TMI Blog2008 (1) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering thereby the entire assessment as void ab initio, and hence, non est in law, which may be quashed. 3. The facts of the issue are that the assessee company came into existence on 16-10-1989. However, no return of income was filed. Therefore the Assessing Officer issued notice under section 142(1) on 8-1-1992. The assessee filed return of income on 31-12-1993 declaring nil income. The return of income for the year under consideration was due on 31-3-1993. The return of income being a belated return, was an invalid return in the eye of law. However, the Assessing Officer proceeded to act upon the invalid return of income and passed the assessment order under section 143(3) on 30-3-1994 at the total income of Rs. 23,72,180. The above assessment order was set aside by the CIT(A) with the following observations:- "The return was filed beyond the period prescribed under section 139 and the Assessing Officer was required to regularize the return. The return being invalid could not have been acted upon and in order to set right the infirmity the assessment has to be restored to his file for framing fresh assessment after regularizing the return as all the proceedings taken up c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons recorded on 6-12-1995, the Assessing Officer has mentioned that the assessee has failed to file its return of income within the statutory time limit i.e., 31-3-1993 and the return filed on 31-12-1993 was an invalid return, therefore, the same has been filed. The ld. Counsel argued that it is incorrect to say that the invalid return was filed, rather the Assessing Officer has acted upon the said invalid return of income and the assessment order was framed under section 143(3) on 30-3-1994. A copy of the said original assessment order is placed at page 3 to 22 of the paper book. The ld. Counsel further argued that the Assessing Officer has further recorded for re-opening of the assessment that 'I have, therefore, reason to believe that income of Rs. 24,53,900 has escaped assessment for the assessment year 1991-92. Hence, it is established that it is a fit case to issue notice under section 148 read with section 147 of the Income-tax Act. The ld. Counsel for the assessee has vehemently argued that there was no reason to believe that income of Rs. 24,53,900 has escaped for the assessment year 1991-92. In fact, all these information have already been provided by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 8. The ld. counsel for the assessee pleaded that the assessee had filed true and full facts before the Assessing Officer by filing return of income on 31-12-1993 and in case that was the invalid return of income, the Assessing Officer should not have acted upon the same and he should not have framed assessment order under section 143(3) of the Act. After completion of the assessment order, no fresh information was gathered by the Assessing Officer to draw an inference that the income has escaped to assessment. The ld. Counsel further argued that the notice under section 148 was issued at the behest of the CIT(A). There was no omission or failure on the part of the assessee to disclose full and true material matters, necessary for framing fresh assessment. As such, the action on the part of the Assessing Officer was illegal and bad in law. In support of his submissions, he relied upon the decision of Calcutta High Court in the case of Smt. Santosh Debi Baid v. ITO [1971] 81 ITR 552. In that case the assessee furnished returns for the assessment years 1956-57 to 1960-61 before the Income-tax Officer and the assessment was completed by the Income-tax Officer for the aforesaid yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as matters of procedure, still the contemplated procedure has to be followed for attracting the jurisdiction under that section. Hence, the extreme contention that even if the statutory provisions had not been followed still the order of reassessment has to be taken as valid cannot be accepted. A condition precedent for initiating reassessment proceedings is the reasonable belief of the Income-tax Officer that income had escaped assessment. Hence, when initiation of reassessment proceedings was stated to be on the direction of the Commissioner the reassessment proceedings are invalid even though on the facts it is established that there was non-disclosure by the assessee: 10. The Id. Counsel argued that if the return of income filed by the assessee on 31-12-1993 was invalid then he should have not acted upon the said return of income. After framing the assessment order, the Assessing Officer cannot say that there was escapement of income. In support of his submissions, he relied upon the decision of Supreme Court in the case of Gemini Leather Stores v. ITO AIR 1975 SC 1268, wherein the Hon'ble Supreme Court has held as under:- "While making a best judgment assessment, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly considered the rival submissions and also gone through the paper book filed by the ld. Counsel for the assessee. 14. We noted from the reasons recorded by the ld. Assessing Officer on 6-12-1995 that the return filed on 31-12-1993 for the assessment year 1991-92 is beyond the statutory time limit. Therefore, the same is an invalid return and hence, the same was filed. This is patently wrong and distorted recording of facts. Actually the return was not filed, but on the basis of that invalid return, order under section 143(3) was passed by the Assessing Officer. We also noted that there was no difference in the income original assessed and subsequently assessed by issuing notice under section 148 of the Act. Therefore, the Assessing Officer further erred in mentioning that he has reasons to believe that income of Rs. 24,53,900 has escaped assessment in the assessment year 1991-92. In fact, there was no reason before the Assessing Officer to believe that income escaped assessment for the assessment year 1991-92. The notice issued under section 148 on false recording of reason to believe, cannot be held a valid proceeding. Therefore, subsequent action is also invalid and illegal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 143(3) of the Act and no new information was brought on record. Therefore, the action of re-opening the assessment is invalid. 