Veeyes Investments P. Ltd., Hyd, Hyderabad V. ACIT, Central Circle-8, Hyd, Hyderabad

ITA 637/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6526 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 12-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K NARASAMMA
• Keywords: Gift; Reason to believe; Reassessment proceedings
• Section: 143(3); 14A; 147; 148; 28

Judgement Text

ITA NOS.636 AND OTHERS PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S.NOS. ITA NOS. APPELLANT RESPONDENT A.Y 1 TO 6 636, 637 , 638 , 639, 640, 641/HYD/2015 VEEYES INV. P. LTD, HYDERABAD PAN:AABCV 6591 K ACIT, CENTRAL CIRCLE-8 HYDERABAD 2002 - 03 TO 2008- 09 7 TO 9 367, 631 & 632/HYD /2015 HIGHGRACE INV. P. LTD, HYDERABAD PAN:AAACH 5018 G ACIT, CENTRAL CIRCLE-8 HYDERABAD 2002 - 03 TO 2005- 06- 10 36 8 /HYD/201 5 FINCITY INV. P. LTD, HYDERABAD PAN: AAACF 3011 D ACIT, CENTRAL CIRCLE-8 HYDERABAD - DO - 1 1 369 /HYD/ 2015 ELEM INV. P. LTD, HYDERABAD PAN:AAACE 45370 L ACIT, CENTRAL CIRCLE-8 HYDERABAD - DO - 1 2 681/HYD/2015 DCIT CENTRAL CIRCLE 3(1) HYDERABAD VEEYES INV. P. LTD, HYDERABAD PAN:AABCV 6591 K 2008 - 09 FOR ASSESSEE : SHRI K.C. DEVDAS FOR REVENUE : SMT. K. NARASAMMA, DR DATE OF HEARING : 11.03.2016 DATE OF PRONOUNCEMENT : 31 .05.2016 O R D E R PER BENCH: THESE ARE THE APPEALS BY THE RESPECTIVE ASSESSEES W HICH ARE ALL RELATED COMPANIES AND THE ISSUES ARE ALSO C OMMON AND CONNECTED. IN VIEW OF THE SAME, ALL THESE APPEALS W ERE HEARD ITA NOS.636 AND OTHERS PAGE 2 OF 11 TOGETHER AND ARE DISPOSED OF BY THIS COMMON AND CON SOLIDATED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEES H EREIN ARE ALL COMPANIES INCORPORATED BY THE FAMILY MMBERS OF THE PROMOTERS OF M/S SATYAM COMPUTER SERVICES LTD. THE CHAIRMAN O F M/S. SATYAM COMPUTER SERVICES LTD SHRI B. RAMALINGA RAJU HAD SUO MOTO MADE A CONFESSIONAL STATEMENT ON 07.01.2009 IN HIS LETTER SENT TO THE BOARD OF DIRECTORS THAT THE BOOKS OF AC COUNTS OF THE RELATED COMPANIES HAVE BEEN FUDGED FOR THE LAST SEV ERAL YEARS TO MANIPULATE THE BOOK RESULTS. HE FURTHER CONFESSED T HAT THE REVENUES AND PROFITS WERE MANIPULATED BY FALSIFICAT ION OF THE ACCOUNTS FOR THE LAST SEVERAL YEARS. ON THE BASIS O F THE SAID STATEMENT, THE ASSESSMENTS IN THE CASE OF THE COMPA NIES WERE REOPENED U/S 147 OF THE ACT BY ISSUANCE OF NOTICES U/S 148 OF THE ACT ON 24.03.2009. IN ALL THESE CASES ASSESSMEN TS U/S 143(3) OF THE I.T. ACT WERE COMPLETED AND THE ASSESSMENTS WERE REOPENED BEYOND THE PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT A.Y. THEREAFTER, THE AO COMPLETED THE ASSE SSMENT U/S 143(3) R.W.S. 147 OF THE ACT BY MAKING THE DISALLOW ANCES U/S 14A OF THE ACT AND ALSO U/S 40A(IIA) OF THE ACT. