Section 147 / 154 – AO cannot take recourse to explanation 3 to section 147 while invoking section 154 after the conclusion of proceedings u/s 147

6.  JDC Traders Pvt. Ltd. vs. Dy. Commissioner of
Income-tax Members: G.S.
Pannu (V.P.) and K. Narasimha Chary (J.M.) ITA No.:
5886/Del/2015 A.Y.: 2007-08 Date of order:
11^th October, 2019 Counsel for
Assessee / Revenue: Sanat Kapoor / Sanjog Kapoor

Section 147 / 154 – AO cannot take recourse
to explanation 3 to section 147 while invoking section 154 after the conclusion
of proceedings u/s 147

FACTS

For the assessment year 2007-08, the
assessee filed his return of income declaring a total income of Rs. 65.33 lakhs
and the same was processed u/s 143(1). Subsequently, the AO reopened the
proceedings u/s 148 claiming escapement of income on account of purchase of
foreign exchange to the tune of Rs. 4.78 lakhs and made an addition thereof.
Later, on a perusal of the assessment records, he found that the assessee had
shown closing stock in the profit and loss account at Rs. 2.97 crores, whereas
in the schedule the same was shown as Rs. 3.32 crores, leaving a difference of
Rs. 34.54 lakhs. He, therefore, issued a notice u/s 154/155.

The assessee explained the reason for the
discrepancy and also submitted that the scope of section 154 does not permit
anything more than the rectification of the mistake that is apparent from the
record and that, insofar as the proceedings u/s 147 are concerned, there was no
mistake in the assessment order.

However, the AO as well as the CIT(A) did
not agree with the assessee’s contention. According to the CIT(A), explanation
3 to section 147 empowers the AO to assess or re-assess the income which had
escaped assessment and which comes to the notice of the AO subsequently in the
course of proceedings u/s 147.

The issue before
the Tribunal was whether the AO could take recourse to explanation 3 to section
147 to make the above addition after the conclusion of proceedings u/s 147.

HELD

According to the
Tribunal, had the AO re-assessed the issue relating to the closing stock in the
proceedings u/s 147, the assessee could not have objected to the AO’s action.
However, in the entire proceedings u/s 147 there was not even a whisper about
the closing stock. In such an event, the Tribunal found it difficult to accept
the argument of the Revenue that even after conclusion of the proceedings u/s
147, the AO can take recourse to explanation 3 to section 147 to make the
addition.

According to the Tribunal, if the argument
of the Revenue that u/s 154 the AO is empowered to deal with the escapement of
income in respect of which the reasons were not recorded even after the
assessment reopened u/s 147 is completed, then it would empower the AO to go on
making one addition after another by taking shelter of explanation 3 to section
147 endlessly. Such a course is not permissible. The power that is available to
the AO under explanation 3 to section 147 is not available to him u/s 154 after
the conclusion of the proceedings u/s 147.