THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), AHMEDABAD v. NK PROTEINS PVT. LTD

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 449 of 2025 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), AHMEDABAD Versus NK PROTEINS PVT. LTD.

========================================================== Appearance:

MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 MR DHINAL A SHAH(12077) for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR. JUSTICE PRANAV TRIVEDI

Date : 04/08/2026

ORAL ORDER

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned Senior Standing Counsel Mr.

Varun Patel for the appellant and learned advocate Mr. Dhinal Shah for the respondent.

2. This Appeal is filed under section 260A of the Income Tax Act, 1961 [for short ‘the Act’] arising out of order dated 12.11.2024 passed by the Income Tax Appellate Tribunal in ITA No. 339/Ahd/2022 Page 1 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 for A.Y. 2009-10 proposing following substantial questions of law:

(a) Whether in the facts and

circumstances of the case and in

law, the learned ITAT has erred

in coming to the conclusion that

the Assessing Officer cannot

make additions on issues which

did not form part of the reasons

recorded by him, when no

addition is made by him on the

issues which are included the

reasons recorded?

(b) Whether in the facts and

circumstances of the case and in

law, the learned ITAT has erred

in holding that the Explanation

3 to Section 147 which has been

inserted by Finance (No.2) Act,

2009 retrospectively with effect

from 01.04.1989 i.e. "For the

purpose of assessment or

reassessment under this section,

the Assessing Officer may assess

Page 2 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2)

of section 148" cannot expand

the scope and sweep of the main

body of Statutory provision?

(c) Whether in the facts and

circumstances of the case and in

law, the learned ITAT has erred

in upholding the decision of the

CIT(A) in deleting the

disallowance of Rs.

13,89,08,810/ made u/s. 43(5)

r.w.s 73 and 40A(2)(b) of the

Income tax Act, 1961?

Page 3 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 3. Brief facts of the case are that the assessee-company is engaged in manufacturing of edible, non-edible oil products and byproducts thereof.

3.1 The assessee filed return of

income and assessment order under section 143(3) of the Act was passed on 29.12.2011 assessing total income at Rs. 22,55,48,605/-.

3.2 Thereafter, a notice under section

148 was issued on 09.03.2015 for the following two reasons:

[a] disallowance u/s. 14A r.w.r. 8D was

wrongly worked out at Rs.1,13,521/-

instead of Rs.2,18,174/- and

[b] the amount received from National

Stock Exchange Ltd [NSEL] amounting

Page 4 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 to Rs.244.98 crores is in the nature of income brought in the account of debtors in the guise of so-called paper trade and which needs to be taxed in the hands of the assessee company.

3.3 The Assessing Officer completed

reassessment by making disallowance under section 43(5) read with section 73 and section 40A(2)(b) of Rs. 13,89,08,810/- and excess disallowance of Rs. 1,04,652/- under section 14A of the Act.

3.4 The Assessee preferred an appeal

before the CIT(Appeals) and raised

additional ground of reopening of the assessment as the Assessing Officer did not make any addition for the reasons recorded for reopening.

Page 5 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 3.5 The CIT(Appeals), after considering the additional ground first challenging the reopening of the assessment held that the reassessment proceedings is bad in law by observing as under:

“4.8 So far as merits of additional

claim are concerned, it is observed

that AO had issued reassessment

notice on two grounds. The main

ground for reassessment notice was

with reference to transactions with

NSEL for Rs.244.98 crores. The

Appellant has claimed that no

transaction with NSEL was carried

out in current year, which is also

accepted by the Special Auditor in

his report under Section 142A of the

Act. The figure of Rs.244.98 crores

was nothing but addition made in

Appellant's own case for A.Y.2011-12

Page 6 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 in Assessment Order passed on 21/11/2014. This contention of Appellant was accepted by AO while passing the Assessment Order and no addition was made. So far as second issue being disallowance under Section 14A for Rs.2,18,174/- is concerned, it is observed that addition under Section 14A for Rs.1,13,521/- was also made in original Assessment Order dated 29/12/2011. While computing disallowance under Section 14A read with Rule BD, AO had considered gross average asset as denominator whereas in the reasons recorded for present case, AO was of the view that net average asset needs to be taken. It is pertinent to note that entire issue of disallowance under Section 14A as was raised in original Assessment Order was deleted by Hon'ble Ahmedabad ITAT in Appellate Order dated 27/07/2016.