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A) CHALLENGING THE VALIDITY OF THE REOPENING OF TH E ASSESSMENT AND ALSO THE ADDITIONS MADE BY THE AO. THE CIT (A) CONFIRMED THE ORDERS OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. IN ALL THE APPEALS, ASSESSEES HAS RAISED AS MAN Y AS 8 GROUNDS OF APPEAL. GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE, HENCE NEED NO ADJUDICATION. AS REGARDS GROUND NO.2 AGAINST THE VALIDITY OF THE REOPENING OF THE ASSESSMENT, IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN ALL THESE CASES, THE ITA NOS.636 AND OTHERS PAGE 3 OF 11 ASSESSEES HAVE FILED THEIR RETURNS OF INCOME WITHIN THE PRESCRIBED PERIOD AND THE ASSESSMENTS U/S 143(3) WERE DULY COM PLETED BY BRINGING TO TAX CERTAIN INCOME. SUBSEQUENTLY, THE A SSESSMENT WAS REOPENED U/S 147 OF THE I.T. ACT BY ISSUANCE OF NOTICES U/S 148 AFTER EXPIRY OF THE PERIOD OF FOUR YEARS. HE SU BMITTED THAT THE ASSESSMENT COMPLETED U/S 147 OF THE I.T. ACT HAS NO LIVE LINK TO THE REASONS RECORDED FOR THE REOPENING OF THE ASSES SMENT. HE SUBMITTED THAT THE AO HAS NOT BROUGHT OUT ON RECORD ANY MATERIAL TO SHOW THAT THE INCOME OF THE ASSESSEES H AVE ESCAPED ASSESSMENT DUE TO FAILURE OF THE ASSESSEE TO DISCLO SE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSME NT OF THEIR INCOME. THEREFORE, ACCORDING TO HIM, THE REOPENING OF THE ASSESSMENT, WITHOUT THERE BEING ANY MATERIAL ON REC ORD TO SHOW THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSM ENT DUE TO THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND T RLY ALL MATERIAL FACTS, IS NOT VALID. IN SUPPORT OF HIS CONTENTIONS, HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: I) CIT VS. JET AIRWAYS (INDIA) ( 331 ITR 236) BOMBAY HIGH COURT II) CIT VS. MOHMED JUNED DADANI (355 ITR 172 ) GUJARAT HIGH COURT III) RANBAXY LABORATORIES LTD. V. CIT ( 336 ITR 136) DELHI HIGH COURT FURTHER, HE ALSO SUBMITTED THAT WHERE NO ADDITION H AS BEEN MADE IN RESPECT OF ANY OF THE ISSUES STATED IN THE REASONS FOR REOPENING OF THE ASSESSMENT, THE QUESTION OF MAKING ANY ADDITION IN RESPECT OF ANY OTHER ITEMS DOES NOT ARI SE. THUS, ACCORDING TO HIM, THE RE-ASSESSMENT ORDERS NEEDS TO BE QUASHED. ITA NOS.636 AND OTHERS PAGE 4 OF 11 4. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT UNDISPUTEDLY THE REOPENING OF THE ASSESSMENT IS BEYOND THE PERIOD OF 4 YEARS FOR THE RELEVANT A.Y. A COPY OF THE REASONS FOR REOPENING ARE ENCLOSED AT P AGES 4A AND 4B OF THE PAPER BOOKS FILED BY THE RESPECTIVE ASSES SEES, ONE OF WHICH IS REPRODUCED HEREIN FOR READY REFERENCE: REASONS FOR RE-OPENING U/S 147 OF THE I.T.ACT FOR THE A.Y 2002-03 INFORMATION GATHERED BY THE DEPARTMENT REVEALED THA T THE FOLLOWING