS FILED IN RESPONSE TO NOTIC ES U/S 148 OF THE ACT WERE THE SAME AS FILED ORIGINALLY. THE A .O. HAD THE OPTION TO ISSUE A NOTICE U/S 143(2) OF THE ACT REQUIRING THE ASSESSEE TO PRODUCE EVIDENCE IN SUPPORT OF THE RETURNS IF HE CONSIDERED IT NECESSARY TO ENSURE THAT THE AS SESSEE HAD NOT UNDERSTATED THE INCOME OR HAD NOT COMPUTED EXCESSIVE LOSS OR HAD NOT UNDERPAID THE TAX IN ANY MANNER. SUCH A NOTICE COULD BE ISSUED ONLY WITHIN TWELVE MO NTHS FROM THE END OF THE MONTH IN WHICH THE RESPECTIVE R ETURNS HAD BEEN FILED ORIGINALLY. ADMITTEDLY NO SUCH NOTI CE HAD BEEN SERVED ON THE PETITIONER WITHIN THE STIPULATED PERIOD AND THEREFORE IT HAS TO BE HELD THAT THE A.O. HAD NOT FOUND IT NECESSARY TO REQUIRE THE PETITIONER TO PRODUCE A NY EVIDENCE IN SUPPORT OF THE RETURNS. THUS THE RETUR NS FILED BY THE PETITIONER HAD BECOME FINAL. THIS FINALITY COU LD NOT BE DISTURBED EVEN IN PROCEEDINGS U/S 147 OF THE ACT IN RESPECT OF ISSUES ON WHICH THERE IS NO MATERIAL ON RECORD S UGGESTING ANY ESCAPEMENT OF INCOME. IN THE PRESENT CASE EXCEP T FOR THE EXCESSIVE CLAIM OF DEPRECIATION THERE IS NO MAT ERIAL TO SUGGEST ANY UNDERASSESSMENT OR ESCAPEMENT OF INCOME UNDER OTHER ITEM. THERE IS NO GAINSAYING THE FACT T HAT IN PROCEEDINGS U/S 147 OF THE ACT IT IS ONLY THE ESCAP ED INCOME WHICH HAS TO BE ASSESSED OR REASSESSED. THUS WE AR E OF THE CONSIDERED VIEW THAT AS PER THE LAW LAID DOWN B Y THE APEX COURT IN THE CASE OF SUN ENGINEERING WORKS PVT .LTD. [1992]198 ITR 297 WHEN PROCEEDINGS U/S 147 OF THE ACT ARE INITIATED THE PROCEEDINGS ARE OPEN ONLY QUA ITEMS OF UNDERASSESSMENT. THE FINALITY OF THE ASSESSMENT PROCEEDINGS ON OTHER ISSUES REMAINS UNDISTURBED. ACCORDING TO US IT MAKES NO DIFFERENCE WHETHER THE ASSESSMENT PROCEEDINGS HAVE BECOME FINAL ON ACCOUNT OF FRAMING OF AN ASSESSMENT U/S 143(3) OF THE ACT OR O N ACCOUNT OF NON-ISSUE OF A NOTICE U/S 143(2) OF THE ACT WITHIN THE STIPULATED PERIOD. THE AMENDMENTS MADE IN SECTI ONS 143 AND 147 OF THE ACT WITH EFFECT FROM APRIL 1 1 989 DO NOT IN ANY MANNER NEGATE THIS PROPOSITION OF LAW AS ENU NCIATED BY THE SUPREME COURT IN THE CASE OF SUN ENGINEERIN G WORKS PVT.LTD. [1992] 198 ITR 297. PAGE 29 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. WE MAY ALSO MENTION THAT THE INTERPRETATION PLACED ON THE OBSERVATIONS OF THE SUPREME COURT OF V. JAGANMOHAN RAOS CASE [1970] 75 ITR 373 BY THE DY. COMMISSIONER IN HIS O RDER DATED OCTOBER 26 1998 IS NOT CORRECT. HE WAS NOT CORREC T IN HOLDING THAT ONCE VALID PROCEEDINGS U/S 147 ARE STARTED THE WHOL E ASSESSMENT PROCEEDINGS START AFRESH. THIS HAS BEEN EXPLAINED B Y THE APEX COURT ITSELF IN SUN ENGINEERING WORKS PVT.LTDS CAS E [1992] 198 ITR 297 AT PAGE 319 OF THE REPORT AS UNDER : THE PRINCIPLE LAID DOWN BY THIS COURT IN V. JAGANM OHAN RAOS CASE THEREFORE IS ONLY TO THE EXTENT THAT O NCE AN ASSESSMENT IS VALIDLY REOPENED BY ISSUANCE OF A NOT ICE U/S 22(2) OF THE 1922 ACT (CORRESPONDING TO SECTION 148 OF TH E ACT) THE PREVIOUS UNDERASSESSMENT IS SET ASIDE AND THE ITO H AS THE JURISDICTION AND DUTY TO LEVY TAX ON THE ENTIRE INC OME THAT HAD ESCAPED ASSESSMENT DURING THE PREVIOUS YEAR. WHAT I S SET ASIDE IS THUS ONLY THE PREVIOUS UNDERASSESSMENT AND NOT THE ORIGINAL ASSESSMENT PROCEEDINGS. AN ORDER MADE IN RELATION T O THE ESCAPED TURNOVER DOES NOT AFFECT THE OPERATIVE FORC E OF THE ORIGINAL ASSESSMENT PARTICULARLY IF IT HAS ACQUIR ED FINALITY AND THE ORIGINAL ORDER RETAINS BOTH ITS CHARACTER AND IDENT ITY. IT IS ONLY IN CASES OF UNDERASSESSMENT BASE ON CLAUSES 9A) TO ( D) OF