PITTI HOLDINGS PRIVATE LIMITED,HYDERABAD V. ACIT., CENTRAL CIRCLE-1(1), HYDERABAD

ITA 450/HYD/2025

AI Insights

The case involves M/s. Pitti Holdings Pvt. Ltd., which appealed against the reassessment order for the assessment year 2018-19. The primary contention was regarding the validity of the notice issued under section 148 of the Income Tax Act, 1961, by the jurisdictional Assessing Officer instead of a faceless Assessing Officer. The Tribunal considered the judgments of the Hon'ble High Court and the co-ordinate bench of the Tribunal, which had addressed similar issues. The Tribunal noted that the reassessment order was based on new issues not originally part of the reopening, which was found to be procedurally incorrect.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780109 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2018-2019
• Appeal Filed On: 13-03-2025
• Other Referred Cases: Kanakala Ravindra Reddy Vs. ITO, CIT Vs. Jet Airways (I) Ltd., Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., V. Jaganmohan Rao and Others Vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, Commissioner of Income Tax v. Shri Ram Singh, Commissioner of Income Tax Vs. Atlas Cycle Industries
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIN KUMAR
• Assessee Lawyers: A. SRINIVAS
• Keywords: Set aside; Opportunity of being heard; Reassessment proceedings; Question of law; Corroborative evidences; Unexplained cash credit; Income from undisclosed sources; Reopening of assessment; Accommodation entries; Reason to believe; Tangible material; Bogus
• Section: 147; 148; 143(3); 68

Judgement Text

"आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad Įी ͪवजय पाल राव, उपाÚ य¢ एवं Įी मधुसूदन सावͫडया, लेखा सदè य क े सम¢ । BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.450/Hyd/2025 (िनधाŊरण वषŊ/Assessment Year:2018-19) M/s. Pitti Holdings Pvt. Ltd., Hyderabad. PAN: AAGCP3824Q Vs. Asst. Commissioner of Income Tax, Central Circle 1(1), Hyderabad. (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Shri A. Srinivas, C.A. राज̾ व Ȫारा/Revenue by: Dr. Sachin Kumar, DR सुनवाई की तारीख/Date of hearing: 09/09/2025 घोषणा की तारीख/Pronouncement: 08/10/2025 आदेश/ORDER PER VIJAY PAL RAO, VICE PRESIDENT : This appeal by the assessee is directed against the order dated 16.01.2025 of Learned Commissioner of Income Tax (Appeals) for the Asst. Year 2018-19. 2. The assessee has raised the following grounds of appeal : Printed from counselvise.com 2 ITA.No.450/Hyd./2025 Printed from counselvise.com 3 ITA.No.450/Hyd./2025 3. Ground No.1 is general in nature and does not require any specific adjudication. 4. Ground Nos.2 & 3 are regarding validity of Notice issued u/s.148 of the Income Tax Act, 1961 (“the Act”) by the jurisdictional Assessing Officer instead of faceless Assessing Officer. 5. We have heard the Learned Authorised Representative and Learned Departmental Representative on this issue which is pending adjudication before the Hon’ble Supreme Court. Ld. AR has relied upon the judgment of Hon’ble jurisdictional High Court in the case of Kanakala Ravindra Reddy Vs. ITO 156 taxman.com 478 and submitted that the impugned reassessment order is not valid and liable to be set aside. Having considered the rival submissions as well as relevant material on record, at the outset we note that the co-ordinate bench of this Tribunal in the case of Kanakala Ravindra Reddy Vs. ITO (supra) has considered an identical issue vide order dated 04.09.2025 in para Nos.9 to 16 as under : Printed from counselvise.com 4 ITA.No.450/Hyd./2025 “9. We have considered the rival submissions as well as material on record. In the case of the assessee, notice u/sec.148A(b) was issued on 21.02.2023 by JAO. For ready reference, the same is reproduced as under : 10. Thereafter, the AO also passed an order u/s 148A(d) on 29.03.2023, wherein, the AO has recorded that, despite sufficient time allowed to the assessee in accordance with the Printed from counselvise.com 5 ITA.No.450/Hyd./2025 provisions of section 148A(b) for compliance to the show cause notice dated 21.02.2023, there is no compliance on behalf of the assessee to the said show cause notice. The AO decided that it is a fit case for issue of notice u/s 148 of the Act and consequently notice u/s 148 was issued on 30.03.2023 as under : Printed from counselvise.com 6 ITA.No.450/Hyd./2025 11. Undisputedly, the show cause notice u/s 148A(b) as well as notice u/s 148 were issued by the JAO and not by the faceless Assessing Officer. At the outset, we note that the Hon’ble Jurisdictional High Court has considered an identical issue in assessee's own case for the immediate preceding assessment year i.e. 2015-16 vide judgement dated 24.04.2025 in W.P.No.344 of 2025 and has recorded the issue involved in the said petition in