High Court of Gujarat
THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), AHMEDABADversusNK PROTEINS PVT. LTD.
- Disposal
- 47-DISPOSAL IN ANY OTHER MODE FH
Holding
When no addition is made on the reasons recorded for reopening an assessment beyond four years, the Assessing Officer cannot make additions on other grounds not forming part of the reasons, and Explanation 3 to Section 147 does not expand the scope of Section 147 to permit such additions, especially when the conditions for reopening are not satisfied.
Summary
The assessee-company filed its return for A.Y. 2009-10, and assessment under Section 143(3) was completed on 29.12.2011. Subsequently, a notice under Section 148 was issued on 09.03.2015, beyond four years, recording two reasons: (i) wrong computation of disallowance under Section 14A, and (ii) alleged escapement of income from transactions with NSEL amounting to Rs.244.98 crores. The Assessing Officer, however, made no addition on these reasons but made a disallowance under Section 43(5) read with Section 73 and Section 40A(2)(b) of Rs.13,89,08,810. The CIT(A) quashed the reassessment, holding that the AO could not make additions on grounds not forming part of the reasons recorded, and the ITAT upheld this. The Revenue appealed to the High Court under Section 260A. The High Court, relying on the jurisdictional High Court's decision in Mohmed Juned Dadani, held that when no addition is made on the reasons recorded for reopening, the AO cannot make additions on other grounds, and Explanation 3 to Section 147 does not expand the scope of Section 147 to permit such additions. The appeal was dismissed as no substantial question of law arose.
Issues considered
- Whether the ITAT erred in holding that the Assessing Officer cannot make additions on issues not forming part of the reasons recorded for reopening, when no addition was made on the issues included in the reasons?
- Whether the ITAT erred in holding that Explanation 3 to Section 147, inserted retrospectively, cannot expand the scope and sweep of the main body of Section 147?
- Whether the ITAT erred in upholding the CIT(A)'s deletion of disallowance of Rs.13,89,08,810 made under Section 43(5) read with Section 73 and Section 40A(2)(b)?
Legislation cited
- Income Tax Act, 1961s. 142(2A), s. 142A, s. 143(3), s. 147, s. 148, s. 14A, s. 260A, s. 40A(2)(b), s. 43(5), s. 73
Subjects
reassessmentreopening of assessmentsection 147section 148Explanation 3 to Section 147change of opinionfailure to disclosejurisdictionincome escaping assessmentNSELsection 14Asection 43(5)section 73section 40A(2)(b)substantial question of lawsection 260A
Judgment
C/TAXAP/449/2025 ORDER DATED: 04/08/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 449 of 2025
==========================================================
THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL),
AHMEDABAD
Versus
NK PROTEINS PVT. LTD.
==========================================================
Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
MR DHINAL A SHAH(12077) for the Opponent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 04/08/2026
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel Mr.
Varun Patel for the appellant and learned
advocate Mr. Dhinal Shah for the
respondent.
2. This Appeal is filed under section 260A of
the Income Tax Act, 1961 [for short ‘the
Act’] arising out of order dated
12.11.2024 passed by the Income Tax
Appellate Tribunal in ITA No. 339/Ahd/2022
Page 1 of 39
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for A.Y. 2009-10 proposing following
substantial questions of law:
(a) Whether in the facts and
circumstances of the case and in
law, the learned ITAT has erred
in coming to the conclusion that
the Assessing Officer cannot
make additions on issues which
did not form part of the reasons
recorded by him, when no
addition is made by him on the
issues which are included the
reasons recorded?
(b) Whether in the facts and
circumstances of the case and in
law, the learned ITAT has erred
in holding that the Explanation
3 to Section 147 which has been
inserted by Finance (No.2) Act,
2009 retrospectively with effect
from 01.04.1989 i.e. "For the
purpose of assessment or
reassessment under this section,
the Assessing Officer may assess
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or reassess the income in
respect of any issue, which has
escaped assessment, and such
issue comes to his notice
subsequently in the course of
the proceedings under this
section, notwithstanding that
the reasons for such issue have
not been included in the reasons
recorded under sub-section (2)
of section 148" cannot expand
the scope and sweep of the main
body of Statutory provision?