EXPLANATION 1 TO SECTION 147 THAT THE ASSESSMENT O F TAX DUE HAS TO BE RECOMPUTED ON THE ENTIRE TAXABLE INCOME. THE JUDGMENT IN V. JAGANMOHAN RAOS CASE [1970] 75 ITR 373 ( S. C.) THEREFORE CANNOT BE READ TO IMPLY AS LAYING DOWN THAT IN THE REASSESSMENT PROCEEDINGS VALIDLY INITIATED THE ASSESSEE CAN SEE K REOPENING OF THE WHOLE ASSESSMENT AND CLAIM CREDIT IN RESPECT OF ITEMS FINALLY CONCLUDED IN THE ORIGINAL ASSESSMENT. THE ASSESSEE CANNOT CLAIM RECOMPUTATION OF THE INCOME OR REDOING OF AN ASSESS MENT AND BE ALLOWED A CLAIM WHICH HE EITHER FAILED TO MAKE OR W HICH WAS OTHERWISE REJECTED AT THE TIME OF ORIGINAL ASSESSME NT WHICH HAS SINCE ACQUIRED FINALITY. OF COURSE IN THE REASSESS MENT PROCEEDINGS IT IS OPEN TO AN ASSESSEE TO SHOW THAT THE INCOME ALLEGED TO HAVE ESCAPED ASSESSMENT HAS IN TRUTH AND IN FACT NOT ESCAPED ASSESSMENT BUT THAT THE SAME HAD BEEN SHOWN UNDER SOME INAPPROPRIATE HEAD IN THE ORIGINAL RETURN BUT TO READ THE JUDGMENT IN V. JAGANMOHAN RAOS CASE [1970] 75 ITR 373 ( S. C.) AS LAYING DOWN THAT REASSESSMENT WIPES OUT THE ORIG INAL ASSESSMENT AND THAT ASSESSMENT IS NOT ONLY CONFINED TO ESCAPED ASSESSMENT OR UNDERASSESSMENT BUT TO TH E ENTIRE ASSESSMENT FOR THE YEAR AND STARTS THE ASSESSMENT PROCEEDINGS DE NOVO GIVING THE RIGHT TO AN ASSESSEE TO RE- AGITATE MATTERS WHICH HE HAD LOST DURING THE ORIGIN AL ASSESSMENT PROCEEDINGS WHICH HAD ACQUIRED FINALITY IS NOT PAGE 30 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ONLY ERRONEOUS BUT ALSO AGAINST THE PHRASEOLOGY OF SECTION 147 OF THE ACT AND THE OBJECT OF ASSESSMENT PROCEED INGS. SUCH AN INTERPRETATION WOULD BE READING THAT JUDGME NT TOTALLY OUT OF CONTEXT IN WHICH THE QUESTIONS AROSE FOR DECISIO N IN THAT CASE. IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TRE AT IT TO BE THE COMPLETE LAW DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT H AVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT. A DECISION OF THIS COURT TAKES ITS COLOUR FO RM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND W HILE APPLYING THE DECISION IN A LATER CASE THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF TH IS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT DIVO RCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THI S COURT TO SUPPORT THEIR REASONINGS. (EMPHASIS SUPPLIED) IN VIEW OF THE ABOVE DISCUSSION WE ARE SATISFIED T HAT THE LETTER DATED JULY 30 1998 ISSUED BY THE ASSES SING OFFICER IN SO FAR AS IT RELATES TO MATTERS CONNECTED WITH THE ISSUE OF DEPRECIATION AS ALSO THE DIRECTIONS ISSUED BY THE DY. COMMISSIONER U/S 144A OF THE ACT DATED OCTOBER 26 1998 CANNOT BE SUSTAINED. THE SAME ARE HEREBY VACATED. THE A.O. WILL NOW PROCEED WITH THE ASSESSMENT U/S 147 OF THE ACT IN A CCORDANCE WITH LAW. FOR THE SAKE OF CLARIFICATION WE MAY REPEAT T HAT NOTHING OBSERVED BY US IN THIS CASE WOULD DEBAR THE A.O. TO BRING TO TAX ANY OTHER ITEM OF INCOME WHICH MAY HAVE ESCAPED ASS ESSMENT AND WHICH COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEEDINGS U/S 147 OF THE ACT. HOWEVER FOR THIS P URPOSE HE CANNOT BE ALLOWED TO MAKE FISHING INQUIRIES TO PROB E IF ANY OTHER INCOME HAD ESCAPED ASSESSMENT OR NOT. SUCH INQUIRIE S CAN ONLY BE PERMITTED IF IN THE FIRST INSTANCE SOME MATERIAL COMES TO HIS NOTICE TO SUGGEST THAT SOME OTHER ITEM OF INCOME MA Y HAVE ESCAPED ASSESSMENT OR HAD BEEN UNDERASSESSED. IN TH AT EVENT HE WOULD BE PERFECTLY JUSTIFIED IN REQUIRING THE PE TITION TO FURNISH THE REQUISITE INFORMATION ON SUCH OTHER ISSUE AS WELL. THE WRIT PETITION IS THEREFORE ALLOWED IN THE AB OVE TERMS. HOWEVER IN THE CIRCUMSTANCES OF THE CASE THERE WI LL BE NO ORDER AS TO COSTS. 