para 4 of the said judgement as under : 12. It was further noted by the Hon’ble jurisdictional High Court that this issue has been decided against the Revenue Printed from counselvise.com 7 ITA.No.450/Hyd./2025 by various High Courts and the details of all the judgements of various High Courts are given in para 5 of the said judgement as under : Printed from counselvise.com 8 ITA.No.450/Hyd./2025 13. In light of various judgements of the Hon’ble High Courts, including the judgement of the jurisdictional High Court in the case of Kankanala Ravindra Reddy Vs. Income Tax Officer [2024] 156 taxmann.com 478 (Gauhati), the Hon’ble High Court has held in para 13 to 19 as under : Printed from counselvise.com 9 ITA.No.450/Hyd./2025 Printed from counselvise.com 10 ITA.No.450/Hyd./2025 Printed from counselvise.com 11 ITA.No.450/Hyd./2025 Printed from counselvise.com 12 ITA.No.450/Hyd./2025 Printed from counselvise.com 13 ITA.No.450/Hyd./2025 Printed from counselvise.com 14 ITA.No.450/Hyd./2025 Printed from counselvise.com 15 ITA.No.450/Hyd./2025 Printed from counselvise.com 16 ITA.No.450/Hyd./2025 14. Thus, it is clear that the issue raised by the assessee in the present appeal is now covered by the decision of Hon’ble Jurisdictional High Court in the assessee’s own case for the A.Y.2016-17. As regards the contention of the Ld.DR that no such issue was raised by the assessee before the authorities below, we find from the Grounds of Appeal raised before the CIT(A) that the assessee had raised this issue in ground No.2 to 5 as under : Printed from counselvise.com 17 ITA.No.450/Hyd./2025 15. In view of the facts emanating from the record, we find that the assessee has duly raised this issue before the CIT(A) and therefore, the contention raised by the Ld.DR is devoid of any merit. Accordingly, the show cause notice issued u/s 148A(b) dated 21.02.2023 as well as notice issued u/s 148 dated 30.03.2023 by the JAO are not valid and liable to be quashed. We order accordingly. Printed from counselvise.com 18 ITA.No.450/Hyd./2025 16. However, since the matter is pending adjudication before the Hon’ble Supreme Court and Hon’ble High Court has also given the liberty to the parties to move an appropriate petition, seeking revival of W.P. in light of judgement of Hon’ble Supreme Court on this very issue, we also grant liberty to the parties to get this appeal revived, if, in case the judgement of the Hon’ble Supreme Court on this issue necessitate to modify this order. 5.1. In the case in hand it is not disputed that the notice u/s. 148 of the Act was issued by the JAO and not by the Faceless Assessing Officer. By following the judgment of Hon’ble jurisdictional High Court in the case of Kotha Kanthaiah dated 24.04.2025 in Writ Petition No.344 of 2025 as well as the decision of co-ordinate bench of this Tribunal (supra), we hold that the notice issued u/s. 148A(b) of the Act as well as the decision of co-ordinate bench as well as u/s. 148 of the Act in the case of the assessee by the JAO are not valid and liable to be set aside. We order accordingly. Printed from counselvise.com 19 ITA.No.450/Hyd./2025 5.2. Since the matter is pending adjudication before the Hon'ble Supreme Court and the Hon’ble High Court in the case of Kotha Kanthaiah (supra) has also given the liberty to the parties to move an appropriate petition seeking revival of the petition in the light of judgement of Hon'ble Supreme Court on this very issue, therefore, we grant the liberty to the parties to get this appeal revived, if judgment of Hon'ble Supreme Court on this issue necessitate to modify this order. 6. Ground Nos.4 to 9 are regarding validity of reassessment framed by the Assessing Officer, when the Assessing Officer has not made any addition on the issue of reopening. The Ld. AR of the assessee has submitted that the Assessing Officer has initiated the reassessment proceedings by issuing the notice u/s. 148A(b) of the Act dated 12.03.2022 giving the reasons that as per the information in the possession of the Department, the assessee has availed accommodation entries from M/s. Khoobsoorat Limited, a shell company controlled and managed by well known entry operator Sri Arun Kumar Khemka. Thus the Assessing Officer alleged in the reasons recorded that assessee was involved in transfer of Rs.90 lakhs, Rs.10 lakhs and Rs.25 lakhs by way of accommodation Printed from counselvise.com 20 ITA.No.450/Hyd./2025 entries in the form of unsecured loans and sale of shares (total Rs.1.25 Crores). The Ld. AR has then referred to the order passed by the Assessing Officer u/s.148A(d) of the Act dt.30.03.2022 and submitted that the Assessing Officer has reiterated his stand in the said order that the assessee is a beneficiary of accommodation entries to the tune of Rs.1.25 Crores in the form of unsecured loans. He has contended that while framing the assessment u/s.144 of the Act the Assessing Officer has not made any addition on account of unsecured loans, however, some other additions were made on account of disallowance of expenditure and therefore once the Assessing Officer has not made any addition on the issue on which the assessment was reopened then the additions made by the Assessing Officer by making the disallowances of expenditure are not sustainable in law and liable to be deleted. In support of his contention, he has relied upon the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. 