PERSONS HAVE INVESTED SUBSTANTIAL SUMS OF MONEY IN THE FIXED DEPOSITS HELD IN VARIOUS BANKS, THE DE TAILS OF WHICH ARE AS UNDER: S.NO NAME OF THE PERSON IN WHOSE NAME FIXED DEPOSIT IS FOUND AMOUNT (RS.) BANK DEPOSIT RECEIPT NO. 1 A.BHASKAR RAJU 63,75,111 SBH BEGUMPET 645520-31 2 AVL KUMARI 63,73,111 -DO- 645486-94 & 645508 3 I.MALLAPA RAJU 71,90,111 -DO- 645495-507 4 I JANAKIRAMA RAJU 66,58,111 - DO - 645475 - 85 5 D RAJESWARI DEVI 65,82,111 -DO- 645509-519 6 D SATYANARAYANA RAJU 1,00,00,000 -DO- 0214816-827 & 0214834 7 D SATYAVATHI 1,00,00,000 -DO- 0214828-843 & 0214846 WHEN QUESTIONED ABOUT THE SOURCES OF THE FUNDS FOR MAKING THE ABOVE MENTIONED DEPOSITS, IT IS SUBMITTED THAT THE MONIES ARE NOT REALLY OWNED BY THEM AND IN FACT REC EIVED FROM THE FAMILY MEMBERS OF SRI B. SURYANARAYANA RAJ U & OTHERS. IT IS CLAIMED THAT THE FOLLOWING PERSONS HA VE ADVANCED MONIES TO THE ABOVE MENTIONED PERSONS FOR INVESTING IN FIXED DEPOSITS, 1. B. SATYANARAYANA RAJU 2. B. APPALANARASAMMA 3. B. RAMALINGARAJU 4. B. NANDINIRAJU 5. B. SURYANARAYANARAJU ITA NOS.636 AND OTHERS PAGE 5 OF 11 6. B. JHANSIRANI 7. B. RAMARAJU (SENIOR) 8. B. RADHARAJU 9. B. PRITAMTEJA 10.B.RAMARAJU (JUNIOR) SRI A. BHASKAR RAJU & OTHERS CLAIMED THE MONIES INV ESTED IN FIXED DEPOSITS IN THEIR NAMES HAVE FLOWN FROM THE F UNDS GENERATED OUT OF SALE OF SHARES OWNED BY SRI B. SURYANARAYANA RAJU AND HIS FAMILY MEMBERS THROUGH T HE INVESTMENT COMPANIEZ VIZ. FURTHER, IT IS NOTICED THAT INVESMENT COMPANIES MEN TIONED ABOVE I.E. HIGHGRACE INVESTMENTS LTD, ELEM INVESTME NTS LTD, FINCITY INVESTMENT LTD AND VEEYES INVESTMENTS LTD H AVE NOT OFFERED ANY INCOME ON ACCOUNT OF COMMISSION RECEIVE D FOR ARRANGING THE TRANSACTION OF SALE OF SHARES. THEREF ORE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX IN THE HANDS OF FOUR INVESTMENT COMPANIES MENTIONED ABOVE ESCAPE D ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT, 1961. SINCE, THE AMOUNT INVOLVED IS MORE THAN RS.1 LAKH AND FOUR YEARS HAVE ALREADY LAPSED THE APPROVAL OF THE COMMISSIONER OF INCOME TAX (CENTRAL), HYDERABAD MAY PLEASE BE ACCORDED FOR REOPENING THE ASSESSMENT. SD/- (S. MURALI MOHAN) DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 HYDERABAD FROM THE ABOVE, IT IS SEEN THAT THERE IS NO FINDIN G OF THE AO THAT THE INCOME OF THE RESPECTIVE ASSESSEES HAS ESCAPED ASSESSMENT DUE TO THE FAILURE OF THE ASSESSEES TO DISCHARGE TR ULY AND FULLY ALL MATERIAL FACTS. FURTHER, IN THE ASSESSMENT ORDER, T HE ONLY ADDITIONS MADE ARE ON ACCOUNT OF DISALLOWANCE U/S 1 4A AND U/S 40A(IA) OF THE I.T. ACT. THIS IT IS CLEAR THAT THER E IS NO LIVE LINK BETWEEN THE REASONS FOR REOPENING OF THE ASSESSMENT S AND THE RE-ASSESSMENT