25. IN THE PRESENT CASE ALSO THE REASON FOR REOPENING THE ASSESSMENT IS ONLY ONE I.E. THE WRONG SET-OFF OF UNABSORBED IN VESTMENT ALLOWANCES PAGE 31 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. WHICH IN NO WAY BY ANY STRETCH OF IMAGINATION CA NNOT BE SAID TO HAVE ANY CONNECTION WITH THE ADDITIONS ULTIMATELY MADE. TO PUT IT DIFFERENTLY THERE WAS NO OCCASION EVEN TO ENQUIRE ABOUT THESE C LAIMS IN THE COURSE OF REASSESSMENT PROCEEDINGS NOR ANY INFORMATION REGAR DING THE FACT OF ESCAPEMENT OF INCOME COULD COME TO THE NOTICE OF TH E A.O. WHILE ADJUDICATING THE ISSUE OF ALLOWABILITY OF CARRY FOR WARD A SET OFF OF UNABSORBED INVESTMENT ALLOWANCES. THUS IT IS A CAS E OF ABUSE OF POWERS GIVEN TO THE A.O. AND THEREFORE THE ACTION OF THE A.O. IS LIABLE TO BE DECLARED NULL AND VOID. BEFORE PARTING WE ALSO CON SIDER IT PERTINENT TO MENTION THAT IT IS A CASE WHERE REASSESSMENT HAS B EEN DONE BY APPLYING PROVISIONS OF SECTION 144 AND IN THE NOTICE ISSUED U/S 143(2)/142(1) IN THE COURSE OF SUCH PROCEEDINGS NO INQUIRIES WERE MADE AT ALL AND THERE IS NO MATERIAL ON RECORD TO INDICATE EVEN REMOTELY THAT S UCH ADDITIONS WERE WARRANTED. 26. WE EVEN AT THE COST OF REPETITION REITERATE THAT F IRSTLY THE AO SHOULD HAVE EXAMINED THE ITEM RECORDED IN THE REASONS AND IF THAT WAS DONE THEN AOS JURISDICTION WOULD HAVE CULMINATED AT TH AT VERY STAGE AS NO ADDITION HAS BEEN MADE ON THAT COUNT AND THEREFORE THE OTHER ADDITIONS ARE BEYOND HIS JURISDICTION. IN THIS REGARD WE CON SIDER IT PERTINENT TO REPRODUCE THE RELEVANT FINDINGS OF THE DECISION OF THE HON'BLE RAJASTHAN PAGE 32 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. HIGH COURT IN THE CASE OF CIT VS. SHRIRAM SINGH AS REPORTED IN 21 CTR 345 RELIED ON BY THE ASSESSEE. 9. WE HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE THROUGH THE JUDGMENTS CITED AT THE BAR SO ALSO THE IMPUGNE D JUDGMENT OF THE LEARNED TRIBUNAL. 10. A LOOK AT THE JUDGMENT OF THE LEARNED TRIBUNAL SHOW S THAT IT SUBSTANTIALLY PROCEEDS ON ITS EARLIER JUDGMENT IN THE CASE OF MARUTL GUAR GUM (P) LTD. DT. 13TH AUG. 2004. SINCE LEARN ED COUNSEL FOR THE REVENUE POINTED OUT THAT APPEAL AGAINST THAT J UDGMENT HAS ALREADY BEEN FILED AND IS PENDING BEFORE THIS COUR T WE REQUISITIONED THAT FILE AND HAVE GONE THROUGH THAT ORDER ALSO AND FIND .THAT THAT ORDER BASICALLY PROCEEDS ON THE BA SIS THAT THE REASONS FOR REOPENING WERE CONSISTENTLY DEMANDED BY THE ASSESSEE BUT WERE NOT SUPPLIED AND THEN IT HAS BE EN FOUND ON MERITS BY HOLDING THAT OTHERWISE ALSO THE FACTS ARE THAT THE ASSESSEE HAD RECEIVED RENT IN CONNECTION WITH LEASE D GODOWN AND FACTORY PREMISES THE CLAIM OF DEPRECIATION WAS MAD E BY THE ASSESSEE IN THE RETURNS OF INCOME THEREFORE IN TH E OPINION OF THE TRIBUNAL NO INCOME CHARGEABLE TO TAX CAN BE SAID T O HAVE ESCAPED ASSESSMENT. THEN REFERENCE IS MADE TO JUDGMENT OF P UNJAB & HARYANA HIGH COURT IN ATLAS CYCLE INDUSTRIES CASE (SUPRA) BY OBSERVING AS UNDER: PAGE 33 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. TO FIND SUPPORT WE CAN QUOTE THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF 180 ITR 319 SUPREME COURT IN WHICH IT WAS HELD. 11. HOWEVER IT WAS POINTED OUT BY LEARNED COUNSEL FOR THE ASSESSEE THAT AS A MATTER OF FACT IT WAS IN A BUNC H OF APPEALS LED BY ITA NO. 10/2005 DR. DEVENDRA GUPTA VS. ITO THA T THE LEARNED TRIBUNAL VIDE ORDER DT. 8TH SEPT. 2005 [REPORTED AT (2005) 97 TTJ (JD) 