331 ITR 236 (Bom). 7. On the other hand, the Ld. DR has submitted that the Assessing Officer has followed the procedure as prescribed u/s.148 and 148A of the Act. The Assessing Officer has Printed from counselvise.com 21 ITA.No.450/Hyd./2025 reproduced the details as received from the Investigation Wing as detected in search operation u/s.132 of the Act conducted in the case of M/s. Vamsiram Builders Pvt. Ltd. and group concerns, Hyderabad on 06.12.2022 the assessee company being part of the said group was covered and the case was centralised to Central Circle, Hyderabad vide order u/s. 127 of the I.T. Act dt.10.03.2023. The Assessing Officer has proceeded as per the investigation report received in the case of Khoobsurat Limited, a shell company and the assessee is found to be a beneficiary of accommodation transaction in the shape of unsecured loans. Therefore, the reopening of assessment is based on tangible material available with the Assessing Officer regarding the accommodation entries received by the assessee in the shape of unsecured loans. He has relied upon the orders of authorities below. 8. We have considered the rival submissions as well as the material available on record. The Assessing Officer has issued notice u/s.148A(b) of the Act dt.12.03.2022 placed at page Nos.1 & 2 of the paper book are as under : Printed from counselvise.com 22 ITA.No.450/Hyd./2025 ANNEXURE As per informaiton in possession of the department it is found that M/s Khoobsurat Limited (AABCK0685K) is listed as Shell Company controlled and managed by well-known entry operator Shri Arun Kumar Khemka as per the database of Kolkata based shell companies maintained by the department. M/s Khoobsurat Ltd earlier raised share capital Printed from counselvise.com 23 ITA.No.450/Hyd./2025 and premium which were invested in bogus unlisted equities and subsequently, investments were sold to convert these into unsecured loans and advances. These unsecured loans were provided as accommodation entries to various beneficiaries in-lieu of commission and subsequently company was also acquired by current shareholders. M/s Khoobsurat Ltd is a shell company, which has been used to bring back unaccounted income of the beneficiaries in their regular books of accounts by way of accommodation entries in the form of Unsecured Loans and sale of shares. Hence, fund trail has been identified as the assessee company M/s Pitti Holdings Pvt. Ltd was involved in transfer of Rs.90,00,000/- on 06-04-2017, Rs.10,00,000/- on 07-04-2017 and Rs.25,00,000/-on 27-06-2017 as a L4 layer. These findings have been established the fact that the transaction held in the bank account is nothing but the routing of fund in for the ultimate purpose of accommodation entry to beneficiaries in the form of unsecured loans and advances and in-lieu of commission & sale of share. Thus it is identified as the assessee company is one of the beneficiary for the amount of Rs.1,25,00,000/- It is found that the assessee company is one of the beneficiary for the amount of Rs.1,25,00,000/-in the form of unsecured loans. Upon verification of the Balance Sheet Printed from counselvise.com 24 ITA.No.450/Hyd./2025 schedule in ITR-6 filed by the assesse, Rs.42,95,40,000/- is shown as Other Loans and Advances under Long-Term Loans and advances under Non-Current Assets. Therefore, you are required to explain why the amount of Rs.1,25,00,000/- should not be treated as bogus transaction with supporting corroborative evidences of purpose of loan, genuineness, identity of the persons and its directors, credit worthiness, their IT return copies, interest charged details and treatment of interest in books of account etc.. PHANI KUMAR KATRAGADDA WARD 16(1) HYDERABAD.” 