The relevant operative part of the

Page 7 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 said decision is reproduced hereunder.- "29. We have heard the rival contentions and perused the material on record. Assessee is aggrieved with the disallowance u/s 14A of the Act of Rs.

1,13,521/-confirmed by Id.

CIT(A). We further observe that

Id. AR specifically mentioned

that there is no exempt income

earned by the assessee during

the year. We also observe that

in the judgment of Hon.

Jurisdictional High Court in

the case of CIT vs. Cortech

Energy P. Ltd. (supra) has

confirmed the order of the

Tribunal deleting disallowance

u/s 14A of the Act as the

assessee has not claimed any

exempt income. Similar is the

situation in the case of

assessee and we respectfully

following the judgment of Hon.

Jurisdictional High Court are

of the view that no

disallowance is called for u/s

14A as assessee has not claimed

any exempt income in the year

under appeal. We hold that Id.

CIT(A) was not correct in

upholding the disallowance and

allow the ground of assessee."

Page 8 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 Considering the above referred decision in Appellant's own case for current year only, ground of reassessment for alleged escapement for disallowance under Section 14A does not survive or addition made in reassessment order consequently does survive. Thus, the effective addition in Appellant's case based upon reassessment order is disallowance under Section 43(5)

read with Section 73 for

Rs.13,18,08,810/- which is not based

upon reasons recorded. Thus,

additions effectively made in

Assessment Order are not based upon

reasons recorded and the legal pleas

taken by Appellant are discussed

elaborately by various courts and

the courts have taken a view that

when on the ground on which

reassessment was based, addition is

not made by AO in reassessment

order, he cannot make additions on

other grounds which do not form part

of reasons recorded by him.

4.9 In view of above discussions and

factual matrix of the case and

respectfully following the decisions

of Hon'ble Jurisdictional High Court

of Gujarat in the case of CIT vs.

Mohmed Junded Dadani [2013] 30

taxmann.com 1(Gujarat)/[2013] 214

taxman 38 (Gujarat)/355 ITR 172

Page 9 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 (Guj), Hon'ble Jurisdictional Tribunal in Appellant's own case and other decisions as mentioned above and also as relied upon by the Appellant on similar issue to the Appellant's case, I find that claim of Appellant is correct.

4.10 In addition to above and on

perusal of reasons recorded by AO,

which is reproduced herein above, it

is apparent that major issue for

alleged escapement of income relates

to payment from NSEL for Rs.244.98

crores. In the present year, the

Appellant has not carried out any

transactions with NSEL and even

figure of alleged escapement of

income pertains to addition made by

AO for A.Y.2011-12. This issue is

elaborately discussed in preceding

paras which makes it clear that

reasons recorded by AO are based

upon factually incorrect details or

same are non-existing.”

Page 10 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 3.6 The CIT(Appeals) relied upon the following decisions:

1. Amar Jewellers Ltd vs. Deputy

Commissioner of Income Tax reported

in [2018] 92 taxmann.com 4;

2. Narendrakumar Mansukhbhai Patel vs.

Income Tax Officer Ward 1(2)(3)

reported in [2018] 92 taxmann.com

259;

3. Mahadev Trading Co. vs. Income Tax

Officer,Ward-5(4) reported in 18

taxmann.com 353;

4. Sunbarg Tradelink (p.) Ltd vs.

Income Tax Officer reported in

[2016] 74 taxmann.com 16;

5. Ambience Business Services Pvt. Ltd

vs. DCIT in Writ Petition NO. 2608

of 2019 dated 28.11.2019;

6. Shamshad Khan vs. Assistant

Commissioner of Income Tax dated

11.04.2017 82 taxmann.com 35;

7. M/s. Gujarat Eco Textile Park Ltd

vs. ACIT in SCA No. 4017 of 2016

dated 05.07.2016;

8. Mitul Gems vs. ACIT reported in

[2015] 62 taxmann.com 66 (Guj.);

Page 11 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 9. Oriental Insurance Co. vs. CIT reported in [2015] 63 taxmann.com 171 [Delhi];

10. Asharam Ashram vs Income Tax

Officer (Exemption) Ward No.1 in

SCA No. 4774 of 2016 dated

20.07.2016.