(c) Whether in the facts and
circumstances of the case and in
law, the learned ITAT has erred
in upholding the decision of the
CIT(A) in deleting the
disallowance of Rs.
13,89,08,810/ made u/s. 43(5)
r.w.s 73 and 40A(2)(b) of the
Income tax Act, 1961?
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3. Brief facts of the case are that the
assessee-company is engaged in
manufacturing of edible, non-edible oil
products and byproducts thereof.
3.1 The assessee filed return of
income and assessment order under section
143(3) of the Act was passed on
29.12.2011 assessing total income at
Rs. 22,55,48,605/-.
3.2 Thereafter, a notice under section
148 was issued on 09.03.2015 for the
following two reasons:
[a] disallowance u/s. 14A r.w.r. 8D was
wrongly worked out at Rs.1,13,521/-
instead of Rs.2,18,174/- and
[b] the amount received from National
Stock Exchange Ltd [NSEL] amounting
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to Rs.244.98 crores is in the nature
of income brought in the account of
debtors in the guise of so-called
paper trade and which needs to be
taxed in the hands of the assessee
company.
3.3 The Assessing Officer completed
reassessment by making disallowance under
section 43(5) read with section 73 and
section 40A(2)(b) of
Rs. 13,89,08,810/- and excess
disallowance of Rs. 1,04,652/- under
section 14A of the Act.
3.4 The Assessee preferred an appeal
before the CIT(Appeals) and raised
additional ground of reopening of the
assessment as the Assessing Officer did
not make any addition for the reasons
recorded for reopening.
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3.5 The CIT(Appeals), after
considering the additional ground first
challenging the reopening of the
assessment held that the reassessment
proceedings is bad in law by observing as
under:
“4.8 So far as merits of additional
claim are concerned, it is observed
that AO had issued reassessment
notice on two grounds. The main
ground for reassessment notice was
with reference to transactions with
NSEL for Rs.244.98 crores. The
Appellant has claimed that no
transaction with NSEL was carried
out in current year, which is also
accepted by the Special Auditor in
his report under Section 142A of the
Act. The figure of Rs.244.98 crores
was nothing but addition made in
Appellant's own case for A.Y.2011-12
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in Assessment Order passed on
21/11/2014. This contention of
Appellant was accepted by AO while
passing the Assessment Order and no
addition was made. So far as second
issue being disallowance under
Section 14A for Rs.2,18,174/- is
concerned, it is observed that
addition under Section 14A for
Rs.1,13,521/- was also made in
original Assessment Order dated
29/12/2011. While computing
disallowance under Section 14A read
with Rule BD, AO had considered
gross average asset as denominator
whereas in the reasons recorded for
present case, AO was of the view
that net average asset needs to be
taken. It is pertinent to note that
entire issue of disallowance under
Section 14A as was raised in
original Assessment Order was
deleted by Hon'ble Ahmedabad ITAT in
Appellate Order dated 27/07/2016.
The relevant operative part of the
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said decision is reproduced
hereunder.-
"29. We have heard the rival
contentions and perused the
material on record. Assessee is
aggrieved with the disallowance
u/s 14A of the Act of Rs.
1,13,521/-confirmed by Id.
CIT(A). We further observe that
Id. AR specifically mentioned
that there is no exempt income
earned by the assessee during
the year. We also observe that
in the judgment of Hon.
Jurisdictional High Court in
the case of CIT vs. Cortech
Energy P. Ltd. (supra) has
confirmed the order of the
Tribunal deleting disallowance
u/s 14A of the Act as the
assessee has not claimed any
exempt income. Similar is the
situation in the case of
assessee and we respectfully
following the judgment of Hon.
Jurisdictional High Court are
of the view that no
disallowance is called for u/s
14A as assessee has not claimed
any exempt income in the year
under appeal. We hold that Id.
CIT(A) was not correct in
upholding the disallowance and
allow the ground of assessee."
