TMI Blog2006 (5) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... not file any details in support of the gifts. According to the learned JM the assessee was not required to do so. He held that the Assessing Officer, by reopening the assessment, wanted to make a roving enquiry into the gifts which was 'not permissible. In this view of the matter, he dismissed the appeal of the Department. Learned AM - According to the learned AM the assessee ought to have disclosed the capacity of the donor to make the gifts, the need for making the gift, the identity of the donor and the source of his income in the return. There was also nothing to show whether the essentials of a gift were satisfied. According to the learned AM, the very statement of the assessee that he received a gift of Rs. 28,90,000 which was included in his capital account could constitute the material for the formation of the belief that income chargeable to tax had escaped assessment. The learned AM further held that when a return is merely processed u/s 143(1)(a) the Assessing Officer does not form any opinion on the facts disclosed since he cannot conduct any enquiry and all he can do is to make the statutory adjustments to the income returned and nothing else and further the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dstick of a mere change of opinion it does not automatically follow that it fulfils all the requirements of the expression reason to believe . I am inclined to hold that the reasons recorded in the present case by the Assessing Officer for reopening the assessment are a mere pretence, an excuse to enquire into the gifts received by the assessee, without any material or evidence coming into his possession after he processed the return u/s 143(1)(a). The learned AM, with respect, in paragraph 2 of his dissent, seems to have referred to facts which were gathered by the Assessing Officer post-notice u/s 148. These facts were not present before) the Assessing Officer before the issue of the notice. The case thus also does not satisfy the legal requirement laid down by the Supreme Court in M.P. Industries Ltd v. ITO [ 1965 (4) TMI 23 - SUPREME COURT] that a notice u/s 148 cannot be issued merely to make fishing inquiries into the return. Thus, I answer the first point of difference referred to me in the negative, that is to say, that the Assessing Officer did not have reason to believe that income of the assessee chargeable to tax has escaped assessment. Consequently, the third point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer wrongly invoked the provisions of section 147 of the Income-tax Act and consequently, the notice issued under section 148 of the Income-tax Act is also illegal, without jurisdiction and uncalled for. There exists no such circumstances which authorizes the learned Assessing Officer to initiate the proceeding under section 147 read with section 148 of the Act. 3. That without prejudice to above, the notice issued under section 148 is grossly defective and no assessment proceedings can taken place on the basis of said notice. 4. That without prejudice to above grounds of appeal, the assessment order framed is bad in law since the reasons recorded for reassessment proceedings have never been communicated to the assessee. 3.3 Before the learned CIT(A) it was pointed out that the assessee duly filed the balance-sheet along with the return wherein the receipt of gift of Rs. 28,90,000 was shown and the Assessing Officer processed the return on the basis of the said balance-sheet. In this regard the further submission of the assessee, as reproduced in para 2.2 of the order of learned CIT(A) was as under: It was simply a fact which was evident from the balance sheet itself d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , have to be met with in letter and spirit. The Assessing Officer would do well to bear this in mind in future. In this case, there is no doubt that the Assessing Officer has acted illegally and in an unwarranted manner in issuing notice under section 148 when he had no reason to believe that income has escaped assessment. Notice under section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above the assessment order dated 30-3-2000 is annulled as the same is bad in law and is ab initio null and void These grounds are decided in favour of the appellant. 4. Before us the learned DR submitted that the Assessing Officer had recorded detailed reasons and issued notice under section 148 and in view of the reasons recorded, the issuance of notice under section 148 was fully justified. According to him, since the assessee had not given details of gifts received, the conclusion of the Assessing Officer that income had escaped assessment was legally correct. According to him, the Assessing Officer has wide power to reopen assessment and in view of the amended provisions as contained under section 147 this power has further been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original return. The return was processed under section 143(1)(a) on 22-2-1996. 