8.1 As per the Annexure to notice u/s.148A(b) of the Act, the Assessing Officer has given the reasons for reopening of assessment that the assessee is the beneficiary of accommodation entries to the tune of Rs.1.25 Crores in the form of unsecured loans. The Assessing Officer has also referred to the Balance Sheet of the assessee wherein a sum ofRs.42,95,40,000 is shown as other loans. The assessee filed reply/objections against the notice u/s. 148A(b) of the Act dt.30.03.2022 and thereafter the A.O. passed order u/s. 148A(d) of the Act placed at page Nos.4 to 8 as under : Printed from counselvise.com 25 ITA.No.450/Hyd./2025 Order under clause (d) of section 148A of the Income Tax Act, 1961 1. In this case, information was flagged as per Risk Management Strategy formulated by the CBDT through ITBA software under the head NMS/High Risk CRI/VRU cases. As per \"High Risk Transactions\" data in Insight portal, for F.Y. 2017-18 relevant to the A.Y. 2018-19, the assessee is a beneficiary of accommodation entry in the form of unsecured loans and advances in-lieu of commission & sale of share with potential tax liabilities. 1.2. As per the information received, M/s. Khoobsurat Limited (AABCK0685K) is listed as Shell Company controlled and managed by well-known entry operator Shri Arun Kumar Khemka as per the database of Kolkata based shell companies maintained by the department. M/s. Khoobsurat Ltd earlier raised share capital and premium which were invested in bogus unlisted equities and subsequently, Printed from counselvise.com 26 ITA.No.450/Hyd./2025 investments were sold to convert these into unsecured loans and advances. These unsecured loans were provided as accommodation entries to various beneficiaries in lieu of commission and subsequently company was also acquired by current shareholders. 1.3. M/s. Khoobsurat Ltd. is a shell company, which has been used to bring back unaccounted income of the beneficiaries in their regular books of accounts by way of accommodation entries in the form of Unsecured Loans and sale of shares. Hence, after fund trail it has been identified as the assessee company M/s Pitti Holdings Pvt. Ltd was involved in transfer of Rs.90,00,000/-on 06-04-2017, Rs 10,00,000/- on 07-04-2017 and Rs.25,00,000/-on 27-06- 2017 as a L4 layer. 1.4. These findings have established the fact that the transaction held in the bank account is nothing but the routing of fund in for the ultimate purpose of accommodation entry to beneficiary (l.e., assessee company) in the form of unsecured loans and advances in-lieu of commission & sale of share. Thus, it is identified as the assessee company is one of the beneficiaries for the amount of Rs.1,25,00,000/-. 1.5. It is found that the assessee company is one of the beneficiaries for the amount of Rs.1,25,00,000/- in the form of unsecured loans. Upon verification of the Balance Sheet schedule in ITR-6 filed by the assesse, Rs.42,95,40,000/- is shown as Other Loans and Advances under Long-Term Loans and advances under Non-Current Assets which includes the accommodation entry availed from M/s. Khoobsurat Ltd.\" 2. These findings have established the fact that the transaction held in the bank account is nothing but the routing of funds for the ultimate purpose of accommodation entry to beneficiaries in the form of unsecured loans and advances and in-lieu of commission & sale of share, the nature. The modus operandi of the above transactions remains unexplained. The assessee ahs to prove the purpose of loan, identity, genuineness and credit worthiness of the parties. Hence, as per the amended provisions of sec 148A of Income-tax 1961 and in accordance with the provisions of sec Printed from counselvise.com 27 ITA.No.450/Hyd./2025 151, the assessee was provided an opportunity of being heard by issuance of show cause notice u/s 148(A)(b) of the Income-tax Act, 1961 dated 12.03.2022, with prior approval from Pr. Commissioner of Income Tax-4, Hyderabad, requiring the assessee to show cause as to why notice u/s 148 should not be issued on the basis of the afore stated information in order to assess the transactions undertaken by the assessee. 3. Sufficient time was allowed to the assessee in accordance with the provisions of section 148A(b) for compliance to Show cause Notice dated 12.03.2022. Show cause Notice was delivered to the assessee through e-mail on12.03.2022. In response to the show cause notice, on 19- 03-2022, the assessee furnished its online been examined and scrutinized under 143(2) scrutiny conducted for AY 2018- 19. Hence the transactions are not bogus and hence no Income has escaped assessment. Copy of Assessment order is attached in Annexure 7. Therefore we hereby request you to drop the proposal to reopen case u/s 148 as there is no Income which has escaped assessment\" 4. The assessee has also made various attachments as stated above. In this case the assessee filed it's return of income for the assessment year 2018-19 on 27-09-2018 and returned current year loss at Rs.1.55,676/-. The case was selected for complete scrutiny under CASS and assessment uls 143(3) was passed on 22-01-2021 by the AD, National e- Assessment Centre, Delhi. The issue for CASS selection was i) Business Loss ii) Share Capital/Other Capital. The AO passed the assessment stating that \"After considening the assessee's submissions and documents filed in response to the statutory notices, no addition on the above issue(s) is made.