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Considering the above referred
decision in Appellant's own case for
current year only, ground of
reassessment for alleged escapement
for disallowance under Section 14A
does not survive or addition made in
reassessment order consequently does
survive. Thus, the effective
addition in Appellant's case based
upon reassessment order is
disallowance under Section 43(5)
read with Section 73 for
Rs.13,18,08,810/- which is not based
upon reasons recorded. Thus,
additions effectively made in
Assessment Order are not based upon
reasons recorded and the legal pleas
taken by Appellant are discussed
elaborately by various courts and
the courts have taken a view that
when on the ground on which
reassessment was based, addition is
not made by AO in reassessment
order, he cannot make additions on
other grounds which do not form part
of reasons recorded by him.
4.9 In view of above discussions and
factual matrix of the case and
respectfully following the decisions
of Hon'ble Jurisdictional High Court
of Gujarat in the case of CIT vs.
Mohmed Junded Dadani [2013] 30
taxmann.com 1(Gujarat)/[2013] 214
taxman 38 (Gujarat)/355 ITR 172
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(Guj), Hon'ble Jurisdictional
Tribunal in Appellant's own case and
other decisions as mentioned above
and also as relied upon by the
Appellant on similar issue to the
Appellant's case, I find that claim
of Appellant is correct.
4.10 In addition to above and on
perusal of reasons recorded by AO,
which is reproduced herein above, it
is apparent that major issue for
alleged escapement of income relates
to payment from NSEL for Rs.244.98
crores. In the present year, the
Appellant has not carried out any
transactions with NSEL and even
figure of alleged escapement of
income pertains to addition made by
AO for A.Y.2011-12. This issue is
elaborately discussed in preceding
paras which makes it clear that
reasons recorded by AO are based
upon factually incorrect details or
same are non-existing.”
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3.6 The CIT(Appeals) relied upon the
following decisions:
1. Amar Jewellers Ltd vs. Deputy
Commissioner of Income Tax reported
in [2018] 92 taxmann.com 4;
2. Narendrakumar Mansukhbhai Patel vs.
Income Tax Officer Ward 1(2)(3)
reported in [2018] 92 taxmann.com
259;
3. Mahadev Trading Co. vs. Income Tax
Officer,Ward-5(4) reported in 18
taxmann.com 353;
4. Sunbarg Tradelink (p.) Ltd vs.
Income Tax Officer reported in
[2016] 74 taxmann.com 16;
5. Ambience Business Services Pvt. Ltd
vs. DCIT in Writ Petition NO. 2608
of 2019 dated 28.11.2019;
6. Shamshad Khan vs. Assistant
Commissioner of Income Tax dated
11.04.2017 82 taxmann.com 35;
7. M/s. Gujarat Eco Textile Park Ltd
vs. ACIT in SCA No. 4017 of 2016
dated 05.07.2016;
8. Mitul Gems vs. ACIT reported in
[2015] 62 taxmann.com 66 (Guj.);
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9. Oriental Insurance Co. vs. CIT
reported in [2015] 63 taxmann.com
171 [Delhi];
10. Asharam Ashram vs Income Tax
Officer (Exemption) Ward No.1 in
SCA No. 4774 of 2016 dated
20.07.2016.
Considering the above decisions, the
reassessment notice on the ground of
alleged escapement of income for the
transactions made with NSEL was held to be
not justified by CIT(Appeals).
3.7 With regard to the second issue of
alleged escapement relating to
computation of disallowance under Section
14A of the Act is concerned, the CIT
(Appeals) held as under:
“4.11 So far as second issue of
alleged escapement relating to
computation of disallowance under
Section 14A is concerned, it is
observed that original assessment
under Section 143(3) of the Act was
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already passed on 29/12/2011
wherein after detailed discussion
AO has made disallowance under
Section 14A at Rs.1,13,521/-. The
discussion was made at para 8 of
the order. The reassessment notice
is issued only for re-computation
of disallowance under Section 14A
made in Assessment Order. It is an
undisputed fact that the
reassessment notice was issued on
9th March, 2015 which means that
such notice is issued beyond four
years from end of relevant
Assessment Year. On perusal of
reasons recorded, it is seen that
AO has not mentioned whether there
was failure on part of assessee to
disclose truly and fully all
material facts necessary for making
assessment as required by
Provisions of Section 147. No new
material/tangible material has been
brought on record by AO which
justify such reassessment notice
and on the contrary, re-computation
is made based upon facts already on
the record of AO. Thus, issuance of
notice for alleged escapement of
income by making re-computation of
disallowance u/s 14A on same issue
is certainly change of opinion on
part of subsequent AO. Further, it
is important to note that before
passing of the Assessment Order,
Hon'ble Ahmedabad ITAT had already
deleted disallowance under Section
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14A made in original Assessment
Order.”