17. Keeping in view the above facts and circumstances, we quash the assessment order and hold the same illegal and invalid ab initio. This ground of appeal is allowed. 18. Since the assessment has been held invalid on legal ground, therefore, we need not to consider the other grounds raised on the merits of the case. 19. In the result, the appeal of the assessee is allowed. Per Diva Singh, Judicial Member.-On receiving the draft order from my learned brother I have discussed the same with him and since I am unable to agree with the view expressed by him I am constrained to write my separate dissenting order. 2. As far as the facts are concerned there is no dispute inasmuch as there was a return filed by the assessee in response to notice under section 142(1) of the Act wherein certain additions were made, by the Assessing Officer. The assessee challenged these additions in appeal before the CIT(A) who, taking note of the fact that the return filed was beyond the period as prescribed under section 139 restored to the Assessing Officer wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by judgments where the principle has been laid that different, view on same facts is not appropriate. The fact also remains undisputed that reasons have been recorded. The sufficiency and adequacy of the recording of reasons is not open to challenge and there are a plethora of judgments which have laid down this ratio. Thus, sufficiency of reasons cannot be examined unless shown to be perverse. In the facts of the case no perversity has been argued the only facile argument has been that reopening is on the direction of the CIT(A). Thus, in the facts of the present case reasons have been recorded and it is not even a case of change of opinion on same facts. Thus, what devolves for consideration is can the directions/findings/observations given in appellate orders constitute as "information" which the Assessing Officer took cognizance of and formed a belief that income has escaped assessment. 6. The decisions relied upon, by my brother are not applicable on account of the fact that as has already been observed and demonstrated that the present case is not a case where a different view has been taken by the Assessing Officer and he has as such unsettled a settled position. The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1959] 37 ITR 388 (SC) have held that the section is not confined to cases where income has not been returned and also covers cases where income is included in the return made by the assessee but is left unassessed by the Assessing Officer. 9. Their Lordship have held in Esthuri Aswathiah v. ITO [1961] 41 ITR 539 (SC) and CIT v. Bidhu Bhushan Sarkar [1967] 63 ITR 278 (SC), no doubt income cannot be said to have escaped such assessment within the meaning of this section if the assessment proceedings in respect of that income which still pending and have not yet terminated in a final order. However, the Assessing Officer's noting "not assessed" or "not assessable" or "no proceeding" or "filed" would ordinarily amount to a final order lawfully terminating the assessment proceedings and thereafter action can be taken under this section. The pedantic argument that no information was available with the Assessing Officer on facts is as such not correct. 10. In the facts of the present case reliance has been placed by my brother in para 15 of the proposed draft in the case of Yeshwant Talkies wherein the facts considered are reproduced as under:- "After the completion of the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me facts as was the case in Yeshwant Talkies. 12. The next judgment relied upon by my brother in the proposed draft is of Sheo Narain Jaiswal's case. The undisputed facts therein were that the Assessing Officer was of the view that a particular amount should not be assessed and the Assessing Officer sending the proposal also expressed his doubts about taxability of the amount and initiated proceedings only on the instruction of the CIT and ACIT who held the view that a particular amount should be assessed. It was on these facts where a settled issue was being unsettled on the basis of instruction where the Assessing Officer admittedly was of the view that amount was not taxable. Thus, in those facts it could not be said that the Assessing Officer had formed its belief that income has escaped assessment since his own belief was that it was not taxable and the notice was issued only on the instruction of CIT and ACIT. In the facts of the present case Assessing Officer was of the view that income was assessable and notice was given to regularize the return and it was not a case of unsettling a settled position and was clearly a case where Assessing Officer had formed his own belief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The Courts have also been categoric in their approach that the courts cannot go into the deficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening the assessment. In the facts of the present case it cannot be said that the 'information' available with the Assessing Officer was vague and indefinite or distant, remote or far-fetched, as such it could not warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The reason for the formation of the belief must be held to be in good faith and should not be a mere pretence. In the facts of the present case the reasons are not vague, distant, flimsy, indefinite, far-fetched or remote, but in fact are direct having a direct and definite live link/nexus and in my opinion once the re-opening is not barred by limitation and is on the basis of reasons recorded which form a direct and live link/nexus and the proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tribunal has referred the following question for my opinion as Third Member, which read as under:- "In the facts and circumstances of the case, is the action of the Ld. Accountant Member correct in quashing the assessment or is the action of the Judicial Member correct in upholding the assessment?" 