\" 5. The facts stated by the assessee are conveniently incomplete. The information as mentioned in para-1 above is not made available during the assessment proceedings before the Assessing Officer who passed the Assessment Order u/s 143(3). This is the new evidence made available to the JAO after completion of the assessment. Further, it is Printed from counselvise.com 28 ITA.No.450/Hyd./2025 verified the notices issued by the NEAC-AO and the submissions made by the assessee that there was no discussions about the issues mentioned in Para-1 above. Though the NeAC-AO did not ask, the assesse did not choose to furnish during the assessment proceedings to substantiate the loss returned with the issues mentioned in Para-1. 6. If no consideration is received as stated by the assessee, the same has to be proved during the assessment proceedings by submitting relevant corroborative evidences before the Assessing Officer during the assessment proceedings. 7. The assessee's submissions in response to the show cause notice u/s 148A(b) is far less than what is required to be submitted to counter the issues mentioned in the notice, the assessee can use the reassessment proceedings to validate his claim by producing relevant corroborative evidences required rather than requesting to drop the proposals to reopen under section 148 of LT Act by stating that there is no Income which has escaped assessment. In view of the above, the request of the assessee is not considered. Therefore, the assessee is requested to respond through e-proceedings after issue of notice u/s 148 of IT Act for further necessary action in the case. 8. In view of the above and based on the information available on record, which according to explanation 1 to sec 148 is the information available with the Assessing Officer suggesting an escapement of income to the extent Rs. 1,25,00,000/- in the case. This is a fit case for issue of notice u/s. 148 of 1.T. Act for the A.Y. 2018-19. 9. This order is passed with the prior approval of the Principal Commissioner of Income Tax-4, Hyderabad. PHANI KUMAR KATRAGADDA WARD 16(1) : HYDERABAD.” Printed from counselvise.com 29 ITA.No.450/Hyd./2025 8.2. Thus, the Assessing Officer after rejecting the assessee’s submission has reiterated the reasons for reopening of assessment that the assessee is one of the beneficiary of accommodation entries to the tune of Rs.1.25 Crores from M/s. Khoobsurat Limited. Thereafter, the notice u/s.148 of the Act was issued by the Assessing Officer on 30.03.2022 and reassessment proceedings were completed on 31.03.2023 thereby the Assessing Officer has taken up an another issue of share capital received from M/s. Voltaire Leasing and Finance Limited of Rs.4.95 crores in para nos.13 & 14 as under : “13. In the light of the discussion in the foregoing paras and the other facts as discussed above along side the reason for reopening, it is established that the assessee failed to prove beyond doubt the credeworthiness of Mis Voltaire Leasing & Finance Ltd, therefore, the amount received from Mis Voltaire leasing and Finance Pvt. Ltd, to which, fund has been routed through different shell companies, as detailed in the foregoing paras, remain unexplained, thereby qualifies such amount to be treated as unexplained cash-credit, as defined u/s 68 of the Income Tax Act, 1961. Therefore, the sum of Rs.4,95,00,000/- claimed to have received from Voltaire Leasing & Finance Limited, to which, funds were routed through Shell company network, for sale of Printed from counselvise.com 30 ITA.No.450/Hyd./2025 shares. which could not be substantiated by the assessee company is treated as unexplained cash credits u/sec.68 of the Act and added back to income returned by the assessee for the AY under consideration. Addition: Rs.4,95,00,000/-. Penalty proceedings u/s 271AAC of the IT. Act, 1961 are initiated separately as the income assessed includes income referred to in section 68 of IT Act, 1951. 14. Subject to the above, after due verification of the submissions filed by the assessee, the assessment in the case of the assessee is completed as under : Total income assessed under section 143(3) rws 144B dated 22.01.2021. Rs (1.55.576) Add : As per para 11 (unexplained cash credits u/s 68 r.w.s.115BBE to be taxed @ 60%) Rs.4,95,00,000 Total Assessed Income Rs.4,95,00,000 Note : No set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in section 68 r.w.s.115BBE. Assessed us. 143(3) r.w.s.153C of Income tax Act, 1901 Charge interest u/s.234A, 234B, 234C & 234D of the Income tax Act, 1861 as applicable Computation sheet and demand notice enclosed are a part of this order. 