3.8 The CIT(Appeals) relied upon the
decision of this Court in the case of
Sandesh Procon LLP in ITAT vs Assistant
Commissioner of Income Tax, Circle 3(3),
Ahmedabad in Special Civil Application
No. 19990 of 2019, dated 5th February 2021,
on similar facts. In addition to above,
reliance was placed on the following
decisions:
(i) Adani Enterprises Ltd. vs.Assistant
Commissioner of Income Tax (ACIT) / Deputy
Commissioner of Income Tax (DCIT) reported
in 101 taxmann.com 91;
(ii) DCIT vs. Bajaj Allianz Life Insurance
Company Ltd. Reported in [2021] 125
taxmann.com 71;
(iii) M/s. Tech Span India Private Ltd
reported in [2018] 92 taxmann.com 361;
(iv)E-Inforchips Ltd vs. Assistant
Commissioner of Income Tax, Circle 2(1)(1)
reported in [2018] 99 taxmann.com 84;
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(v) Sun pharmaceutical Industries Ltd vs.
DCIT reported in [2020] 272 taxmann.com
407.
Considering the above decisions,
CIT(Appeals) held that reassessment notice
relating to alleged escapement of income
relating to disallowance under Section 14A
is mere change of opinion on part of the
subsequent Assessing Officer and
reassessment notice issued by AO is
nothing but an invalid notice. Therefore,
CIT(Appeals) allowed additional ground of
appeal filed by Appellant and quashed
reassessment order.
3.9 Being aggrieved by the order of
the CIT (Appeals), the Revenue preferred
an appeal before the Tribunal, and the
assessee preferred cross-objections
challenging the directions of the
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Assessing Officer to conduct a special
audit under Section 142(2A) of the Act,
as well as on merits.
3.10 The Tribunal, after
considering the submissions made by both
sides as well as the order passed by the
CIT (Appeals), dismissed the appeal of
the Revenue, upholding the order passed
by the CIT (Appeals) quashing the
reassessment order being without
jurisdiction. Consequently, the addition
made under Section 43(5) read with
Sections 73 and 40A(2)(b) of the Act of
Rs. 13,89,08,810/- was also quashed and
set aside. As a consequence, the cross-
objections filed by the assessee
supporting the order of the CIT (Appeals)
were allowed.
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4. Learned Senior Standing Counsel Mr. Varun
Patel submitted that the Tribunal has
committed an error in upholding the order
of the CIT (Appeals) without considering
the fact that once an assessment is
reopened, it would be open for the
Assessing Officer to examine the other
issues which arise during the course of
reassessment proceedings.
4.1 It was further submitted that the
Assessing Officer was justified in making
addition on disallowance under Section
43(5) read with Section 73, as well as
under Section 14A of the Act.
4.2 It was submitted that the
disallowance under Section 14A of the Act
was wrongly worked out, whereas, the
amount received from NSEL was in the
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nature of income brought into the account
of the debtors in the guise of so-called
paper trade, which was rightly taxed in
the hands of the assessee-company.
5. On the other hand, learned Advocate
Mr. Dhinal Shah submitted that the
CIT(Appeals) and the Tribunal have rightly
referred to and relied upon the decision
of this Court in the case of CIT v. Mohmed
Juned Dadani, reported in (2013) 30
taxmann.com (1).