6.1 The reasons recorded by the Assessing Officer for reopening the assessment have been reproduced in para 2.1 of the order of learned CIT(A). Regarding the receipt of gift of Rs. 28,90,000 the Assessing Officer has observed as under: The assessment under section 143(1) has been completed on 22-2-1996, the balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. The assessee has given loan to Sadar Bazar Leasing (P.) Ltd. from which he has shown interest income of Rs. 2,40,838. There are also house withdrawals from the party and it is not shown how these withdrawals have been invested. The assessee has received interest from Vipual Motors and Alfa Automobiles. The details of the same have not been filed. The assessee is having salary from Sadar Bazar Leasing (P.) Ltd. for which he has invested huge amounts. The assessee has shown drawing at Rs. 2,55,150 which mean that he has made certain investments out of withdrawals which have been reflected. The assessee has shown a rental income of Rs. 66,000 but it is not shown as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. In the reasons recorded other transactions have also been mentioned but for those transactions also, the proceedings for reassessment have been initiated for want of details. 6.4 The contention of the assessee before us was that the assessee had disclosed fully and truly all material facts and that on the basis of the same material if notice for reassessment is issued, then it would amount mere change of opinion. We do find force in this submission. 6.5 In the case of Jindal Photo Films Ltd v. Dy. CIT [1998] 234 ITR 170 (Delhi), it was ruled out that a mere change of opinion, even under the new law i.e., in view of amendment with effect from 1-4-1989 under section 147, the words reason to believe have been continued and in view of this continuance the requirement prior to the law as on 1-4-1989 has not been dispensed with. The position was further explained by the Hon'ble Delhi High Court in the case of Kelvinator of India Ltd. In that case the following observation was made by the Hon'ble Court: The scope and effect of section 147 as substituted with effect from 1-4-1989, by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of India initially for five years and the same was subsequently extended from time to time. The petitioner was paying license fee of Rs. 101 in terms of license from financial years 1986-87 to 1992-93, which was subsequently enhanced to Rs. 800 and further to Rs. 900 with effect from assessment year 1995-96. A return of income for assessment year 1994-95 was filed and the sum of Rs. 1,24,85,60,000 was claimed as license fee. There was no such claim for preceding year. Intimation under section 143(1) of the Act was given to the petitioner. Subsequently, a notice under section 148 of the Act was issued in response to which the assessee was required to file the return. The action of the Assessing Officer for issuing notice under section 148 on the ground that he had reason to believe that petitioner's income for concerned year 1994-95 had escaped assessment within the meaning of section 147 was challenged through a writ petition. The Hon'ble High Court, dismissing the writ petition, held that though statutorily reasons were not required to be communicated to the assessee prior to the submission of the return in response to notice under section 148, but pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer had taken a different view on the same material i.e., receipt of gifts, which will tantamount to change of opinion only and in view of the above decisions assessment cannot be reopened on the basis of mere change of opinion. Accordingly, we do not find any reason to interfere in the order of learned CIT(A) and the same is upheld by us. 7. In the result, revenue's appeal stands dismissed. Per B.R. Jain, Accountant Member . 1. I am unable to agree with my learned brother and therefore proceed to write a separate order. The assessment in this case was reopened after recording reasons as under:- The assessment under section 143(1) has been completed on 22-2-1996. The balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. The assessee has given loan to Sadar Bazar Leasing (P.) Ltd. from which he has shown interest income of the party and it is not shown how these withdrawals have been invested. The assessee has received interest from Vipul Motors and Alfa Automobiles. The details of the same have not been filed. The assessee is having salary from Sadar Bazar Leasing (P.) Ltd., for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation about the donor from Bank of America where the donor maintained a NRE Account. From the copy of passport supplied, the Assessing Officer observed that the photograph of the donor does not match with the copy of photograph contained in the information provided by the assessee. In enquiry proceedings the respondent-assessee was not able to recognize the donor from his photograph. The Assessing Officer also noticed from the bank account of the donor that he is a professional donor and has made gifts aggregating to more than Rs. 3 crores in the year under consideration to more than 50 persons. Few names of such donees to whom alleged gifts have been made by the same donor are also stated in the assessment order as under:- S. No. Name Amount Cheque No. Date 1. Smt. Suneeta Gupta Rs. 10,00,000 009331 11-3-1994 2. Shri CB Gupta Rs. 2,00,000 101182 18-4-1994 3. S. Harbhajan Singh Rs. 5,00,000 007155 4-3-1994 4. Smt. Ganga Devi Rs. 10,00,000 011733 17-6-1994 5. -do- Rs. 1,50,000 011915 27-9-1994 6. -do- Rs. 3,50,000 011758 20-6-1994 7. -do- Rs. 4,00,000 012140 4-7-1994 8. Sh. Vasudev Agarwal Rs. 6,00,090 009664 25-3-1994 9. -do- Rs. 6,00,000 009750 29-3-1994 10. Sh. Vinay Surya Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that while the Assessing Officer might have had a faint reason to suspect that income has escaped assessment, it cannot be said that he had reason to believe that the income has escaped assessment, I cannot over-emphasise that the requirements of law, specially when it comes to taking action under section 147/148 have to be met with in letter and spirit. The Assessing Officer would do well to bear this in mind in future. In this case, there is no doubt that the Assessing Officer has acted illegally and in an unwarranted manner in issuing notice under section 148 when he had no reason to believe that income has escaped assessment. Notice under section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above, the assessment order dated 30-3-2000 is annulled as the same is bad in law and is ab initio null and void These grounds are decided in favour of the appellant. 