561-ED.) HAD DECIDED THIS CONTROVERSY BY GIV ING DETAILED REASONS. IT WAS POINTED OUT THAT AGAINST THAT JUDG MENT ALSO APPEALS ARE PENDING BEFORE THIS COURT AND THEREFOR E WE REQUISITIONED THAT FILE ALSO AND HAVE GONE THROUGH THE ORDER OF THE LEARNED TRIBUNAL AVAILABLE IN THAT CASE IN AN ATT EMPT TO FIND OUT AS TO WHAT WERE THE REASONS WORKING IN THE MIND OF THE TRIBUNAL INSTEAD OF STANDING TO CEREMONIES ABOUT THE PROPRI ETY OF CONSTRUCTION OF SENTENCES OR PROPRIETY OF EXPRESSI ON ETC. 12. IN DR. DEVENDRA GUPTA'S CASE (SUPRA) LEARNED TRIBU NAL HAS RELIED UPON THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN ATLAS CYCLE INDUSTRIES CASE (SUPRA) AND CONCLUDED THAT THE BASIC CONDITION IS THAT THE AO HAS REASON TO BELIEVE THAT ANY INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR AND IT WAS FOUND THAT THE SECTION PUTS NO BAR ON THE POWERS OF THE AO TO PUT TO TAX ANY OTHER INCOME CHARGEABLE TO TAX ' WHICH HAS ESCAPED ASSESSMENT A ND WHICH SUBSEQUENTLY PAGE 34 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. COMES TO HIS NOTICE IN THE CURSE OF THE PROCEEDING S BUT THEN THE PREFIXING WORDS 'AND ALSO' WHICH SUCCEEDED 'ANY INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SS. 148 TO 153 ASSESS OR REASSESS SU CH INCOME'. THIS EXPRESSION WAS FOUND TO BE MAKING CLEAR THAT EXIST ENCE OF THE INCOME FOR WHICH THE AO FORMED BELIEF TO HAVE ESCAPED ASSESSM ENT IS A PRECONDITION FOR INCLUDING ANY OTHER INCOME CHARGEABLE TO TAX E SCAPING ASSESSMENT AND COMING TO THE NOTICE OF THE AO SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS. THUS UNLESS AND UNTIL SUCH INCOME AS GIVING RISE TO FORM BELIEF FOR ESCAPING ASSESSMENT CONTINUES TO EXIST AND CONSTITUTES A SUBJECT-MATTER OF ASSESSMENT UNDER S. 147 'NO OTHE R INCOME' COMING TO THE NOTICE OF THE AO DURING THE COURSE OF THE PROCEEDI NGS CAN BE ROPED IN. 13. THUS THOUGH BY UNDERTAKING A LONG DRAWN EXERCISE BUT THEN WE HAVE BEEN ABLE TO DECIPHER THE REASONS APPEAR TO HAVE E XISTED IN THE MIND OF HE LEARNED TRIBUNAL THOUGH SUCCINCTLY EXPRESSED ON A SUBSEQUENT OCCASION IN DR. DEVENDRA GUPTA'S CASE (SUPRA). 14. IT IS IN THE ABOVE SITUATION THAT THE QUESTION AS FRAMED IS REQUIRED TO BE EXAMINED BY US. BEFORE PROCEEDING FURTHER WE MAY GA INFULLY QUOTE THE RELEVANT PROVISIONS OF S. 147 WHICH READ AS UNDER: '147. IF THE AO HAS REASON TO BELIEVE THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR ' HE MAY SUBJECT TO THE PROVISIONS OF SS . 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 SU BSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION O R RE-COMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALL OWANCE AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HER EAFTER IN THIS PAGE 35 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. SECTION AND IN SS. 148 TO 153 REFERRED TO AS THE RE LEVANT ASSESSMENT YEAR)' 16. WITH THIS A LOOK AT THE JUDGMENT CITED BY MR. BISS A BEING IN RAJESH JHAVERI'S CASE (SUPRA) AND JAGAN NATH SINGHAL'S CA SE (SUPRA) DO SHOW THAT THOSE JUDGMENTS ARE SLIGHTLY ON DIFFERENT POIN TS INASMUCH AS IN RAJESH JHAVERI'S CASE (SUPRA) PROCEEDINGS WERE INITIATED UNDER S. 147 BY GIVING NOTICE WHICH IT ' WI. UNDER CHALLENGE AND HON'BLE THE SUPREME COURT WAS EXAMINING THE PARAMETERS OF THE EXPRESSION 'REA SON TO BELIEVE' AS USED IN S. 147 AND IT WAS HELD AS UNDER : . 