5.1 It was further submitted that no
addition can be made on account of
Section 43(5) of the Act, as the assessee
claimed that no transaction was carried
out through the NSEL for the year under
consideration, which was also accepted by
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the special auditor in the report under
Section 142A of the Act, whereas, the
figure of Rs. 244.98 crores was nothing
but an addition made in the assessee's
own case for Assessment Year 2011–12 in
the regular assessment order passed on
21.11.2014, and the Tribunal deleted such
addition by an order dated 16.11.2022.
5.2 It was, therefore, submitted that
the income escaped, as mentioned in the
reasons recorded by the Assessing
Officer, does not relate to the
Assessment Year 2009–10. Hence, both the
CIT (Appeals) and the Tribunal have
rightly held that the reassessment
proceedings are liable to be quashed.
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5.3 Learned advocate Mr. Dhinal Shah,
in support of his submissions, relied
upon the following decisions:
1. Commissioner of Income Tax-II vs.
Mohmed Juned Dadani reported in [2014] 355
ITR 172 (Guj.);
2. Commissioner of Income Tax-5, Mumbai
vs. Jet Airways (I) Ltd reported in [2011]
331 ITR 236 (Bom);
3. Principal Commissioner of Income-tax
vs. Sunlight Tour and Travels (P.) Ltd
reported in [2024] 169 taxmann.com 673
(Delhi);
4. Sipura Developers (P.) Ltd vs.
Principal Commissioner of Income Tax
reported in [2024] 168 taxmann.com 543
(Delhi);
5. Yashoda Shivappa Naganhoudar vs.
Income Tax Officer reported in [2022] 138
taxmann.com 296 (Bombay);
6. Principal Commissioenr of Income Tax
vs. Lark Chemicals (P.) Ltd reported in
[2018] 99 taxmann.com 312;
7. Principal Commissioner of Income Tax
(Centra)-3, New Delhi vs. Jakhotia
Plastics (P.) Ltd reported in [2018] 94
taxamann.com 89 (Delhi);
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8. Jakhotia Plastics (P.) Ltd vs.
Principal Commissioner of Income Tax
reported in [2018] 94 taxmann.com 96 (SC).
6. Having heard the learned Advocates for the
parties and on perusal of the reasons
recorded, and on perusal of the assessment
order passed under Section 147 read with
Section 143(3) of the Act, it emerges that
no addition is made by the Assessing
Officer for the reasons recorded for
reopening of the assessment and therefore,
there was no failure on the part of the
assessee for true and full disclosure of
the income which can be said to have
escaped the assessment.
7. The regular assessment order under Section
143(3) of the Act was passed on
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29.12.2011, assessing the total income at
Rs. 22,55,48,602/-. Thereafter, the
reassessment notice was issued under
Section 148 of the Act on 09.03.2015, that
is, beyond four years, but within six
years, recording the aforesaid two
reasons, namely:
(a) Disallowance under Section 14A
read with Rule 8D was wrongly
worked out at Rs. 1,13,521/-
instead of Rs.2,18,174/- and;
(b) The amount received from NSEL
amounting to Rs.244.98 crores is in
the nature of income brought into
the account of the debtors in the
guise of so-called paper trade,
which needs to be taxed in the
hands of the assessee company.
