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If AO does not assess income for which reasons were recorded u/s 147, he cannot assess other income u/s 147

Ranbaxy Laboratories Ltd vs. CIT (Delhi High Court)

The AO issued a notice u/s 148 for the reason that club fees, gifts and presents and provision for leave encashment had escaped assessment. Pursuant to the assessee™s explanation, the AO accepted that these items had not escaped assessment. However, he passed an order u/s 147 on the ground that deduction u/s 80HH and 80-I had been wrongly claimed on export incentives like duty drawback, profit on sale of REP licences and cash assistance, etc even though these issues did not figure in the recorded reasons. This was upheld by the CIT(A) and the Tribunal. On appeal by the assessee to the High Court, HELD allowing the appeal:

Though Explanation 3 to s. 147 inserted by the FA 2009 w.e.f 1.4.1989 permits the AO to assess or reassess income which has escaped assessment even if the recorded reasons have not been recorded with regard to such items, it is essential that the items in respect of which the reasons had been recorded are assessedIf the AO accepts that the items for which reasons are recorded have not escaped assessment, it means he had no reasons to believe that income has escaped assessment and the issue of the notice becomes invalid. If so, he has no jurisdiction to assess any other income.

 

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