Considering the above decisions, the

reassessment notice on the ground of alleged escapement of income for the transactions made with NSEL was held to be not justified by CIT(Appeals).

3.7 With regard to the second issue of

alleged escapement relating to

computation of disallowance under Section 14A of the Act is concerned, the CIT (Appeals) held as under:

“4.11 So far as second issue of

alleged escapement relating to

computation of disallowance under

Section 14A is concerned, it is

observed that original assessment

under Section 143(3) of the Act was

Page 12 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 already passed on 29/12/2011 wherein after detailed discussion AO has made disallowance under Section 14A at Rs.1,13,521/-. The discussion was made at para 8 of the order. The reassessment notice is issued only for re-computation of disallowance under Section 14A made in Assessment Order. It is an undisputed fact that the reassessment notice was issued on 9th March, 2015 which means that such notice is issued beyond four years from end of relevant Assessment Year. On perusal of reasons recorded, it is seen that AO has not mentioned whether there was failure on part of assessee to disclose truly and fully all material facts necessary for making assessment as required by Provisions of Section 147. No new material/tangible material has been brought on record by AO which justify such reassessment notice and on the contrary, re-computation is made based upon facts already on the record of AO. Thus, issuance of notice for alleged escapement of income by making re-computation of disallowance u/s 14A on same issue is certainly change of opinion on part of subsequent AO. Further, it is important to note that before passing of the Assessment Order, Hon'ble Ahmedabad ITAT had already deleted disallowance under Section Page 13 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 14A made in original Assessment Order.”

3.8 The CIT(Appeals) relied upon the

decision of this Court in the case of

Sandesh Procon LLP in ITAT vs Assistant Commissioner of Income Tax, Circle 3(3), Ahmedabad in Special Civil Application No. 19990 of 2019, dated 5th February 2021, on similar facts. In addition to above, reliance was placed on the following decisions:

(i) Adani Enterprises Ltd. vs.Assistant

Commissioner of Income Tax (ACIT) / Deputy Commissioner of Income Tax (DCIT) reported in 101 taxmann.com 91;

(ii) DCIT vs. Bajaj Allianz Life Insurance Company Ltd. Reported in [2021] 125 taxmann.com 71;

(iii) M/s. Tech Span India Private Ltd

reported in [2018] 92 taxmann.com 361;

(iv)E-Inforchips Ltd vs. Assistant

Commissioner of Income Tax, Circle 2(1)(1)

reported in [2018] 99 taxmann.com 84;

Page 14 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 (v) Sun pharmaceutical Industries Ltd vs.

DCIT reported in [2020] 272 taxmann.com

407.

Considering the above decisions,

CIT(Appeals) held that reassessment notice relating to alleged escapement of income relating to disallowance under Section 14A is mere change of opinion on part of the subsequent Assessing Officer and reassessment notice issued by AO is nothing but an invalid notice. Therefore, CIT(Appeals) allowed additional ground of appeal filed by Appellant and quashed reassessment order.

3.9 Being aggrieved by the order of

the CIT (Appeals), the Revenue preferred

an appeal before the Tribunal, and the

assessee preferred cross-objections

challenging the directions of the

Page 15 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 Assessing Officer to conduct a special audit under Section 142(2A) of the Act, as well as on merits.

3.10 The Tribunal, after

considering the submissions made by both

sides as well as the order passed by the

CIT (Appeals), dismissed the appeal of

the Revenue, upholding the order passed

by the CIT (Appeals) quashing the

reassessment order being without

jurisdiction. Consequently, the addition

made under Section 43(5) read with

Sections 73 and 40A(2)(b) of the Act of

Rs. 13,89,08,810/- was also quashed and

set aside. As a consequence, the cross-

objections filed by the assessee

supporting the order of the CIT (Appeals)

were allowed.