MADE BY THE AO. IN THE DECISIONS RELI ED UPON BY THE ASSESSEE, WE FIND THAT THE BOMBAY HIGH COURT IN THE CASE OF CIT VS JET AIRWAYS (INDIA) ( 331 ITR 236) HAS HELD AS UNDER: EXPLANATION 3 TO SECTION 147 OF THE I.T. ACT, 1961 WAS INSERTED BY THE FINANCE (NO.2) ACT OF 2009, ITA NOS.636 AND OTHERS PAGE 6 OF 11 W.E.F. APRIL 1, 1989. THE EFFECT OF THE EXPLANATION IS THAT EVEN THOUGH THE NOTICE THAT HAS BEEN ISSUED UNDER SECTION 148 CONTAINING THE REASONS FOR REOPENING THE ASSESSMENT DOES NOT CONTAIN A REFERENCE TO A PARTICULAR ISSUE WITH REFERENCE TO WHICH INCOME HAS ESCAPED ASSESSMENT, THE AO MAY ASSESS OR REASS THE INCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED ASSESSMENT, WHEN SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE PROCEEDINGS. PARLIAMENT HAVING USED THE WORDS ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT THE WORDS AND ALSO CANNOT BE READ AS BEING IN THE ALTERNATIVE. ON THE CONTRARY, THE CORRECT INTERPRETATION WOULD BE TO REGARD THOSE WORDS AS BEING CONJUNCTIVE AND CUMULATIVE. IT IS OF SOME SIGNIFICANCE THAT PARLIAMENT HAS NOT USED THE WORD OR. THE LEGISLATURE DID NOT REST CONTENT BY MERELY USING THE WORD AND. THE WORDS AND AS WELL AS ALSO HAVE BEEN USED TOGETHER AND IN CONJUNCTION. EVIDENTLY, WHAT PARLIAMENT INTENDS BY USE OF THE WORDS AND ALSO IS THAT THE AO, UPON TH E FORMATION OF A REASON TO BELIEVE U/S 147 AND THE ISSUANCE OF A NOTICE U/S 148(2) MUST ASSESS OR REASSESS: (I) SUCH INCOME; AND ALSO (II) ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THE SECTION. EXPLANATION 3 DOES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CONDITIONS SET OUT IN THE SUBSTANTIVE PART OF SECTION 147. AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENTS AND CANNOT BE CONSTRUED TO OVERRIDE IT OR RENDER THE SUBSTANCE AND CORE NUGATORY. SECTION 147 HAS THIS EFFECT THAT THE AO HAS TO ASSESS OR REASSESS THE INCOME (SUCH INCOME) WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION O BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEEDINGS. HOWEVER, IF AFTER ISSUING A NOTICE U/S 148, HE ACCEPTS THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAP;ED ASSESSMENT, HAS AS A METTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT ITA NOS.636 AND OTHERS PAGE 7 OF 11 OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A NOTICE U/S 148 WOULD BE NECESSARY IN THE EVENT OF CHALLENGE BY THE ASSESSEE. THE EFFECT OF SECTION 147 AS IT NOW STAND S AFTER THE AMENDMENT OF 2009 CAN THEREFORE, BE SUMMARISED AS FOLLOWS: (I) THE AO MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY A.Y; (II) UPON THE FORMATION OF THAT BELIEF AND BEFORE HE PROCEEDS TO MAKE AN ASSESSMENT, REASSESSMENT OR