15. This Order is passed with prior approval of the Additional Commissioner of Income Tax, Central Range-1, Hyderabad. VYSHNAVI – P Central Circle-1(1), Hyderabad.” Printed from counselvise.com 31 ITA.No.450/Hyd./2025 8.3. Thus, it is clear from the assessment order that the Assessing Officer has not made any addition on the issue of unsecured loan of Rs.1.25 Crores as accommodation entries received from M/s. Khoobsurat Limited which was dropped by the Assessing Officer and a new issue was taken up by the Assessing Officer in the reassessment proceedings regarding the share capital received by the assessee from M/s. Voltaire Leasing and Finance Limited to the tune of Rs.4.95 Crores. As it is clear from the reasons recorded by the Assessing Officer as well as the order u/s. 148A(d) of the Act that the assessment was reopened only on the issue of unsecured loan of Rs.1.25 Crores from M/s. Khoobsurat Limited as accommodation entry whereas the said issue was dropped and a new issue was taken up by the Assessing Officer during the reassessment proceedings which is not permissible under law as held by the Hon'ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (supra) has considered an identical issue in para Nos. 11 to 17 as under : “ 11. The rival submissions which have been urged on behalf of the Revenue and the assessee can be dealt with, both as a matter of first principle, interpreting the. section as it stands and on the basis of preceder on the subject. Printed from counselvise.com 32 ITA.No.450/Hyd./2025 Interpreting the provision as it stands and without adding (sic) deducting from the words used by Parliament, it is clear that upon (sic) formation of a reason to believe u/s 147 and following the issuance of a notice u/s 148, the Assessing Officer has the power assess or reassess the income which he has reason to believe had escap(sic) assessment and also any other income chargeable to tax. The words and also\"\" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. 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. The Shorter Oxford dictionary defines the expression \"\"also\"\" to mean further, in addition, besides, too''. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words \"\"and also\"\" is that the Assessing Officer, upon the 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) (sic) other income chargeable to tax which has escaped Printed from counselvise.com 33 ITA.No.450/Hyd./2025 assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words ''such income'' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has fanned a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice u/s 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of Section 147 with effect from 1 April 1989 clearly stipulated that the Assessing Officer has to assessee (sic) reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax came which came to his notice during the proceedings. In the absence of the assessment or Printed from counselvise.com 34 ITA.No.450/Hyd./2025 reassessment the former, he cannot independently assess the latter. 12. In Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., the Supreme Court dealt with the following question of law in the course of its judgment: Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income.? The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of Section 147, as they stood prior to the amendment on 1 April 1989. The Supreme. Court held that the expression \"escaped assessment\". Includes both \"non-assessment\" as well as \"\"under assessment\"\". Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression \"\"assess\"\" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of Section 147. The expression \"\"reassess\"\" refers to a situation where an assessment has already been made but the Assessing Officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated Printed from counselvise.com 35 ITA.No.450/Hyd./2025 by Explanation 1 to Section 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao and Others Vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, , which held that once an assessment is validly reopened, the previous under assessment is set aside and the Income Tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of Section 147 enures to the benefit of the Revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings. The judgment in Jaganmohan Rao''s case dealt with the language of Sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engineering Works (supra) interprets the provisions of Section 147 as they stood prior to the amendment on 1 April 1989. 