2. The assessee company came into existence on 16-10-1989. The assessment year involved in this case is assessment year 1991-92. As required under section 139 of the Act it was to file the return of income before a specified date. It did not file the same. The Assessing Officer issued notice under section 142(1) on 8-1-1992 to file it within 30 days. The assessee filed the return of income beyond the said 30 days on 31-12-1993 declaring net agriculture income of Rs. 1,42,567. The return of income is thus a belated return. The Assessing Officer proceeding on the said return of income passed the assessment order under section 143(3) on 30-3-1994 at the total income of Rs. 23,72,180. The said assessment order was set aside by the CIT(A) with the observations that "The return was filed beyond the period prescribed under section 139 and the Assessing Officer was required to regularise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an invalid return of income, the Assessing Officer should not have acted upon such invalid return of income and framed the assessment order under section 143(3) of the Act on 30-3-1994; that in the assessment order, it is nowhere mentioned that income escaped to be assessed, rather, in the assessment originally made and that made after re-opening under section 148, the income was assessed at the same income; that the original assessment order was set aside to regularise the invalid return of income on the basis of which the original assessment order was framed; that notice under section 148 issued was thus at the behest of the higher authorities and therefore cannot be valid in view of the judgment of Supreme Court in the case of Lakhmani Mewal Das; that after completion of the assessment order no fresh information was gathered by the Assessing Officer to draw an inference that the income has escaped to assessment; that there was no omission or failure on the part of the assessee to disclose full and true material matters, necessary for framing fresh assessment, that as such, the action on the part of the Assessing Officer was illegal and bad in law in view of the decision of Cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer; that there was no difference in the income original assessed and subsequently assessed by issuing notice under section 148 of the Act and therefore, the Assessing Officer further erred in mentioning that he has reasons to believe that income of Rs. 24,53,900 has escaped assessment in the assessment year 1991-92; that in fact, there was no reason before the Assessing Officer to believe that income escaped assessment for the assessment year 1991-92; and that the notice issued under section 148 on false recording of reason to believe, could not be held a valid proceedings due to which the subsequent action was also invalid and illegal. He also noted that the fresh assessment order was made under section 143(3) read with section 251 of the Income-tax Act, 1961, meaning thereby, the fresh assessment order has been made at the behest and on the directions of the CIT(A) was not permissible in view of the M.P. High Court in the case of Yeshwant Talkies, the Patna High Court in the case of Sheo Narain Jaiswal. Referring to Lakhmani Mewal Das' case he also noted that the reason to believe was not in good faith as there was no new material or information, on which the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sought to change the same and disturb the earlier finding with a different view subsequently on same facts; that the assessment order in the first round was set aside for regularizing the same as the return was filed beyond the time prescribed under the Act and as a result of this the income brought to tax in the present proceedings was not assessed at all. The cases of Chatturam Hariram Ltd., Narsee Nagsee Co.; Kameshwar Singh; Esthuri Aswathiah; and Bidhu Bhushan Sarkar, are referred to support her opinion. The facts in the cases of Yeshwant Talkies, Sheo Narain Jaiswal, the case of Lakhmani Mewal Das, were found diametrically distinct. Accordingly, in the aforementioned facts and circumstances, she deemed it fit and proper to restore the issue to the file of the Assessing Officer with the direction that he may decide the same in accordance with law by way of a speaking order and giving the assessee an opportunity of being heard. 8. The contentions of the ld. Counsel of the assessee Shri Y.K. Kapoor are - (1) that the assessee having complied with the notice under section 142 of the Act issued by the Assessing Officer filed the return, submitted to the jurisdiction of Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -3-1993. Thereturnfiledon31-12-1993 was thus not in accordance with provisions of law and was thus invalid, it was also so held by the CIT(A) and having not challenged it became final even otherwise. 