RECOMPUTATION, THE AO HAS TO SERVE ON THE ASSESSEE A NOPTICE UNDER SUB-SECTION (1) OF SECTION 148; (II I) THE AO MAY ASSESS OR REASSESS SUCH INCOME, WHICH HE HAS REASON TO BELIEVE, HAS ESCAPED ASSESSMENT AND ALSO ANY OTHER INCOME, CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDING S UNDER THE SECTION; AND (IV) THOUGH THE NOTICE U/S 148(2) DOES NOT INCLUDE A PARTICULAR ISSUE WITH RESPECT TO WHICH INCOME HAS ESCAPED ASSESSMENT, HE MAY NONE THE LESS, ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THE SECTION. CIT VS. MOHMED JUNED DADANI (355 ITR 172 (GUJ.) EXPLANATION 3 TO SECTION 147 OF THE INCOME TAX ACT, 1961, PROVIDES THAT FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THE SECTION THE AO MAY ASSESS OR REASSESS THE INCOME IN REPECT OF ANY ISSUE WHICH ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE REASSESSMENT PROCEEDINGS. IT FURTHER PROVIDES THAT THIS WOULD BE SO NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASON S RECORDED U/S 148(2). EXPLANATION 3 CANNOT BE CONSTRUED AS TO PROVIDE THAT IF THE REASON ON WHICH THE ASSESSMENT IS REOPENED FAILS, THE AO 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 U/S 147 WHAT IS ESSENTIAL IS A VALID REOPENING OF A PREVIOUSLY CLOSED ASSESSMENT. IF THE VERY FOUNDATION OF THE REOPENING IS KNOCKED OUT, AN Y ITA NOS.636 AND OTHERS PAGE 8 OF 11 FURTHER PROCEEDINGS IN RESPECT OF SUCH ASSESSMENT NATURALLY WOULD NOT SURVIVE. EXPLANATION 3 THUS DOES NOT IN ANY MANNER, EVEN PURPORT TO EXPAND THE POWERS OF THE AO U/S 147. IN ANY CASE, THE EXPLANATION CANNOT EXPAND THE SCOPE AND SWEEP OF THE MAIN BODY OF THE STATUTORY PROVISION. SUNDARAM PILLAI (S) V. V.R. PATTABIRAMAN (1985) AIR 1985 S.C 582 APPLIED. ONCE AN ASSESSMENT IS REOPENED BY A VALID EXERCISE OF JURISDICTION U/S 147, IT IS OPEN FOR THE AO TO ASSESS OR REASSESS ANY INCOME WHICH HAD ESCAPED ASSESSMENT WHICH COMES TO LIGHT DURING THE COURSE OF HIS ASSESSMENT PROCEEDINGS WHICH WAS NOT MENTIONED IN THE REASONS FOR ISSUING NOTICE U/S 148 . IN A NOTICE FOR REASSESSMENT WHICH HAS BEEN ISSUED BEYOND A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT A.Y, THE CONDITION THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRU LY AND FULLY ALL MATERIAL FACTS FOR THE PURPOSE OF ASSESSMENT MUST ALSO BE ESTABLISHED UNLESS OF COURSE SOME OTHER GROUNDS VIZ., NON-FILING OF THE RETURN AT ALL, ETC., IS AVAILABLE TO THE AO. IF SUC H NON- DISCLOSURE OF MATERIAL FACT IS ESTABLISHED WITH RESPECT TO THE REASONS RECORDED FOR ISSUING NOTICE FOR REOPENING THE ASSESSMENT, IT WOULD BE OPEN FOR THE AO TO THEREAFTER EVEN ASSESS OTHER INCOME WHICH MIGHT HAVE ESCAPED ASSESSMENT BUT WHICH MAY NOT NECESSARILY SATISFY THE REQUIREMENT OF