Page 16 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 4. Learned Senior Standing Counsel Mr. Varun Patel submitted that the Tribunal has committed an error in upholding the order of the CIT (Appeals) without considering the fact that once an assessment is reopened, it would be open for the Assessing Officer to examine the other issues which arise during the course of reassessment proceedings.

4.1 It was further submitted that the

Assessing Officer was justified in making addition on disallowance under Section 43(5) read with Section 73, as well as under Section 14A of the Act.

4.2 It was submitted that the

disallowance under Section 14A of the Act was wrongly worked out, whereas, the amount received from NSEL was in the Page 17 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 nature of income brought into the account of the debtors in the guise of so-called paper trade, which was rightly taxed in the hands of the assessee-company.

5. On the other hand, learned Advocate Mr. Dhinal Shah submitted that the CIT(Appeals) and the Tribunal have rightly referred to and relied upon the decision of this Court in the case of CIT v. Mohmed Juned Dadani, reported in (2013) 30 taxmann.com (1).

5.1 It was further submitted that no

addition can be made on account of

Section 43(5) of the Act, as the assessee claimed that no transaction was carried out through the NSEL for the year under consideration, which was also accepted by Page 18 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 the special auditor in the report under Section 142A of the Act, whereas, the figure of Rs. 244.98 crores was nothing but an addition made in the assessee's own case for Assessment Year 2011–12 in the regular assessment order passed on 21.11.2014, and the Tribunal deleted such addition by an order dated 16.11.2022.

5.2 It was, therefore, submitted that

the income escaped, as mentioned in the

reasons recorded by the Assessing

Officer, does not relate to the

Assessment Year 2009–10. Hence, both the

CIT (Appeals) and the Tribunal have

rightly held that the reassessment

proceedings are liable to be quashed.

Page 19 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 5.3 Learned advocate Mr. Dhinal Shah, in support of his submissions, relied upon the following decisions:

1. Commissioner of Income Tax-II vs.

Mohmed Juned Dadani reported in [2014] 355 ITR 172 (Guj.);

2. Commissioner of Income Tax-5, Mumbai

vs. Jet Airways (I) Ltd reported in [2011] 331 ITR 236 (Bom);

3. Principal Commissioner of Income-tax

vs. Sunlight Tour and Travels (P.) Ltd

reported in [2024] 169 taxmann.com 673

(Delhi);

4. Sipura Developers (P.) Ltd vs.

Principal Commissioner of Income Tax

reported in [2024] 168 taxmann.com 543

(Delhi);

5. Yashoda Shivappa Naganhoudar vs.

Income Tax Officer reported in [2022] 138 taxmann.com 296 (Bombay);

6. Principal Commissioenr of Income Tax

vs. Lark Chemicals (P.) Ltd reported in

[2018] 99 taxmann.com 312;

7. Principal Commissioner of Income Tax

(Centra)-3, New Delhi vs. Jakhotia

Plastics (P.) Ltd reported in [2018] 94 taxamann.com 89 (Delhi);

Page 20 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 8. Jakhotia Plastics (P.) Ltd vs.

Principal Commissioner of Income Tax

reported in [2018] 94 taxmann.com 96 (SC).

6. Having heard the learned Advocates for the parties and on perusal of the reasons recorded, and on perusal of the assessment order passed under Section 147 read with Section 143(3) of the Act, it emerges that no addition is made by the Assessing Officer for the reasons recorded for reopening of the assessment and therefore, there was no failure on the part of the assessee for true and full disclosure of the income which can be said to have escaped the assessment.

7. The regular assessment order under Section 143(3) of the Act was passed on Page 21 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 29.12.2011, assessing the total income at Rs. 22,55,48,602/-. Thereafter, the reassessment notice was issued under Section 148 of the Act on 09.03.2015, that is, beyond four years, but within six years, recording the aforesaid two reasons, namely:

(a) Disallowance under Section 14A

read with Rule 8D was wrongly

worked out at Rs. 1,13,521/-

instead of Rs.2,18,174/- and;

(b) The amount received from NSEL

amounting to Rs.244.98 crores is in

the nature of income brought into

the account of the debtors in the

guise of so-called paper trade,

which needs to be taxed in the

hands of the assessee company.