5. After hearing the parties and careful perusal of material on record, I find that the respondent assessee in his capital account has included an amount of Rs. 28,90,000 on account of gift. There were no details as to the amount of said gift. Mere mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no tax or interest is due from the assessee. The first proviso to section 143(1)(a) allowed the department to make certain adjustments in the income or loss declared in the return of income. They were as follows: (a) an arithmetical error in the return, accounts and documents accompanying it were to be rectified. (b) any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents was, prima facie admissible, but which was not claimed in the return was to be allowed. (c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed. From the above, it is evident that, what was permissible was correction of error apparent on the basis of documents accompanied the return. The Assessing Officer had no authority to make adjustment or to adjudicate upon any debatable issue. In other words, the Assessing Officer had no power to go behind the return, amount, or documents either in allowing or in disallowing deductions, allowance or relief. Furthermore, the intimation under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year under consideration if the Assessing Officer for whatever reason has reason to believe that income had escaped assessment, it shall confer jurisdiction to reopen the assessment. At the initial stage, what is required is reason to believe but not established fact of escapement of income. Whether the material would conclusively prove the escapement is not the concern at the initiation stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. This is so stated by the Hon'ble Delhi High Court in the case of MTNL with reference to the judgment of the Supreme Court in the case of ITO v. Selected Dalubrand Coal Co. (P.) Ltd. [1996] 217 ITR 597 and also in the case of Raymond Woollen Mills Ltd. The relevant passages of these two judgments are reproduced herein below. In Selected Dalubrand Coal Co. (P.) Ltd.'s case at page 599, the Hon'ble Court has stated as under:- It is well-settled by various decisions of this Court that the notice under section 148 read with section 147 can be issued only where the Income-tax Officer has reason to believe that the income, profits or gains chargeable to tax had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suspect that income has escaped assessment and held that the Assessing Officer has acted illegally and in unwarranted manner in issuing notice under section 148 of the Act. There was also no material with the Ld. CIT(A) to hold that the Assessing Officer has acted in an arbitrary manner in issuing notice under section 148 of the Act for he has reason to form a belief that income chargeable to tax has escaped assessment even though there was primary material that from the mere accounting entry in the balance sheet enclosed with the return a reasonable person could have formed a requisite belief as entertained by the assessing authority. 11. The respondent-assessee also placed reliance on various judgments as also referred by my learned brother in his order. All these judgments however do not support his case since the ratio of all these judgments is that a mere change of opinion cannot form the basis for reopening of completed assessment. In Kelvinator of India Ltd.'s case, Foramer Frances case and Jindal Photo Films Ltd.'s case, referred at bar, the assessments were completed under section 143(3) of the Act after examination of the issue and verification of relevant materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble President: (1) Whether, on the facts and in the circumstances of the case and on the basis of material available before Assessing Officer, at the time of initiation of proceedings under section 147 of the Act, the Assessing Officer was legally justified in having reason to believe that income of the assessee, chargeable to tax, has escaped assessment? (2) Whether the action of the Assessing Officer to reassess the income of the assessee, in the facts and on the circumstances of this case, was based merely on the change of opinion and was, therefore, bad in the eye of law? (3) Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in holding that the reopening of assessment was not valid and as such the reassessment made was void ab initio and bad in the eye of law? R.V. Easwar, Vice President 29th May, 2006 1. The following points of difference have been referred to me by the Hon'ble President under section 255(4) of the Income-tax Act for decision: (1) Whether, on the facts and in the circumstances of the case and on the basis of material available before Assessing Officer, at the time of initiation of proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the assessee's contention and held that though there may be reason