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TMI Blog2006 (6) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that there was information that the assessee had made some payments for the purchase of a farmhouse which were not declared in the accounts. Notice was issued under section 148 on December 28, 1995, but the proceedings were subsequently dropped on October 24, 1997. 3. Thereafter the assessment was reopened by issue of another notice under section 148 on February 5, 1998, on the ground that the assessee had purchased a gift of Rs. 21 lakhs on July 22, 1992, from one J. S. Kochhar and Smt. Rubinder Kochhar which was arranged through one S. L. Batra, chartered accountant, from an NRE account in Grindlays Bank, Connaught Place, and another such account with the Bank of America, New Delhi, against payments made by the assessee in cash along with a premium. This information was received by the Assessing Officer from the Additional Director of Income-tax (Investigation), Unit CIB (Central Information Bureau) by letter dated December 16, 1997. The DCIT, Range-11, by letter dated December 24, 1997, referred to the above letter from the CIB and directed the Assessing Officer to examine the issue and discuss it with him for further investigation. The Assessing Officer however proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cions of the investigation wing (the CIB) in this regard " cannot be regarded as the ' reason to believe' of the Assessing Officer that income has escaped assessment" and that it can only be regarded as " reason to suspect" . In this view of the matter he annulled the reassessment holding it to be null and void. He did not decide on the merits. 5. The Department is in appeal to contend that the Commissioner of Income-tax (Appeals) was wrong in holding that the Assessing Officer only had reason to suspect and not reason to believe that income chargeable to tax had escaped assessment. It is pointed out that there was reliable information received by the Assessing Officer from the CIB of the Department which contained a definite finding that the assessee had purchased the gift from Kochhar by making cash payment with a premium and this definite information certainly constituted material for the formation of the belief that income chargeable to tax had escaped assessment. It is vehemently contended that it is not a case of reason to suspect but was a case of reason to believe. It is submitted that at the stage of the formation of the belief on the basis of the material coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere allegation made by the CIB that the assessee purchased the gift from Kochhar is not relevant for the formation of the belief and before issuing the notice under section 148, the Assessing Officer failed to carry out the necessary enquiry which alone could have given him the material for the formation of the requisite belief. Since no such investigation was carried out, the notice under section 148 was based merely on the allegation of the CIB and was based only on reason to suspect. 7. The learned senior Departmental Representative, Mr. Shantanu Dhamija, at this juncture raised a primary objection to the effect that the assessee cannot go beyond the order of the Commissioner of Income-tax (Appeals) and raise the points such as non-recording or non-disclosure of the reasons for reopening the assessment, non-service of the notice under section 148 and the question of approval of the Joint Commissioner of Income-tax under section 151(1). He pointed out that these are totally new points which are beyond the scope of the appeal which is limited to the question whether the Commissioner of Income-tax (Appeals) was right in saying that the notice under section 148 based on the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these points before the Tribunal and that the preliminary objections of the learned senior Departmental Representative have no merit. 10. Before we proceed further, it is necessary to clear this point, namely, whether the assessee can raise these points before the Tribunal for the first time as a respondent defending the order of the Commissioner of Income-tax (Appeals) which was based on the only question whether the reasons recorded by the Assessing Officer amounted to reason to believe or reason to suspect. The matter is not res integra. Rule 27 of the Appellate Tribunal Rules, says that the respondent in an appeal can support the order appealed against on any of the grounds decided against him even though he may not have filed an independent appeal or cross-objection. This rule clearly supports the assessee. In the present case, the assessee has raised the point of non-recording of reason in ground No. 2 before the Commissioner of Income-tax (Appeals) though this ground is not so categorical as learned counsel for the assessee wants us to read. Even so, such ground can be inferred from the fact that the assessee has been repeatedly asking for the reasons recorded which were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control the power of the Tribunal under section 33(4) of the Act." 12. It is significant to note that in the case before the Supreme Court, the Department which was the respondent sought to raise a new plea in defence of the order appealed against. Earlier, in New India Life Assurance Co. Ltd. v. CIT [1957] 31 ITR 844, the Bombay High Court while pointing out the difference between an appellant and a respondent before the appellate court, observed at page 855 that the respondent " may support the decision of the trial court, not only on the grounds contained in the judgment of the trial court, but on any other ground". Later, in the case of B. R. Bamasi v. CIT [1972] 83 ITR 223, the Bombay High Court which was dealing with the case of right of the respondent to defend the order appealed against held that the respondent would be entitled to raise a new ground in defence of the order appealed against, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not only be a defence to the appeal itself, but may also affect the validity of the entire assessment proceedings. It was further held that the ground served as a weapon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax (Appeals), the Assessing Officer was called upon to comment on the assessee' s claim that the reasons recorded had no rational connection with the formation of the requisite belief. While meeting this objection, the Assessing Officer filed a letter dated August 17, 2000, by which he sought to defend his connection and in this letter which is extracted by the Commissioner of Income-tax (Appeals) in pages 10 and 11 of his order, the Assessing Officer gave the following reasons for reopening the assessment : " Refer to No. Addl. DIT(Inv.)/97-98/NRE/Gift/JSK/1601. During the financial year 1992-93, the assessee has received a gift of Rs. 21,00,000/- from an NRE Sh. Jagjit Singh Kochhar. The Investigation Wing has noticed that the gift is bogus arranged by the CA ; Sh.S. L. Batra, through NRE A/c No. 01 SEP 1457600 of ANZ Grindlays Bank, Conn. Place, New Delhi." 