8. The Assessing Officer, while framing the reassessment order, did not make addition Page 22 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 in respect of any of the two reasons recorded for reopening. Therefore, it cannot be said that there was any failure on the part of the assessee in disclosing such income in the return of income so as to confer jurisdiction upon the Assessing Officer to reopen the assessment beyond four years, in view of the decision of this Court in the case of Mohmed Juned Dadani (supra), wherein it is held as under:

"... 30. We may also approach the

question from a slightly different

angle. It is not in dispute that

once an assessment is reopened by a

valid exercise of jurisdiction

under Section 147 of the Act, it is

open for the Assessing Officer to

assess or reassess any income which

had escaped assessment which comes

to his light during the course of

his assessment proceedings which

was not mentioned in the reason for

issuing notice under Section 148 of

the Act. In a notice for

reassessment which has been issued

beyond a period of four years from

Page 23 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 the end of relevant assessment year, the condition that income chargeable to tax has escaped assessment for the reason of the failure on the part of the assessee to disclose truly and fully all material facts for the purpose of assessment must also be established unless of course some other ground viz. non-filing of the return at all etc. is available to the Assessing Officer. If such non- disclosure of material facts is established with respect to the reason recorded for issuing notice for reopening the assessment, it would be open for the Assessing Officer to thereafter even assess other income which might have escaped assessment but which may not necessarily satisfy the requirement of non-disclosure of true and full material facts. If in such a situation, the stand of the revenue is accepted, a very incongruent situation would come about if ultimately the Assessing Officer 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 for 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 Page 24 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 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 failure on part of the assessee to disclose truly and fully all material facts would be totally circumvented.

31. As already noted, except for

the Punjab and Haryana High Court

in case of Majinder Singh Kang

(supra) all courts have uniformly

taken a view that Explanation 3 to

Section 147 of the Act does not

change the situation insofar as the

present controversy is concerned.

Leading decision of Bombay High

Court in case of Jet Airways (I)

Ltd. (supra) has been followed by

different High Courts. In case of

Jet Airways (I) Ltd. (supra) the

High Court, in its elaborate

decision considering the statutory

provisions, different judicial

pronouncements and the explanatory

memorandum for introduction of

Explanation 3 to Section 147 of the

Act ruled in favour of the

assessee."

9. After considering the scheme of the reassessment under Sections 147 and 148 of the Act, the Tribunal has rightly upheld Page 25 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 the order of the CIT (Appeals) by observing as under:

“7.1. On first reason for reopening

being disallowance u/s.14A for

Rs.2,18,174/- is concerned, it is

observed that addition u/s.14A for

Rs.1,13,521/- was made in original

Assessment Order dated 29-12-2011.

On appeal before this Tribunal vide

Appellate Order dated 27-07-2016 in

ITA No.1986 & 2133/Ahd/2012, Co-

ordinate Bench of this Tribunal

deleted the addition on account of

disallowance u/s.14A, since the

assessee has not received any

dividend income during this Asst.

year following jurisdictional High

Court judgement.

“8. On second reason for

reopening the assessment, the

assessee claimed that it had

no transaction carried out

with NSEL in the present asst

year, which is also accepted

by the Special Auditor in his

report u/s.142A of the Act.

Whereas the figure of

Rs.244.98 crores was nothing

but addition made in

Assessee's own case for the

Asst. Year 2011-12 in the

regular Assessment Order

passed on 21-11-2014. On

appeal before this Tribunal

Page 26 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 vide Appellate Order dated 16- 11-2022 in ITA Nos.328 & 329/Ahd/2017 deleted the above addition also. Therefore the income escaped as mentioned in the 'reason recorded' by the Ld AO is not relating to the present Asst. year 2009-10 the same is invalid in the eyes of law and the reassessment is liable to be quashed.