to suspect that income had escaped assessment there was no reason to believe so and that the assessment was reopened merely to conduct roving enquiries on the basis of vague suspicions. He accordingly annulled the reassessment as being ab initio void. 4. The Department preferred an appeal to the Tribunal. The learned JM, who wrote the leading order, after reproducing the reasons recorded by the Assessing Officer to reopen the assessment, held that the assessee had disclosed the gift in the return, that there was no duty on him to furnish further details since the return had been processed under section 143(1)(a), that the reopening was prompted by want of details regarding the gifts and not on the ground of any information or material showing concealment of income and that, therefore, the notice was issued on the basis of a mere change of opinion which was not permissible as held by the Hon'ble Delhi High Court in Jindal Photo Films Ltd.'s case. He also referred to the judgment of the Full Bench of the Hon'ble Delhi High Court in Kelvinator of India Ltd.'s case. The learned JM was of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is merely processed under section 143(1)(a) the Assessing Officer does not form any opinion on the facts disclosed since he cannot conduct any enquiry and all he can do is to make the statutory adjustments to the income returned and nothing else and further the presence of the assessee is not required nor any document or evidence in support of the return is required to be produced. Thus, according to the learned AM, if no opinion can be said to have been formed by the Assessing Officer while processing the return, without any application of mind that would itself confer jurisdiction upon the Assessing Officer to reopen the proceedings. In this connection the learned AM observed that substantial changes have been made to section 143(1) with effect from 1-6-1989 and that an intimation under section 143(1)(a) cannot be treated as an order of assessment except to the limited extent of enforcing the demand notice under section 156. Therefore, an intimation passed under section 143(1)(a) is not an assessment and, therefore, the question of any change of opinion does not arise. He relied on the judgment of the Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the binding judgment, and with respect, I hold that the reassessment cannot be said to have been prompted by a mere change of opinion. I may add that in Kelvinator of India Ltd.'s case the Full Bench of the Hon'ble Delhi High Court was not concerned with an intimation under section 143(1)(a), but was concerned with a regular assessment order passed under section 143(3). It was therefore held that a presumption can be raised that such an order has been passed on application of mind . Therefore the reliance placed on this judgment by the learned JM to hold that this is a case of a mere change of opinion, in my humble view and with respect, appears to be inapposite. I therefore hold that the notice under section 148 cannot be held invalid on the ground of a mere change of opinion. I accordingly answer question No. 2 referred to me in the negative. 8. I now move on to examine the case with reference to the other two questions referred to me. The first question raises the specific point of the existence of reason to believe for reopening the assessment. The third question is couched in broad and general language and appears to be consequential. So far as the first question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words definite information which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be mere pretence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are reason to believe and not reason to suspect . The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Tax Laws (Amendment) Act, 1989, which also took effect from 1-4-1989, the original expression was restored in the section. The representations were to the effect that the omission of the expression reason to believe , which had been explained in a number of court rulings in the past and the meaning of which was well-settled, would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. With the restoration of the original expression in the section, the earlier court rulings continued to apply. This position has been recognised by the CBDT in its Circular No. 549, dated31-10-1989(1990) [182 ITR (St.) 1]. This circular was relied upon by the Full Bench of the Hon'ble Delhi High Court in Kelvinator of India Ltd.'s case. It is true that in that case, the Court held that even after 1-4-1989 when section 147 was substantially amended the Assessing Officer cannot reopen the assessment on a mere change of opinion, but from that it cannot, in my opinion, be contended, as it was sought to be contended before me by the learned CIT(DR), that the ruling of the Full Bench would apply only to a case of a mere change of opinion. The true ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of opinion, as noted earlier it must still conform to the basic requirement of the section, viz., that there should be reason to believe and that belief should not be a pretence, that it should be held in good faith, that it should have a direct and rational connection with the formation of the requisite belief or a live link or nexus with the same and that it should not be vague, distant, indefinite, far-fetched and remote. This requirement has been recognised by the Hon'ble Delhi High Court, with reference to the amended section 147, in Bawa Abhi Singh v. Dy. CIT [2000] 