14. We have no reasons to disbelieve the Assessing Officer that the above were the reasons which were recorded under section 148(2) before issue of the reopening notice. The fact that the above paragraph has been given by the Assessing Officer within inverted commas permits the inference that it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the assessee was fully aware of the reasons for reopening the assessment. To repeatedly insist that the Assessing Officer should formally communicate the reasons recorded for reopening the assessment, even all the while being aware of such reasons, is nothing but a futile attempt to challenge the proceedings on technicalities which are not fatal to their validity. Learned counsel for the assessee referred to the judgment of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. A perusal of this judgment shows that the Supreme Court clarified that when a notice under section 148 is issued the proper course for the assessee is to file a return and then seek reasons for reopening the assessment, if he so desires. If such request is made the Assessing Officer is bound to furnish the reasons within a reasonable time. As against this judgment, the learned senior Departmental Representative drew our attention to an earlier judgment of the Supreme Court rendered by a Bench of three learned judges in the case of S. Narayanappa v. CIT [1967] 63 ITR 219 and submitted that this judgment is valid for the proposition that the reasons for reopening the assessment n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First Addl. ITO [1954] 25 ITR 447 the Madras High Court has expressed a similar view and we consider that that view is correct. We accordingly reject the argument of the appellant on this aspect of the case." 17. It thus appears to us that in the light of the above judgment, there is no requirement in the Act that the Assessing Officer has to communicate the reasons for reopening the assessment to the assessee. Even in the judgment of the Supreme Court in GKN Driveshafts [2003] 259 ITR 19, it was observed that since the reasons for reopening the assessment have been disclosed in the proceedings before the court, the Assessing Officer has to dispose of the assessee' s petition by passing a speaking order before proceeding with the assessment. Therefore, non-communication of the reasons, even according to the judgment of the Supreme Court in GKN Driveshafts [2003] 259 ITR 19, is not considered to be fatal to the validity of the reassessment proceedings. In the present case, as we have already found the assessee was aware of the reasons for reopening the assessment. Therefore, it is not necessary for us to enter into the controversy as to whether the non-communication of the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a condition precedent for the validity of the reassessment proceedings. However, in the peculiar facts and circumstances of the present case, we are unable to hold that the reassessment proceedings can be invalidated on that ground. Again, we may refer to the assessee' s letter to the Assessing Officer written on March 10, 1998, in which she stated as under : "This is with reference to your aforesaid notice that we would like to mention that the aforesaid notice was not received by the assessee and therefore, left uncomplied with on the designated date. It is also likely that if served, left unattended by the servant of the assessee, when she was out of India to Pakistan. The existence of such notice came to the assessee' s knowledge for the first time on March 10, 1998, when her statement was recorded. However, the subsequent summon under section 131 has been duly attended from time to time. The non-compliance was accidental as the assessee was not aware of the same or the same was not served on her. In any case, in compliance with the said notice we would like to mention that the assessee has already filed her return of income for the captioned assessment year 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the assessment was earlier reopened by the Assessing Officer by notice issued under section 148 and only after having been satisfied with the submissions and explanations given by the assessee in response to the said notice, the proceedings initiated under section 148 read with section 147 were dropped by him by order sheet entry dated October 24, 1997. According to him, the dropping of the proceedings would amount to an assessment under section 143(3) of the Act. Keeping in view the judgment of the Supreme Court in Esthuri Aswathiah v. ITO [1961] 41 ITR 539, we find merit in this contention. In our opinion, the proceedings initiated earlier under section 148 having been dropped by the Assessing Officer only after having been satisfied about the explanation offered by the assessee and after having applied his mind, it did culminate in the conclusion of proceedings under section 147 read with section 143(3) which clearly amounted to an assessment completed by the Assessing Officer under the said provisions. The matter, however, does not end here because the satisfaction of the Joint Commissioner of Income-tax, as envisaged in section 151(2), is required on the reasons recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 lakhs from an NRE Shri Jagjit Singh Kochhor and that the investigation wing has noticed that the gift is bogus and arranged by a chartered accountant by name S. L. Batra through NRE accounts (account numbers given) and that the assessee had made cash payments along with the premium to obtain the gifts. This is definite information coming to the possession of the Assessing Officer from another wing of the Income-tax Department which is entrusted with the task of collecting information relevant to the detection of tax evasion. The Assessing Officer cannot be said to have merely suspected that income had escaped assessment. He is bound to give prima facie credence to the information coming from his own Department, though from another wing. He cannot brush it aside or ignore it on the ground that it is a mere allegation. The letter constitutes material on the basis of which the Assessing Officer can hold the requisite " belief". It has a rational connection or live link with the formation of the belief that income chargeable to tax has escaped assessment in the hands of the assessee. It is not a mere pretence nor is it based on mere gossip or rumour. It is a belief bona fide held. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement is not the concern at that stage" . Therefore, there is no force in the submission of learned counsel for the assessee that the Assessing Officer had not held any enquiry into the veracity of the letter received from the CIB or had not conducted an investigation to check the allegation in the letter before issuing the notice. 23. We have to remember the fundamental proposition that when the Assessing Officer initiates action to reopen the assessment, he may do so on the basis of the material which may lead him to the formation of a prima facie or tentative conclusion that income chargeable to tax has escaped taxation. Such material may turn out in the course of the reassessment proceedings to be insufficient to sustain the assessment of the alleged escaped income ; it may not stand judicial scrutiny ; or the assessee may be able to lead evidence to show that no income chargeable to tax had escaped assessment. All this has to be carried out during the reassessment proceedings but they have no place at the stage when the Assessing Officer proposes to issue notice under section 148. At that stage, it is only the relevancy of the reasons that can be looked into and not the suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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