NON-DISCLOSU RE OF TRUE AND FULL MATERIAL FACTS. IF IN SUCH A SITUA TION, THE STAND OF THE REVENUE IS ACCEPTED, A VERY INCONGRUENT SITUATION WOULD COME ABOUT IF ULTIMATEL Y THE AO 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 FO R 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 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 FAILU RE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND ITA NOS.636 AND OTHERS PAGE 9 OF 11 FULLY ALL MATERIAL FACTS WOULD BE TOTALLY CIRCUMVENTED. RANBAXY LABORATORIES LTD V. CIT (336 ITR 136)DELHI HELD THAT SECTION 148 WAS SUPPLEMENTARY AND COMPLEMENTARY TO SECTION 147. SEB-SECTION (2) OF SECTION 148 MANDATES REASONS FOR ISSUANCE OF NOTICE BY THE AO AND SUB-SECTION (1) MANDATES SERVICE OF NOTICE TO THE ASSESSEE BEFORE THE AO PROCEEDS TO ASSESS, REASSESS OR RECOMPUTE ESCAPED INCOME. SECTION 147 MANDATES RECORDING OF REASONS TO BELIEVE BY THE AO THAT TE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. ALL THESE CONDITIONS WERE REQUIRED TO BE FULFILLED TO ASSESS OR REASSESS THE ESCAPED INCOME CHARGEABLE TO TAX. UNDER EXPLANATION 3, IF DURING THE COURSE OF THE PROCEEDINGS, THE AO COMES TO THE CONCLUSION THAT SOME ITEMS HAVE ESCAPED ASSESSMENT, THEN NOTWITHSTANDING THAT THOSE ITEMS WERE NOT INCLUDED IN THE REASONS TO BELIEVE AS RECORDED FOR INITIATIO N OF THE PROCEEDINGS AND THE NOTICE, HE WOULD BE COMPETENT TO MAKE ASSESSMENT OF THOSE ITEMS. FOR EVERY NEW ISSUE COMING BEFORE THE AO DURING THE COURSE OF PROCEEDINGS OF ASSESSMENT OR REASSESSMENT OF ESCAPED INCOME, AND WHICH HE INTENDS TO TAKE INTO ACCOUNT, HE WOULD BE REQUIRED TO ISSUE A FRESH NOTICE U/S 148. THE AO WAS SATISFIED WITH THE JUSTIFICATIONS GIVEN BY THE ASSESSEE REGARDING THE ITEMS OF CLUB FEES, GIFTS AND PRESENT S AND PROVISION FOR LEAVE ENCASHMENT, BUT DURING THE ASSESSMENT PROCEEDINGS, HE FOUND THE DEDUCTION U/S 80HH AND 80-I AS CLAIMED BY THE ASSESSEE TO BE NOT ADMISSIBLE. HE CONSEQUENTLY PROCEEDED TO MAKE DEDUCTIONS UNDER SECTIONS 80HH AND 80-I AND ACCORDINGLY REDUCED THE CLAIM ON THESE ACCOUNTS. THE VERY BASIS OF INITIATION OF PROCEEDINGS FOR WHI CH REASONS TO BELIEVE WERE RECORDED WAS INCOME ESCAPING ASSESSMENT IN RESPECT OF ITEMS OF CLUB FEE S, GIFTS AND PRESENTS ETC., BUT WHILE THESE ITEMS WERE NOT DISTURBED, THE AO PROCEEDED TO REDUCE THE CLAIM OF DEDUCTION U/S 80HH AND 80-I WHICH WAS NOT PERMISSIBLE. THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE AO HAD THE JURISDICTION TO REASSESS ISSUES OTHE R THAN THE ISSUES IN RESPECT OF WHICH PROCEEDINGS WERE INITIATED BUT HE WAS NOT JUSTIFIED WHEN THE ITA NOS.636 AND OTHERS PAGE 10 OF 11 REASONS FOR THE INITIATION OF THOSE PROCEEDINGS CEASED TO SURVIVE. 