8. The Assessing Officer, while framing the
reassessment order, did not make addition
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in respect of any of the two reasons
recorded for reopening. Therefore, it
cannot be said that there was any failure
on the part of the assessee in disclosing
such income in the return of income so as
to confer jurisdiction upon the Assessing
Officer to reopen the assessment beyond
four years, in view of the decision of
this Court in the case of Mohmed Juned
Dadani (supra), wherein it is held as
under:
"... 30. We may also approach the
question from a slightly different
angle. It is not in dispute that
once an assessment is reopened by a
valid exercise of jurisdiction
under Section 147 of the Act, it is
open for the Assessing Officer to
assess or reassess any income which
had escaped assessment which comes
to his light during the course of
his assessment proceedings which
was not mentioned in the reason for
issuing notice under Section 148 of
the Act. In a notice for
reassessment which has been issued
beyond a period of four years from
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the end of relevant assessment
year, the condition that income
chargeable to tax has escaped
assessment for the reason of the
failure on the part of the assessee
to disclose truly and fully all
material facts for the purpose of
assessment must also be established
unless of course some other ground
viz. non-filing of the return at
all etc. is available to the
Assessing Officer. If such non-
disclosure of material facts is
established with respect to the
reason recorded for issuing notice
for reopening the assessment, it
would be open for the Assessing
Officer to thereafter even assess
other income which might have
escaped assessment but which may
not necessarily satisfy the
requirement of non-disclosure of
true and full material facts. If in
such a situation, the stand of the
revenue is accepted, a very
incongruent situation would come
about if ultimately the Assessing
Officer were to drop the ground on
which notice for reopening had been
issued but to chase some other
grounds not so mentioned for
issuance of the notice. In such a
situation, even if a case where
notice for reopening has been
issued beyond a period of four
years, the assessment would
continue even though on all the
grounds on which the additions are
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being made, there was no failure on
the part of the assessee to
disclose true and full material
facts. In such a situation an
important requirement of failure on
part of the assessee to disclose
truly and fully all material facts
would be totally circumvented.
31. As already noted, except for
the Punjab and Haryana High Court
in case of Majinder Singh Kang
(supra) all courts have uniformly
taken a view that Explanation 3 to
Section 147 of the Act does not
change the situation insofar as the
present controversy is concerned.
Leading decision of Bombay High
Court in case of Jet Airways (I)
Ltd. (supra) has been followed by
different High Courts. In case of
Jet Airways (I) Ltd. (supra) the
High Court, in its elaborate
decision considering the statutory
provisions, different judicial
pronouncements and the explanatory
memorandum for introduction of
Explanation 3 to Section 147 of the
Act ruled in favour of the
assessee."
9. After considering the scheme of the
reassessment under Sections 147 and 148 of
the Act, the Tribunal has rightly upheld
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the order of the CIT (Appeals) by
observing as under:
“7.1. On first reason for reopening
being disallowance u/s.14A for
Rs.2,18,174/- is concerned, it is
observed that addition u/s.14A for
Rs.1,13,521/- was made in original
Assessment Order dated 29-12-2011.
On appeal before this Tribunal vide
Appellate Order dated 27-07-2016 in
ITA No.1986 & 2133/Ahd/2012, Co-
ordinate Bench of this Tribunal
deleted the addition on account of
disallowance u/s.14A, since the
assessee has not received any
dividend income during this Asst.
year following jurisdictional High
Court judgement.
“8. On second reason for
reopening the assessment, the
assessee claimed that it had
no transaction carried out
with NSEL in the present asst
year, which is also accepted
by the Special Auditor in his
report u/s.142A of the Act.
Whereas the figure of
Rs.244.98 crores was nothing
but addition made in
Assessee's own case for the
Asst. Year 2011-12 in the
regular Assessment Order
passed on 21-11-2014. On
appeal before this Tribunal
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vide Appellate Order dated 16-
11-2022 in ITA Nos.328 &
329/Ahd/2017 deleted the above
addition also. Therefore the
income escaped as mentioned in
the 'reason recorded' by the
Ld AO is not relating to the
present Asst. year 2009-10 the
same is invalid in the eyes of
law and the reassessment is
liable to be quashed.
9. Now next question that arise
for our consideration is
whether the AO can proceed with
assessing any other escaped
income, when NO addition is
made on account of the reasons
recorded by the AO for
reassessment. This issue is
also no more res-integra by
judgements of various High
Courts more particularly
jurisdictional High Court in
the case of Mohmed Juned Dadani
[cited supra] wherein it was
held that when the ground on
which reopening of assessment
and no addition was made by the
Ld AO, he could not make
additions on some other grounds
which did not form part of
reasons recorded by him by
observing as follows:
"... 23. Section 147 of the
Act, even without the aid of
Explanation 3 thus enabled
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the Assessing Officer while
framing an assessment under
Section 147 of the Act, to
assess or reassess such
income for which he had
recorded his reasons to
believe had escaped
assessment and also any
other income which escaped
assessment which came to his
notice subsequently in the
course of the assessment
proceedings.