'THE EXPRESSION 'REASON TO BELIEVE' IN S. 147 WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUST IFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT HE CAN BE SAID TO HAVE REASON TO BELIEVE THAT INCOME H AD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ T O MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED TH E FACT BY LEGAL EVIDENCE OR CONCLUSION. WHAT IS REQUIRED IS ' REASON TO BELIEVE' BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE THE ONLY Q UESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REAS ONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF. WHET HER MATERIAL WOULD CONCLUSIVELY PROVE ESCAPEMENT OF INC OME IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE T HE FORMATION OF THE BELIEF IS WITHIN THE REALM OF THE SUBJECTIVE SATISFACTION OF THE AO.' 17. LIKEWISE IN JAGAN NATH SINGHAL'S CASE (SUPRA) AGAIN THIS VERY VIEW WAS TAKEN THAT WAS ALSO A CASE WHERE THE INI TIATION OF PROCEEDINGS WAS CHALLENGED. IT WAS ALSO HELD THAT THE AFFIDAVIT OF PAGE 36 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. THE DAUGHTER OF THE PETITIONER FORMED A REASONABLE GROUND FOR THE AO TO ENTERTAIN A PRIMA FADE REASON TO BELIEVE AB OUT THE ESCAPEMENT OF INCOME AND THEREFORE IT WAS HELD T HAT THE PROCEEDINGS CANNOT BE SAID TO BE WITHOUT JURISDICTI ON. IT WAS ALSO CLARIFIED THAT THE COURT WAS NOT GOING INTO THE ME RITS OF THE CASE OF THE ASSESSEE THE ASSESSEE WAS LEFT FREE TO LEAD EV IDENCE IN THE REASSESSMENT PROCEEDINGS TO SHOW THAT THE EXPENDI TURE INCURRED IN THE DAUGHTER'S MARRIAGE WAS UPTO A SPECIFIED EXT ENT AND AS SUCH NO INCOME HAS ESCAPED ASSESSMENT. 18. IN THE PRESENT CASE INITIATION OF THE PROCEEDINGS IS NOT UNDER CHALLENGE BEFORE US BY EITHER SIDE AND RIGHTLY SO. THEREFORE THE TWO JUDGMENTS CITED BY THE LEARNED COUNSEL FOR THE REVENUE ARE OF NO ASSISTANCE TO THE APPELLANT. 19. THEN WE ARE REFERRED TO THE JUDGMENT OF HON'BLE THE SUPREME COURT IN BANKIPUR CLUB LTD.'S CASE (SUPRA) WHER EIN AGAIN THE QUESTION WAS ABOUT THE JURISDICTION OF THE AO TO INITIA TE REOPENING PROCEEDINGS. IN THAT CASE IT WAS FOUND THAT TH E MATERIAL ON THE BASIS OF WHICH THE REASON TO BELIEVE WAS ENTERTAINED DID ALSO EXIST AT THE TIME OF PASSING OF THE ORIGINAL ORDER O F ASSESSMENT AND IT WAS NOT THE CASE OF THE AO THAT WHEN H E MADE THE ORIGINAL ASSESSMENT ORDER HE WAS NOT AWARE OF THE TRUE LEGAL POSITION. 20. THEN WE COME TO THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN ATLAS CYCLE INDUSTRIES' CASE (SUPRA) WHICH IS A CASE PRECISELY ON THE POINT INASMUCH AS IN THAT CASE THE TRIBUNAL REFERRED FOR THE OPINION OF THE HIGH COURT THE QUESTION VLZ. PAGE 37 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN CANCELLING THE REASSESSMENT MADE BY THE I.T.O. 21. DEALING WITH THIS QUESTION IT WAS HELD BY THE HIGH COURT THAT THE TRIBUNAL WAS RIGHT IN CANCELLING THE REASSESSMENT AS THE TWO GROUNDS ON WHICH THE REASSESSMENT NOTICE WAS ISSUED WERE NOT FOUND TO EXIST AND THE MOMENT SUCH IS THE POSITION ITO DOE S NOT GET THE JURISDICTION TO MAKE REASSESSMENT. OF COURSE FOR THIS PROPOSITION RELIANCE WAS PLACED ON BANKIPUR CLUB LTD.'S CASE (SUPRA) AND ANOTHER JUDGMENT OF HON'BLE THE SUPREME COURT IN CIT VS. A. RAMAN & CO. WHICH IN TURN AGAIN WAS A CASE DEALING WITH THE ASPECT OF VALIDITY OF COMMENCEMENT OF THE PROCEE DINGS FOR REASSESSMENT UNDER S. 147. BUT THEN THE DIVISION BENCH OF THE PUNJAB & HARYANA HIGH COURT DOES TAKE THE VIEW THAT ONCE THE GROUNDS ON WHICH THE REASSESSMENT NOTICE WAS ISSUED ARE NOT FOUND TO EXIST THE ITO DOES NOT GET THE JURISDICTION T O MAKE REASSESSMENT . 22. LEARNED COUNSEL FOR THE REVENUE COULD NOT FIND OR SHOW ANY CONTRARY JUDGMENT OF THIS COURT OR OF HON'BLE THE SUPREME C OURT OR EVEN OF ANY OTHER HIGH COURT OF THE COUNTRY . 