253 ITR 83 where it was held that though the amended section is contextually different in the sense that the cumulative conditions spelt out in clauses (a) and (b) of the section are not present in the amended section, the only condition for action is that the Assessing Officer should have reason to believe that income has escaped assessment and that the powers to reopen are wider under the amended section in the sense that they can be exercised even if the assessee has disclosed fully and truly all material particulars necessary for his assessment. This position has also been recognized by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1)(a). There has to be a distinction between cases where after the processing or acceptance of the return under section 143(1)(a) some fresh facts or information or material has come to the possession of the Assessing Officer, or there has been a change in the legal position, and cases where there is no such development. In the former class of cases, the notice for reopening the assessment would be valid. But in the latter class of cases, the Assessing Officer cannot assume powers to issue the notice under section 148 first and then make enquiries in an attempt to unearth escaped income. This would put assessees to unwarranted hardship and disturb the finality of assessments without any justification. Where a return has been accepted/processed without enquiry under section 143(1)(a) and thereafter the Assessing Officer comes across evidence or material to show escapement of income, he may form the requisite belief and proceed to issue notice under section 148 after recording reasons indicating the nexus or live link or rational connection between the material before him and the formation of the belief. In such a case, he does have reason to believe and not merely reason to suspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case to reopen the assessment (reproduced in the orders of both the learned Members), what I find is that the only reason stated therein is that the balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. There is no reference to any investigation carried out in the assessee's own case or in the case of the donor or any other evidence or material collected as a result of any investigation carried out by any investigating agency including the income-tax department in any case which could have afforded the required nexus or live link or rational connection with the belief that income chargeable to tax had escaped assessment. The Assessing Officer has merely referred to the absence of any details filed with the return in support of the gifts. This aspect of the matter has been highlighted by the learned JM in his order. I have been taken through section 139(9) to show that there is no requirement therein that the details in support of the gifts should be filed in the return of income and it was also pointed out on behalf of the assessee that the Assessing Officer rightly did not treat the return as a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case by the Assessing Officer for reopening the assessment are a mere pretence, an excuse to enquire into the gifts received by the assessee, without any material or evidence coming into his possession after he processed the return under section 143(1)(a). The learned AM, with respect, in paragraph 2 of his dissent, seems to have referred to facts which were gathered by the Assessing Officer post-notice under section 148. These facts were not present before) the Assessing Officer before the issue of the notice. The case thus also does not satisfy the legal requirement laid down by the Supreme Court in M.P. Industries Ltd v. ITO [1965] 57 ITR 637 that a notice under section 148 cannot be issued merely to make fishing inquiries into the return. 15. The learned CIT(DR) placed very strong reliance on the recent judgment of the Division Bench of the Hon'ble Delhi High Court in Consolidated Photo Finance Ltd. v. Dy. CIT [2006] 281 ITR 394 and submitted that even after the judgment of the Full Bench in Kelvinator of India Ltd.'s case the Division Bench has held that merely because an assessment order has been framed under section 143(3) it does not follow that the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1995-96. 2. The only ground taken by the revenue in its appeal runs as under:- Based on facts and circumstances of the case, the ld. CIT(A) has erred in holding the assessment order dated 30-3-2000 to be bad in law and ab initio null and void and annulling the same without going into the merits of the addition of Rs. 28,90,000 made by the Assessing Officer under section 68 on account of unexplained NRE gifts. 3. There was difference of opinion between the Members of the Bench, who originally heard the appeal. According to the learned Judicial Member, the CIT(A) was justified in holding that assessment could not be reopened on the facts and circumstances of the case and as such the departmental appeal was liable to be dismissed. 4. On the other hand, according to learned Accountant Member, the Assessing Officer was justified in law in initiating action under section 147/148 of the Act and as such the departmental appeal was liable to allowed. 5. The matter was therefore referred to the Hon'ble President of the ITAT under section 255(4) for opinion of the Third Member on the following points:- 1. Whether, on the facts and in the circumstances of the case and on the basis of mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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