13. The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice u/s 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject Printed from counselvise.com 36 ITA.No.450/Hyd./2025 mater of me notice u/s 148. This view was adopted in the judgment of the Punjab & Haryana High Court in Vipan Khanna (Supra) and in the judgment of the Kerala High Court in Travancore Cements Limited (Supra) This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Explanation 3 to Section 147 by Finance (No. 2) Act of 2009 The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice u/s 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded u/s 148(2). 14. The second line of precedent is reflected in a judgment of the Rajasthan High Court in Commissioner of Income Tax v. Shri Ram Singh (2008) 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in Section 147 particularly the words that the Assessing Officer ''may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings'' u/s 147. The Rajasthan High Court held as follows. .... it is only when, in proceedings u/s 147 the Assessing Officer, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had \"\"reason to believe\"\" to be so, then only, in addition, he can also put to Printed from counselvise.com 37 ITA.No.450/Hyd./2025 tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings u/s. 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings u/s 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his \"\"reason to believe\"\", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings u/s 147. 15. Parliament, when it enacted the Explanation (3) to Section 147 by the Finance (No. 2). Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to Section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess Printed from counselvise.com 38 ITA.No.450/Hyd./2025 the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice u/s 148(2). The decisions of the Kerala High Court in Travancore Cements Limited (Supra) and of the Punjab & Haryana High Court in Vipan Khanna (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh (supra), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab & Haryana High Court in Commissioner of Income Tax Vs. Atlas Cycle Industries, The decision in Atlas Cycle Industries held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice u/s 148 were incorrect or non existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries (supra) and of the Rajasthan High Court in Shri Ram Singh (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to Section 147. 16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of Which a notice was issued u/s 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the Printed from counselvise.com 39 ITA.No.450/Hyd./2025 assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No 2) of 2009 However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set our 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 Assessing Officer has to assessee or reassess the income (\"\"such income\"\") which escaped assessment and which was the basis of the formation of 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 accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice u/s 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in Printed from counselvise.com 40 ITA.No.450/Hyd./2025 Section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that Section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income \"\"and also\"\" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words \"\"and also\"\" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to Section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words \"\"and also\"\" by the Rajasthan High Court in Shri Ram Singh (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of Section 147(1) as they stood after the amendment of 1 April 1989 continue to hold the field.” 8.4. Accordingly in the facts and circumstances of the case, when the Assessing Officer has not made any addition on the issue which is the basis of the reopening of assessment then the Assessing Officer has no jurisdiction to proceed further with the reassessment proceedings and make any other addition. Printed from counselvise.com 41 ITA.No.450/Hyd./2025 Hence following the judgment of Bombay High Court in the case of CIT Vs. Jet Airways (supra) on this issue, we hold that the reassessment order passed by the Assessing Officer is not valid and liable to be quashed. We order accordingly. 9. Since we have quashed the reassessment order, therefore, we do not propose to go into the merits of the other issues raised by the assessee. 10. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 08th Oct., 2025. Sd/- Sd/- [MADHUSUDAN SAWDIA] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 08th October, 2025 * Reddy gp Copy of the Order forwarded to : 1. M/s. Pitti Holdings Pvt. Ltd., 6-3-643/401, 4th Floor, Padmaja Landmark, Somajiguda, Hyderabad-500082 2. The ACIT, Central Circle 1(1), Hyderabad. 3. Pr.CIT (Central), Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, //True copy// Printed from counselvise.com "