23. THUS THE QUESTION IS REQUIRED TO BE EXAMINED AS TO WHETHER WE SHOULD FOLLOW THE JUDGMENT IN ATLAS CYCLE INDUSTRIES' C ASE (SUPRA) OR TAKE A DIFFERENT VIEW. 24. REVERTING BACK TO LANGUAGE OF S. 147 THIS MUCH IS CLEAR THAT THE SINE QUA NON FOR CONFERMENT OF JURISDICTION ON THE AO TO INITI ATE PAGE 38 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. PROCEEDINGS UNDER THAT SECTION IS THAT HE SHOULD HAVE 'REASON TO BELIEVE' THAT 'ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR' AND THAT BEING THAT SI TUATION BEING AVAILABLE I.E. THE AO HAVING ENTERTAINED A 'REASON TO BELIEVE' OBVIOUSLY ON VALID GROUNDS HE ACQUIRES THE JURISDIC TION TO ASSESS OR REASSESS 'SUCH INCOME' WHICH OBVIOUSLY MEANS T HE INCOME WHICH WAS CHARGEABLE TO TAX AND HAD ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR ACCORDING TO HIS 'REAS ON TO BELIEVE' AND WHILE SO ASSESSING OR REASSESSING HE CAN ALSO IN ADDITION ASSESS OR REASSESS 'ANY OTHER INCOME CHARGEABLE TO T AX WHICH HAS ESCAPED ASSESSMENT AND WHICH MAY COME TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS UNDER S. 147'. 25. THE PRECISE QUESTION THUS REQUIRING TO BE CONSIDERED IS AS TO WHETHER THE CONJUNCTIVE WORD USED BEING 'AND' USED BETWEE N THE EXPRESSION 'SUCH INCOME' AND 'ALSO ANY OTHER INCOME CHARGEABLE T O TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTIC E SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER S. 147' IS REQUIRED TO BE GIVEN ITS DUE OR IS REQUIRED TO BE IGNORED OR I S REQUIRED TO BE INTERPRETED AS 'OR'. OBVIOUSLY BECAUSE IF IT IS TO BE INTERPRETED AS 'OR' THEN THE LANGUAGE WOULD READ AS UNDER : '147. IF THE AO HAS REASON TO BELIEVE THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SS. 148 TO 153 ASSESS OR REASSESS SUCH INCOME OR ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS PAGE 39 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION OR RE-COMPUTE THE LOSS OR THE DEPRECI ATION ALLOWANCE OR ANY OTHER ALLOWANCE AS THE CASE MAY B E FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THI S SECTION AND IN SS. 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR).' 26. BUT THEN IF IT WERE TO BE SO READ THE WORD 'ALSO' BECOMES REDUNDANT AND TO MAKE SENSE OF THE SENTENCE THE S ECTION WOULD BE REQUIRED TO BE READ BY IGNORING THE WORDS 'ALSO' AS WELL IN WHICH EVENT THE SECTION WOULD READ AS UNDER: '147. IF THE AO HAS REASON TO BELIEVE THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SS. 148 TO 153 ASSESS OR REASSESS SUCH INCOME OR ANY O THER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSME NT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE C OURSE OF THE PROCEEDINGS UNDER THIS SECTION OR RE-COMPUT E THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESSMENT Y EAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SS. 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR).' . A _- A __ - PAGE 40 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. 27. IT IS ESTABLISHED PRINCIPLE OF INTERPRETATION OF ST ATUTES THAT THE PARLIAMENT IS PRESUMED TO BE NOT EXTRAVAGANT I N USING THE WORDS AND THEREFORE EVERY WORD USED IN THE SECTI ON IS REQUIRED TO BE GIVEN ITS DUE MEANING. 