6. IN VIEW OF THE ABOVE, WE ARE SATISFIED THAT THE RE- ASSESSMENT U/S 143(3) R.W.S. 147 OF THE I.T. ACT IN THE CASE OF ALL THE ABOVE ASSESSEES ARE NOT SUSTAINABLE. IN VIEW OF THE SAME, THE ASSESSMENTS U/S 143(3) R.W.S. 147 FOR ALL THE YEARS UNDER CONSIDERATION I.E. A.Y 2003-04 TO 2008-09 IN THE CA SE OF ALL THE ASSESSEES ARE QUASHED. 7. IN VIEW OF THE ABOVE ORDER QUASHING THE ASSESSME NTS, THE ASSESSEES GROUNDS OF APPEAL AGAINST THE MERITS OF T HE ADDITIONS ARE NOT DEALT WITH AT THIS STAGE AS IT WOULD ONLY R ESULT IN AN ACADEMIC EXERCISE. ITA NO.681/HYD/2015 REVENUES APPEAL 8. THE GROUNDS RAISED BY THE REVENUE ARE GIVEN BELO W: ( I) THE LEARNED CIT (A) ERRED IN BOTH FACTS AND LAW. (II) THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS GROSSLY VIOLATED THE EXPLANAT ION GIVEN TO SECTION 73 AND SECTION 28 ESPECIALLY IN TH E LIGHT OF THE FACT THAT THE ASSESSEE HAS NOT PURCHAS ED THE SHARES AS AN INVESTMENT BUT IS IN THE TRADE OF PURCHASE AND SALE OF SHARES. (III) THE LEARNED CIT (A), WHILE ALLOWIHNG THE ASS ESSEES APPEAL FOR CONSIDERATION OF SPECULATIVE INCOME AND ADJUSTING OF BROUGHT FORWARD LOSSES AGAINST THE SAM E, OUGHT TO HAVE APPRECIATED THE FACT THAT THE AO HAS PASSED THE ORDER BASED ON THE VERDICT GIVEN IN THE CASE OF EASTERN AVIATION AND INDUSTRIES LTD VS. CIT (19 94) 208 ITR 1023 (CAL). BY NOT CONSIDERING THE SAME, T HE LEARNED CIT (A) ERRED IN LAW 9. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT (A) IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 73 OF THE INCOME TAX ACT. SINCE THE ASSESSMENT ITSELF HAS BEE N QUASHED, ITA NOS.636 AND OTHERS PAGE 11 OF 11 THE ADDITIONS MADE BY THE AO DO NOT SURVIVE. IN VIE W OF THE SAME, REVENUES APPEAL IS ALSO DISMISSED. 10. IN THE RESULT, APPEALS OF ALL THE ASSESSEES ARE PARTLY ALLOWED AND THE REVENUES APPEAL FOR A.Y 2008-09 IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2016. S D/ - S D/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 31 ST MAY, 2016. VNODAN/SPS COPY TO: 1. VEEYES INV. P. LTD, FORTUNATE MONARCH MALL, 3 RD FLOOR, NO.306, PLOT NO.707-709, JUBILEE HILLS, ROAD NO.36, HYDERABAD 500033 2. HIGHGRACE INV. P. LTD, FORTUNATE MONARCH MALL, 3 RD FLOOR, NO.306, PLOT NO.707-709, JUBILEE HILLS, ROAD NO.36, HYDERABAD 500033 3. FINCITY INV. P. LTD, FORTUNATE MONARCH MALL, 3 RD FLOOR, NO.306, PLOT NO.707-709, JUBILEE HILLS, ROAD NO.36, HYDERABAD 500033 4. ELEM INV. P. LTD, FORTUNATE MONARCH MALL, 3 RD FLOOR, NO.306, PLOT NO.707-709, JUBILEE HILLS, ROAD NO.36, HYDERAB AD 500033 5. ACIT, CENTRAL CIRCLE-8 HYDERABAD 6. DCIT CENTRAL CIRCLE 3(1) HYDERABAD 7. CIT(A) -2 HYDERABAD 8. CIT (CENTRAL), HYDERABAD 9. THE DR, ITAT, HYDERABAD 10. GUARD FILE BY ORDER