9. Now next question that arise

for our consideration is

whether the AO can proceed with

assessing any other escaped

income, when NO addition is

made on account of the reasons

recorded by the AO for

reassessment. This issue is

also no more res-integra by

judgements of various High

Courts more particularly

jurisdictional High Court in

the case of Mohmed Juned Dadani

[cited supra] wherein it was

held that when the ground on

which reopening of assessment

and no addition was made by the

Ld AO, he could not make

additions on some other grounds

which did not form part of

reasons recorded by him by

observing as follows:

"... 23. Section 147 of the

Act, even without the aid of

Explanation 3 thus enabled

Page 27 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 the Assessing Officer while framing an assessment under Section 147 of the Act, to assess or reassess such income for which he had recorded his reasons to believe had escaped assessment and also any other income which escaped assessment which came to his notice subsequently in the course of the assessment proceedings.

24. Sans explanation (3),

Section 147 of the Act,

however, by no stretch of

imagination, can be

construed as to provide that

if the reason on which the

assessment is reopened

fails, the Assessing Officer

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 under

Section 147 of the Act what

is essential is a valid

reopening of a previously

closed assessment. If the

very foundation of the

reopening is knocked out,

any further proceeding in

Page 28 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 respect to such assessment naturally would not survive.

25. A question may

therefore, arise whether

introduction of Explanation

(3) would change this

position and for that

purpose we need to ascertain

what is true purport of

Explanation 3 and the

purpose for which the same

was introduced. Let us have

a closer look to such

Explanation which provides

that for the purpose of

assessment or reassessment

under the said section, the

Assessing Officer may assess

or reassess the income in

respect of any issue which

escaped assessment and which

comes to his notice

subsequently in the course

of reassessment proceedings.

The explanation further

provides that this would be

so notwithstanding that the

reasons for such issue have

not been included in the

reasons recorded under

Section 148(2).

26. If the contention of the

assessee that even after

introduction of Explanation

3 to Section 147 of the Act,

the situation has not

Page 29 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 undergone any material change is accepted, the question that immediately would come to one's mind is, what then was the purpose of introducing such an explanation. An argument may arise that if before and after introduction of Explanation 3, the nature of jurisdiction exercised by the Assessing Officer was not to undergo any change, would Explanation 3 not be rendered redundant. Would such a situation not run counter to a well known legal principle that the Legislature cannot be seen to have enacted a redundant legislation and that every effort should be made to give such interpretation which ensures that a provision in a statute is not rendering otiose. Such question may have led to some interesting discussion.

However, the entire issue

has been put beyond any pale

of controversy by virtue of

the explanatory memorandum

for introducing such

explanation. Such

explanatory memorandum reads

as under:

Page 30 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 "Clarificatory amendment in respect of reassessment Proceeding under section 147 The existing provisions of section 147 provides, inter alia, that if the Assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for reopening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section.

Some courts have held

that the Assessing

Officer has to restrict

the reassessment

proceedings only to

issues in respect of

which the reasons have

been recorded for

reopening the

assessment. He is not

Page 31 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.

With a view to further

clarifying the

legislative intent, it

is proposed to insert an

Explanation in section

147 to provide that the

Assessing Officer may

assess or reassess

income in respect of any

issue which comes to his

notice subsequently in

the course of

proceedings under this

section, notwithstanding

that the reason for such

issue has not been

included in the reasons

recorded under sub-

section (2) of section

148.

This amendment will take

effect retrospectively

from 1st April, 1989 and

will, accordingly, apply

in relation to

assessment year 1989-

1990 and subsequent

years."