28. IF CONSIDERED ON THAT PRINCIPLE LEAVING APART FOR THE MOMENT THE ASPECT OF INTERPRETATION OF THE WORD 'A ND' AS 'OR' THE EXISTENCE OF THE WORD 'ALSO' IS OF A GREAT SIGN IFICANCE BEING OF CONJUNCTIVE NATURE AND LEAVES NO MANNER OF DOUB T IN OUR OPINION THAT IT IS ONLY WHEN IN PROCEEDINGS UNDER S. 147 THE AO ASSESSES OR REASSESSES ANY INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR WIT H RESPECT TO WHICH HE HAD 'REASON TO BELIEVE' TO BE SO THEN ONL Y IN ADDITION/HE CAN ALSO PUT TO TAX THE OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH HAS CO ME TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS U NDER S. 147. 29. TO CLARIFY IT FURTHER OR TO PUT IT IN OTHER WORDS IN OUR OPINION IF IN THE COURSE OF PROCEEDINGS UNDER S. 1 47 THE AO WERE TO COME TO CONCLUSION THAT ANY INCOME CHARGEA BLE TO TAX WHICH ACCORDING TO HIS 'REASON TO BELIEVE' HAD ES CAPED ASSESSMENT FOR ANY ASSESSMENT YEAR DID NOT ESCAPE ASSESSMENT THEN THE MERE FACT THAT THE AO ENTERTAINED A REASON TO BELIEVE ALBEIT EVEN A GENUINE REASON TO BELIEVE WOULD NOT CONTINUE TO PAGE 41 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. VEST HIM WITH THE JURISDICTION TO SUBJECT TO TAX ANY OTHER INCOME CHARGEABLE TO TAX WHICH THE AO MAY FIND TO HAVE ESCAPED ASSESSMENT AND WHICH MAY COME TO HIS NOTIC E SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS UNDER S. 147. 30. IT IS A DIFFERENT STORY THAT FOR SUCH OTHER INCOME THE AO MAY HAVE RECOURSE TO SUCH OTHER REMEDIES AS MAY BE AVA ILABLE TO HIM UNDER LAW BUT THEN ONCE IT IS FOUND THAT THE INCOME REGARDING WHICH HE HAD 'REASON TO BELIEVE' TO HAVE ESCAPED ASSESSMENT IS NOT FOUND TO HAVE ESCAPED ASSESSMENT THE AO REQUIRED TO WITHHOLD HIS HANDS AT THAT ONLY. 31. TO THIS EXTENT WE AGREE WITH THE VIEW EXPRESSED BY THE PUNJAB & HARYANA HIGH COURT IN ATLAS CYCLE INDUSTRIES' CASE (SUPRA). 32. THE RESULT OF THE AFORESAID DISCUSSION IS THAT- TH E QUESTION FRAMED IN THE ORDER DT. 23RD MAY 2006 IS REQUIRE D TO BE AND IS ANSWERED IN THE MANNER THAT THE TRIBUNAL WAS N OT JUSTIFIED IN HOLDING THAT THE PROCEEDINGS FOR REASSESSMENT U NDER S. 148/147 WERE INITIATED BY THE AO ON NON-EXISTING F ACTS BECAUSE ULTIMATELY THE ASSESSEE HAS BEEN ABLE TO EX PLAIN THE INCOME WHICH WAS BELIEVED TO HAVE BEEN ESCAPED ASS ESSMENT WAS EXPLAINABLE. IT IS FURTHER HELD THAT THE AO WA S JUSTIFIED IN INITIATING THE PROCEEDINGS UNDER S. 147/148 BUT TH EN ONCE HE PAGE 42 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. CAME TO THE CONCLUSION THAT THE INCOME WITH RESPE CT TO WHICH HE HAD ENTERTAINED 'REASON TO BELIEVE TO HAVE ESCA PED ASSESSMENT WAS FOUND TO HAVE BEEN EXPLAINED HIS J URISDICTION CAME TO A STOP AT THAT AND HE DID NOT CONTINUE TO POSSESS JURISDICTION TO PUT TO TAX ANY OTHER INCOME WHIC H SUBSEQUENTLY CAME TO HIS NOTICE IN THE COURSE OF THE PROCEEDING S WHICH WERE FOUND BY HIM TO HAVE ESCAPED ASSESSMENT. 33. CONSEQUENTLY THE RESULT IS THAT THE APPEAL IS DIS MISSED. 27. HAVING STATED SO WHEN WE LOOK AT THE PROVISIONS O F SECTION 147 THE IT APPEARS THAT ANY OTHER INCOME CHARGEAB LE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO THE NOTICE OF A.O. SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS U/S 147 CAN ALSO BE SU BJECTED TO ASSESSMENT. HOWEVER WHEN THIS POSITION IS ANALYZED WITH THE ST EPS INVOLVED FOR MAKING AN ASSESSMENT/RE-ASSESSMENT U/S 147 THEN IT CAN BE SAID THAT SUCH OTHER INCOME SHOULD COME TO THE NOTICE OF THE A.O. FROM THE INFORMATION FURNISHED BY THE ASSESSEE IN RESPECT OF ITEMS OF ES CAPED INCOME RECORDED BY THE ASSESSING OFFICER IN THE REASONS FOR ASSUMIN G JURISDICTION U/S 147. TO PUT IT DIFFERENTLY THERE SHOULD BE A CLOSE AND PROXIMATE NEXUS BETWEEN SUCH OTHER INCOME AND THE ENQUIRIES MADE B Y THE ASSESSING OFFICER IN RESPECT OF ESCAPED INCOME MENTIONED IN T HE REASONS RECORDED