11. It might be true that an assessment on that return was originally made by the Assessing Officer. But that has no bearing in determining the validity of the return; firstly, because no assessment in law can be made on an invalid return and the mere fact of making an assessment by the Assessing Officer on an invalid return would be of no consequence; and secondly, because on appeal of the assessee, the assessment was set aside by CIT(A) by observing that it was made on an invalid return and was to be regularized. The order of the CIT(A) had thus become final as no further appeal there against was filed either by the assessee or the department. The position, as a result of this, is that there was no valid return and there was no assessment much less a valid one with respect to that return and thus the income of the year under consideration has not been assessed and considered to have escaped assessment. The case of Smt. Santosh Debi Baid before Calcutta High Court was under the 1922 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was invalid and the Assessing Officer had on that ground reopened the assessment and this is what he has stated in the reasons recorded, namely; "The assessee has failed to file its return of income for assessment year 199192 within statutory time limit i.e., 31-3-1993. The return filed by the assessee for assessment year 1991-92 on 31-12-1993 being an invalid return, has therefore been filed". It was his decision and that it was on the direction or behest of the CIT(A). Even otherwise the CIT(A) has only stated that return was invalid and the consequent order of assessment was also invalid. After observing this he stated the return was to be regularized and that cannot be said to a direction to Assessing Officer to issue notice under section 148 of the Act. The contention of the assessee is therefore has no force and is rejected. 15. The income that has escaped assessment is brought to tax by reopening the assessment under section 147 which reads as under:- "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but much beyond that; even after the expiry of period prescribed under section 139(4) of the Act. There was thus a failure of the assessee by not filing the return as contemplated in the proviso. But that saves only the period applicable for reopening even beyond 4 years. There is however no dispute in this case on this issue. 18. What we are concerned with in this case is, whether there was reason to believe that there was chargeable income which escaped assessment within the ken of this section. The reason to believe and the basis for the re-opening, as stated in the reasons recorded, is that the assessee company has raised fresh share application money amounting to Rs. 21,91,900 and unsecured loan to the extent of Rs. 2,62,000 and source of which are unexplained at the hands of assessee company to the total of such deposit amounts to Rs. 24,53,900. Is it a reason or a valid reason in law in forming the belief that income has escaped assessment? Where it remained unexplained? 19. It is true that the sufficiency and adequacy of the reasons is not open to challenge in view of settle position of law and judgments on the issue and that sufficiency of reasons cannot be examined u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was advanced as a loan, the Income-tax Officer treated it as income received from business and accordingly passed the order of assessment, under section 144 of the Income-tax Act, bringing to tax the said amount of Rs. 32,58,500 on 2-12-1970. It was in this context the Supreme Court held that it was a loan and not income. 21. This case was under the 1922 Act where there was no provision like section 68 of the present Act. But that would not make much difference as under this section also loan or capital introduction is not income straightaway. It has to satisfy the conditions prescribed therein. This section 68 reads as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 22. By this section also it is not that every loan or capital receipt is income chargeable to tax. It is only when the assessee offers no explanation about the nature and source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore the same cannot be considered to be valid information for the purpose of reassessment under section 147. In the present case also, apart from the fact that certain credits are appearing in the books of the assessee there is nothing which could be considered as an information much less a valid information for the purpose of reopening the assessment of the assessee under section 147. In spite of the fact that the creditor had accepted that he has been giving entries for the loans, the reopening was held to be unjustified in absence of specific reference of the assessee in the statement of the creditor. In the present case even the general statement by any body was not there to view the credits as not genuine. 24. It might be true that the word information is of wide connotation and can include the direction/finding or observation given by the CIT(A) in appeal since once having noticed that a return filed was beyond the period the only course of action open was to restore it for but that was only to regularizing the return and that would be of no consequence as the notice for reopening itself was bad and the CIT(A) had already held that the earlier return and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no material in the present case even to suspect that credits are not genuine. In our opinion therefore the reopening of the assessment of the assessee are without any reasons and the information. There is no nexus between reasons recoded and the genuineness of the loans and capital credited in the books of the assessee. It is therefore to be held that the reopening was invalid and the reassessment is to be quashed. 29. It is a trite law that to reopen an assessment under section 147 of the Act there must be a reason and that reason, must have a rational connection or relevant bearing on the formation of the belief that there was income which escaped assessment. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income because of the failure of the assessee to disclose fully and truly all material facts. The Courts are consistent in their approach that they cannot go into the sufficiency or adequacy of the material and substitute their own opinion for that of the Income-tax Officer on the point as to whether action s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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