Page 32 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 27. From the above, it can be seen that the explanation was meant to be clarificatory in nature and to put the issue beyond any legal controversy. When the Legislature found that in face of the provisions contained in Section 147 of the Act post 01.04.1989 some of the courts had taken a view that the Assessing Officer is restricted to the reassessment proceedings only on issues in respect of which the reasons were recorded for reopening the assessment, such explanation was introduced in the statute. Thus, the explanation was meant to be merely clarificatory in nature and was introduced with the purpose of putting at rest the legal controversy regarding the true interpretation of Section 147 of the Act which had arisen on account of certain judicial pronouncements. We have noticed that prior to enactment of Explanation 3 to Section 147, Punjab and Haryana High Court in case of Commissioner of Income Tax v. Atlas Cycle Page 33 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 Industries reported in 180 ITR 319 (supra) had taken a restricted view of the power of the Assessing Officer to make any addition on the grounds not mentioned in the reasons recorded for reopening the assessment. We may also notice that Kerela High Court in case of Travencore Cements Ltd. v.

Asstt. CIT [2008] 305 ITR

170/[2009] 179 Taxman 117

had taken somewhat similar

stand.

28. Explanation 3 to Section

147 of the Act thus does not

in any manner, even purport

to expand the powers of the

Assessing Officer under

Section 147 of the Act. In

any case, an explanation

cannot expand the scope and

sweep of the main body of

the statutory provision. In

case of S.Sundaram Pillal v.

V.R. Pattabiraman AIR 1985

(SC) 582 the Supreme Court

observed that, an

explanation added to a

statutory provision is not a

substantive provision but as

the plain meaning of the

word itself shows it is

merely meant to explain or

clarify certain ambiguities

Page 34 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 which may have crept in the statutory provision. It was observed as under:

"52. Thus, from a

conspectus of the

authorities referred to

above, it is manifest

that the object of an

Explanation to a

statutory provision is-

(a) to explain the

meaning and intendment

of the Act itself.

(b) where there is any

obscurity or vagueness

in the main enactment,

to clarify the same so

as to make it consistent

with the dominant object

which it seems to

subserve.

(c) to provide an

additional support to

the dominant object of

the Act in order to make

it meaningful and

purposeful.

(d) an Explanation

cannot in any way

interfere with or change

the enactment or any

part thereof but where

some gap is left which

Page 35 of 39

C/TAXAP/449/2025 ORDER DATED: 04/08/2026 is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment.

(e) It cannot, however,

take away a statutory

right with which any

person under a statute

has been clothed or set

at naught the working of

an Act by becoming an

hindrance in the

interpretation of the

same."

29. Above decision has been

referred to and relied upon

in several subsequent

decisions. Above proposition

being well settled, it is

not necessary to refer to

all such decisions."

10. It is pertinent to note that Explanation 3 to Section 147 was inserted by Finance (No. 2) Act, 2009, which provides that Page 36 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 even though the notice issued under Section 148 containing the reasons for reopening of the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, yet the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, provided such issue comes to his notice subsequently in the course of proceedings.

However, the amendment by insertion of

Explanation 3 would not override the necessity of fulfilling the conditions set out in the substantive part of Section 147 of the Act that there was a failure on the part of the assessee to make a true and full disclosure of the income escaping assessment when there is no income that has escaped assessment as per the reasons Page 37 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 recorded, and when no addition is made on account of the reasons for which the reassessment was initiated. The ratio of the decision of this Court has been reiterated by the Hon'ble Bombay High Court and the Delhi High Court in the decisions relied upon on behalf of the assessee. The Hon'ble Supreme Court has also dismissed the SLP arising out of the judgment and order passed by the Delhi High Court in case of Jakhotia Plastics Private Limited (Supra).

11. In view of the above conspectus of law and the settled legal position when the Tribunal has followed the decision of the jurisdictional High Court, we do not find any legal infirmity in the impugned order of the Tribunal. We are of the opinion that no question of law, much less any Page 38 of 39 C/TAXAP/449/2025 ORDER DATED: 04/08/2026 substantial question of law, arises from the impugned order of the Tribunal. The appeal, accordingly stands dismissed.

(BHARGAV D. KARIA, J)

(PRANAV TRIVEDI,J)

JYOTI V. JANI

Page 39 of 39

Original copy of this order has been signed by the Hon'ble Judges.

Digitally signed by: JYOTIBEN VINODKUMAR JANI(HC00213), PRINCIPAL PRIVATE SECRETARY, at High Court of Gujarat on 07/08/2026 16:19:44