BY HIM. WE FURTHER MAKE IT CLEAR SUCH OTHER ESCAPED INCOME SHOULD BE PAGE 43 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. NOTICED BY THE ASSESSING OFFICER AS A NATURAL CONSE QUENCE OF HIS ENQUIRIES MADE IN RESPECT OF ITEMS MENTIONED IN THE REASONS R ECORDED BY HIM. IN THE PRESENT CASE THE REASONS RECORDED BY THE ASSESSING OFFICER HAS MENTIONED THE ESCAPEMENT OF INCOME DUE TO WRONG SE T OFF ALLOWED OF INVESTMENT ALLOWANCE RESERVE FOR WHICH EVEN NO ENQU IRY HAS AS EVIDENT FROM THE ASSESSMENT ORDER OR NOTICE ISSUED U/S 143( 2) OR 142(1) IN COURSE OF THESE PROCEEDINGS BEEN MADE AND THERE IS NOT EV EN A REMOTE CONNECTION OF THESE ITEMS OF ADDITION WITH THAT ITE M HENCE IMPUGNED ADDITIONS MADE BY THE ASSESSING OFFICER ARE NOT COR RECT IN LAW FOR THIS REASON. Q.5 : 28. AS REGARDS TO QUESTION NO.5 WE ARE OF THE VIEW TH AT IF THE CONDITIONS SPECIFIED BY US IN ANSWER TO QUESTION NO .4 ARE SATISFIED THEN ADDITION IN RESPECT OF ITEMS OTHER THAN THE ITEMS W HICH FOUND MENTION IN REASONS RECORDED BY THE ASSESSING OFFICER CAN BE M ADE. HOWEVER IN THE PRESENT IT IS NOT SO HENCE IMPUGNED ADDITIONS AR E NOT VALID INSPITE OF EXPLANATION 3 BEING BROUGHT ON STATUTE BY THE FINA NCE ACT 2009 WITH EFFECT FROM 1.4.1989 BECAUSE SUCH EXPLANATION HAS MERELY GIVEN A STATUTORY RECOGNITION TO JUDICIAL VIEW ON SCOPE OF POWERS OF A.O. U/S 147 TO ASSESS OR REASSESS THE INCOME ESCAPED FROM ASSES SMENT AND DOES NOT EXTEND THE SCOPE OF PROVISIONS OF SECTION 147 TO MA KE SUCH PROVISIONS OF PAGE 44 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. THE NATURE OF SECTION 143 OR DOES NOT GIVE POWER O F REVIEW TO A.O. WE ARE FURTHER OF THE VIEW THAT PROVISIONS OF EXPLANAT ION 3 MERELY DISPENSE WITH THE REQUIREMENT OF RECORDING OF REASONS IN RES PECT OF EACH AND EVERY ITEM OF ADDITION AS PER THE PROVISIONS OF SECTION 1 48(2). 29. WE FURTHER FIND THAT IN THE CASE OF INDRA NARAYAN J HALANI VS. UNION OF INDIA & OTHERS AS REPORTED IN 254 ITR 663 THE HON'BLE M.P. HIGH COURT HELD THAT MERELY BECAUSE ACTION U/S 143( 1)(A) WERE NOT FOUND TO BE CORRECT IN LAW AND FOR THIS REASON ALONE THE A.OS JURISDICTION U/S 147/148 COULD NOT BE DECLARED AS NULL AND VOID IF A CASE U/S 147 COMPLYING WITH THE REQUIREMENTS OF THAT SECTION HA D BEEN MADE CORRECTLY. THUS THE LD. CIT(A) HAS WRONGLY PLACED RELIANCE ON THIS DECISION BECAUSE NO SUCH DISPUTE IS INVOLVED IN TH E CASE BEFORE US. WE FURTHER FIND THAT IN THE CASE OF CIT VS. OM PRAKASH BAGARDIA AS REPORTED IN 287 ITR 523 THE DISPUTE BEFORE THE HON'BLE M.P. HIGH COURT WAS REGARDING THE VALIDITY OF A REVISED RETURN FILED BY THE ASSESSEE AFTER PROCESSING OF ORIGINAL RETURN U/S 143(1)(A) OF THE ACT HENCE THIS DECISION IS NOT AT ALL RELEVANT FOR DECIDING THE DISPUTE BEF ORE US. 30. THE LEARNED COUNSEL HAD ALSO CITED CERTAIN DECISION S WHICH HAVE BEEN DULY CONSIDERED BY US HOWEVER FOR THE S AKE OF BREVITY THE SAME HAVE NOT BEEN SPECIFICALLY MENTIONED IN OUR FI NDINGS. SINCE WE HAVE PAGE 45 OF 45 - I.T.A.NO224/IND/2007 MANOJ SURGIC AL INDUSTRIES INDORE. DECIDED THIS APPEAL ON LEGAL ISSUE HENCE WE DO NO T CONSIDER TO EXPRESS ANY OPINION ON THE ASSESSEES GROUNDS ON MERITS OF THE ISSUE. 31. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND LE GAL DECISION WE ACCEPT GROUND NO.1 AND ADDITIONAL GROUND RAISED BY THE ASSESSEE. 32. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED IN TERMS INDICATED ABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH 2010. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :_22 ND MARCH 2010. CPU* 83