24. Sans explanation (3),
Section 147 of the Act,
however, by no stretch of
imagination, can be
construed as to provide that
if the reason on which the
assessment is reopened
fails, the Assessing Officer
still can proceed to assess
some other income which
according to him had escaped
assessment and which came to
his light during the course
of the assessment. For
assuming jurisdiction to
frame an assessment under
Section 147 of the Act what
is essential is a valid
reopening of a previously
closed assessment. If the
very foundation of the
reopening is knocked out,
any further proceeding in
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respect to such assessment
naturally would not survive.
25. A question may
therefore, arise whether
introduction of Explanation
(3) would change this
position and for that
purpose we need to ascertain
what is true purport of
Explanation 3 and the
purpose for which the same
was introduced. Let us have
a closer look to such
Explanation which provides
that for the purpose of
assessment or reassessment
under the said section, the
Assessing Officer may assess
or reassess the income in
respect of any issue which
escaped assessment and which
comes to his notice
subsequently in the course
of reassessment proceedings.
The explanation further
provides that this would be
so notwithstanding that the
reasons for such issue have
not been included in the
reasons recorded under
Section 148(2).
26. If the contention of the
assessee that even after
introduction of Explanation
3 to Section 147 of the Act,
the situation has not
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undergone any material
change is accepted, the
question that immediately
would come to one's mind is,
what then was the purpose of
introducing such an
explanation. An argument may
arise that if before and
after introduction of
Explanation 3, the nature of
jurisdiction exercised by
the Assessing Officer was
not to undergo any change,
would Explanation 3 not be
rendered redundant. Would
such a situation not run
counter to a well known
legal principle that the
Legislature cannot be seen
to have enacted a redundant
legislation and that every
effort should be made to
give such interpretation
which ensures that a
provision in a statute is
not rendering otiose. Such
question may have led to
some interesting discussion.
However, the entire issue
has been put beyond any pale
of controversy by virtue of
the explanatory memorandum
for introducing such
explanation. Such
explanatory memorandum reads
as under:
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"Clarificatory amendment
in respect of
reassessment Proceeding
under section 147
The existing provisions
of section 147 provides,
inter alia, that if the
Assessing officer has
reason to believe that
any income chargeable to
tax has escaped
assessment for any
assessment year, he may
assess or reassess such
income after recording
reasons for reopening
the assessment. Further,
he may also assess or
reassess such other
income which has escaped
assessment and which
comes to his notice
subsequently in the
course of proceedings
under this section.
Some courts have held
that the Assessing
Officer has to restrict
the reassessment
proceedings only to
issues in respect of
which the reasons have
been recorded for
reopening the
assessment. He is not
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empowered to touch upon
any other issue for
which no reasons have
been recorded. The above
interpretation is
contrary to the
legislative intent.
With a view to further
clarifying the
legislative intent, it
is proposed to insert an
Explanation in section
147 to provide that the
Assessing Officer may
assess or reassess
income in respect of any
issue which comes to his
notice subsequently in
the course of
proceedings under this
section, notwithstanding
that the reason for such
issue has not been
included in the reasons
recorded under sub-
section (2) of section
148.
This amendment will take
effect retrospectively
from 1st April, 1989 and
will, accordingly, apply
in relation to
assessment year 1989-
1990 and subsequent
years."
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27. From the above, it can
be seen that the explanation
was meant to be
clarificatory in nature and
to put the issue beyond any
legal controversy. When the
Legislature found that in
face of the provisions
contained in Section 147 of
the Act post 01.04.1989 some
of the courts had taken a
view that the Assessing
Officer is restricted to the
reassessment proceedings
only on issues in respect of
which the reasons were
recorded for reopening the
assessment, such explanation
was introduced in the
statute. Thus, the
explanation was meant to be
merely clarificatory in
nature and was introduced
with the purpose of putting
at rest the legal
controversy regarding the
true interpretation of
Section 147 of the Act which
had arisen on account of
certain judicial
pronouncements. We have
noticed that prior to
enactment of Explanation 3
to Section 147, Punjab and
Haryana High Court in case
of Commissioner of Income
Tax v. Atlas Cycle
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Industries reported in 180
ITR 319 (supra) had taken a
restricted view of the power
of the Assessing Officer to
make any addition on the
grounds not mentioned in the
reasons recorded for
reopening the assessment. We
may also notice that Kerela
High Court in case of
Travencore Cements Ltd. v.
