The Income Tax Appellate Tribunal (Jaipur Bench) has held that the conjunctive word "and" in Section 147 of the Income Tax Act, 1961 must be given its literal meaning, thereby restricting the Assessing Officer’s jurisdiction to tax only the income initially identified as escaped assessment. This interpretation curtails the power to levy tax on additional income discovered later, unless the original "reason to believe" is sustained.
Background & Facts
The Dispute
The appellant, Jitendra Saini, challenged an assessment order passed under Section 147 of the Income Tax Act for the assessment year 2020-21. The order was issued by the Assessing Officer (AO) of Ward 7(2), Jaipur, following a reopening of assessment initiated by the National Faceless Appeal Centre (NFAC), Delhi, dated 01.12.2025. The assessment added a disallowance of Rs.17,70,685 on business expenses and sought to tax the same amount at the special rate under Section 115BBE.
Key Facts
- 01.12.2025: NFAC, Delhi issued the order sustaining the reopening of assessment under Section 250 of the Income Tax Act.
- Assessment Year: 2020-21.
- Cash Deposit Issue: The AO recorded information from the Insight Portal indicating a cash deposit of Rs.82,74,989 in the assessee’s bank account during the impugned year.
- Notice Issued: AO served a notice to the assessee to verify the source of the cash deposit.
- Disallowance: AO added Rs.17,70,685 to income on account of disallowed business expenses; no addition was made for the cash deposit.
- Appeal Filed: ITA No.226/JPR/2026 was filed by the appellant.
- Hearing Date: 22.07.2026.
- Pronouncement Date: 30.07.2026.
Procedural History
- 01.12.2025: NFAC, Delhi order sustaining reopening of assessment (Section 250).
- ITA No.226/JPR/2026: Appeal filed by the assessee before the Income Tax Appellate Tribunal, Jaipur Bench.
- 22.07.2026: Oral arguments heard before the Tribunal.
- 30.07.2026: Tribunal delivered its order.
Parties' Positions
- Appellant (Assessee): Contended that the reopening was illegal as it violated mandatory provisions of faceless assessment under Sections 144B/151A, that the disallowance of Rs.17,70,685 was not justified, and that the AO lacked jurisdiction to tax the amount under Section 115BBE.
- Respondent (ITO): Asserted that the AO had valid "reason to believe" that income had escaped assessment and therefore possessed jurisdiction to assess both the identified income and any other income that later came to his notice under Section 147.
Relief Sought
The appellant sought quashing of the assessment order passed under Section 147 and reversal of the disallowance of Rs.17,70,685, along with any consequential relief.
The Legal Issue
The central question was whether the conjunctive word "and" in Section 147 of the Income Tax Act must be interpreted as a true conjunction limiting the Assessing Officer’s power to tax only the income initially identified as escaped assessment, or whether it can be read as "or" thereby permitting taxation of any other income that later comes to the officer’s notice.
Arguments Presented
For the Appellant
- The appellant argued that the reopening of assessment violated Sections 144B and 151A, which prescribe a faceless assessment procedure, rendering the reopening unlawful.
- It was submitted that the disallowance of Rs.17,70,685 was not part of the reasons recorded for the reassessment, making the addition illegal.
- The appellant relied on decisions of CIT vs Jet Airways Ltd, CIT vs Ranbaxy Laboratories, and CIT Vs. Shri Ram Singh to support the view that the AO’s jurisdiction ceases once the original "reason to believe" is disproved.
For the Respondent
- The respondent maintained that the AO had a valid "reason to believe" that income had escaped assessment and therefore could, under Section 147, assess that income and also any other income that subsequently came to his notice.
- It was contended that the word "and" does not restrict the AO’s jurisdiction and that the statutory scheme under Sections 148 to 153 permits such extended assessment.
The Court's Analysis
The Tribunal began by emphasizing the principle of statutory interpretation that every word in a provision must be given its due meaning and that Parliament is not extravagant in its use of language. It examined the language of Section 147, particularly the phrase "such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently".
"The word 'also' is of great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under Section 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 tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under Section 147."
The Tribunal held that the conjunction "and" cannot be read as "or" because doing so would render the word "also" redundant, contrary to the purposive rule of interpretation. Consequently, the AO’s jurisdiction is confined to the income for which he initially entertained a "reason to believe". If that income is later explained and found not to have escaped assessment, the AO must cease to have jurisdiction to tax any other income that may subsequently surface.
The Tribunal further noted that the AO had not made any addition on account of the cash deposit of Rs.82,74,989, and that the disallowance of Rs.17,70,685 was not part of the reasons recorded for the reassessment. Accordingly, the assessment order under Section 147 was held to be without valid jurisdiction and was quashed.
The Verdict
The appeal is allowed. The Tribunal quashes the assessment order passed under Section 147 of the Income Tax Act, thereby nullifying the disallowance of Rs.17,70,685. No further relief is granted on the remaining grounds, which are left open for future consideration.
What This Means For Similar Cases
Interpretation of Conjunctive Language
- Courts will give literal meaning to the word "and" in tax statutes, preventing a broader reading that could expand the Assessing Officer’s jurisdiction.
- Practitioners must scrutinize the exact wording of provisions before arguing for extended assessment powers.
Limits on AO Jurisdiction
- Once the AO’s "reason to believe" is disproved, his authority to tax any other income that later emerges is extinguished.
- Taxpayers can challenge assessments that rely on post-initial findings if the original basis for reopening is invalidated.
Procedural Compliance in Faceless Assessments
- Reopenings must strictly adhere to Sections 144B and 151A; any deviation can render the assessment void.
- Evidence of cash deposits or other indicators must be incorporated into the original reason to believe; otherwise, they cannot form the basis for additional tax.
Practical Takeaways
- Verify that the AO’s "reason to believe" is documented and substantiated before the assessment proceeds.
- Challenge any assessment that adds tax on grounds not recorded in the original reassessment notice.
- Cite CIT vs Jet Airways Ltd, CIT vs Ranbaxy Laboratories, and CIT Vs. Shri Ram Singh for precedent on jurisdictional limits.
