Reassessment Can Include Other Escaped Income Even If Original Addition Fails After 2021 Amendment: ITAT Kolkata
The Income Tax Appellate Tribunal (ITAT), Kolkata, has held that Assessing Officers can make additions for escaped income discovered during reassessment proceedings even if no addition is made on the issue that originally triggered the reopening.
A Bench comprising Judicial Member George Mathan and Accountant Member Rakesh Mishra held that the amended Section 147 of the Income Tax Act, 1961, permits Assessing Officers to assess escaped income relating to other issues discovered during reassessment. The tribunal ruled:
“The amended provision of section 147, however, does not have such a conjunctive phrase 'and also' and only refers to the income chargeable to tax escaping assessment for any assessment year and the power of the Assessing Officer to assess or reassess such income in section 147 does not refer to any other income which may come to his notice subsequently but the Explanation below section 147 mentions that 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, irrespective of the fact that the provisions of section 148A have not been complied with. It is evident from a reading of the Explanation that the legislature intended to widen the scope of the substantive provision of section 147 by insertion of the Explanation.”
The case arose from the reassessment of Paceman Sales Promotion Pvt. Ltd. for the assessment year 2018-19. Although the reassessment was initiated over an alleged receipt of ₹4.20 crore from Sanwaria Vyapaar Pvt. Ltd., the Assessing Officer made no addition on that ground. Instead, the officer disallowed a trading loss of ₹63.48 lakh claimed on shares of Virtual Global Education Ltd.
The Assessing Officer found that the company had bought 17 lakh shares for ₹98.59 lakh and sold them for ₹35.10 lakh. Treating the transactions as colourable, the officer disallowed the claimed loss.
The Commissioner of Income Tax (Appeals) deleted the addition, relying on judicial precedents, including the Delhi High Court's decision in Ranbaxy Laboratories Ltd. v. CIT. Those decisions interpreted the earlier version of Section 147, under which the words “and also” linked the reassessment of other escaped income to the original ground for reopening.
The tribunal differed on whether those precedents applied to the amended provision. Judicial Member George Mathan initially held that the addition could not survive because no addition had been made on the original ground for reopening.
Accountant Member Rakesh Mishra took a different view. He held that the Finance Act, 2021, had removed the words “and also” from Section 147 and that its Explanation allows the Assessing Officer to assess other escaped income discovered during reassessment, even where the procedure under Section 148A has not been followed for that issue.
He also relied on the Rajasthan High Court's decision in Papu Ram v. Assistant Commissioner of Income-tax.
Mishra upheld the disallowance of the trading loss, reversed the CIT(A)'s decision and restored the addition of ₹63.48 lakh. Mathan subsequently agreed with Mishra's conclusion, and the tribunal allowed the Revenue's appeal.
For Appellant: Sandeep Kumar Mehta, Additional Commissioner of Income Tax, Senior Departmental Representative
For Respondent: Miraj D. Shah, Advocate