Asstt. CIT [2008] 305 ITR
170/[2009] 179 Taxman 117
had taken somewhat similar
stand.
28. Explanation 3 to Section
147 of the Act thus does not
in any manner, even purport
to expand the powers of the
Assessing Officer under
Section 147 of the Act. In
any case, an explanation
cannot expand the scope and
sweep of the main body of
the statutory provision. In
case of S.Sundaram Pillal v.
V.R. Pattabiraman AIR 1985
(SC) 582 the Supreme Court
observed that, an
explanation added to a
statutory provision is not a
substantive provision but as
the plain meaning of the
word itself shows it is
merely meant to explain or
clarify certain ambiguities
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which may have crept in the
statutory provision. It was
observed as under:
"52. Thus, from a
conspectus of the
authorities referred to
above, it is manifest
that the object of an
Explanation to a
statutory provision is-
(a) to explain the
meaning and intendment
of the Act itself.
(b) where there is any
obscurity or vagueness
in the main enactment,
to clarify the same so
as to make it consistent
with the dominant object
which it seems to
subserve.
(c) to provide an
additional support to
the dominant object of
the Act in order to make
it meaningful and
purposeful.
(d) an Explanation
cannot in any way
interfere with or change
the enactment or any
part thereof but where
some gap is left which
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is relevant for the
purpose of the
Explanation, in order to
suppress the mischief
and advance the object
of the Act it can help
or assist the Court in
interpreting the true
purport and intendment
of the enactment.
(e) It cannot, however,
take away a statutory
right with which any
person under a statute
has been clothed or set
at naught the working of
an Act by becoming an
hindrance in the
interpretation of the
same."
29. Above decision has been
referred to and relied upon
in several subsequent
decisions. Above proposition
being well settled, it is
not necessary to refer to
all such decisions."
10. It is pertinent to note that Explanation 3
to Section 147 was inserted by Finance
(No. 2) Act, 2009, which provides that
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even though the notice issued under
Section 148 containing the reasons for
reopening of the assessment does not
contain a reference to a particular issue
with reference to which income has escaped
assessment, yet the Assessing Officer may
assess or reassess the income in respect
of any issue which has escaped assessment,
provided such issue comes to his notice
subsequently in the course of proceedings.
However, the amendment by insertion of
Explanation 3 would not override the
necessity of fulfilling the conditions set
out in the substantive part of Section 147
of the Act that there was a failure on the
part of the assessee to make a true and
full disclosure of the income escaping
assessment when there is no income that
has escaped assessment as per the reasons
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recorded, and when no addition is made on
account of the reasons for which the
reassessment was initiated. The ratio of
the decision of this Court has been
reiterated by the Hon'ble Bombay High
Court and the Delhi High Court in the
decisions relied upon on behalf of the
assessee. The Hon'ble Supreme Court has
also dismissed the SLP arising out of the
judgment and order passed by the Delhi
High Court in case of Jakhotia Plastics
Private Limited (Supra).
11. In view of the above conspectus of law and
the settled legal position when the
Tribunal has followed the decision of the
jurisdictional High Court, we do not find
any legal infirmity in the impugned order
of the Tribunal. We are of the opinion
that no question of law, much less any
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substantial question of law, arises from
the impugned order of the Tribunal. The
appeal, accordingly stands dismissed.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
JYOTI V. JANI
Original copy of this order has been signed by the Hon'ble Judges.
Digitally signed by: JYOTIBEN VINODKUMAR JANI(HC00213), PRINCIPAL PRIVATE SECRETARY, at High Court of Gujarat on 07/08/2026 16:19:44
Page 39 of 39
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