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TMI Blog2009 (9) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... ady passed on consideration of the materials on record ?" 3. I. T. A. Nos. 6, 7 and 8 of 2007 have been admitted for hearing, vide order dated August 29, 2007 on the following substantial question of law : "(i) Whether on the facts and circumstances of the case, the Assessing Officer was justified in initiating proceedings under section 147 of the Income-tax Act, 1961 ?" 4. The facts leading to the filing of the present appeals are that the respondent, a private limited company, carrying on the business of flour mills had filed returns of income on November 7, 1997 for the assessment year 1997-98 on November 27, 1998 for the assessment year 1998-99 on November 29, 1999 for the assessment year 1999-2000 and on November 28, 2000 for the assessment year 2000-01, declaring the income as nil for all those assessment years. Consequent upon filing of such returns, those were processed under section 143(1)(a) of the Act. The Assessing Officer (in short, AO), thereafter, on verification of the balance-sheets furnished by the assessee along with the returns of income dated November 7, 1997, November 27, 1998, November 29, 1999 and January 28, 2000 for the aforesaid as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view taken by the Commissioner of Income-tax (Appeals) and by holding that since there was no fresh information or material before the Assessing Officer, he had no jurisdiction to reopen the assessment under section 147 of the Act, as all materials were already on record, those having been filed along with the original returns, on the basis of which the assessments were completed under section 143(1) of the Act. It has further been held that the action under section 147 of the Act is based on nothing but a change of opinion of the Assessing Officer in the intervening period, i.e., after disposal of the cases under section 143(1) and till the issuance of notices under section 148, which is not permissible in law. Hence, the present appeals. 6. We have heard Mr. U. Bhuyan, learned standing counsel for the Revenue and Mr. R. P. Agarwal, learned senior counsel for the assessee. 7. Mr. U. Bhuyan, learned counsel for the Revenue, has submitted that the grounds on which the learned Tribunal has dismissed the appeals preferred by the Revenue are not tenable in law, in view of the provisions contained in section 147 of the Act, which empowers the Assessing Officer to asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the assessment years after April 1, 1989. It has further been submitted that since the intimation issued under section 143(1)(a) of the Act is not an assessment within the meaning of the Act and section 147 of the Act empowers the Assessing Officer to take action under the said provision of law, when he has "reason to believe" that there is escaped assessment, the Assessing Officer can take into consideration the materials already sub-mitted along with the original returns filed, for the purpose of section 147 of the Act. Mr. Bhuyan submits that the order of the learned Tribunal, therefore, needs to be set aside and the matter remitted to the learned Tri-bunal for deciding the appeals on the merits. Mr. Bhuyan, in support of his contention has also placed reliance on the decisions of the Delhi High Court in Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394 (Delhi) and of the Gujarat High Court in Praful Chunilal Patel v. M. J. Makwana, Asst. CIT [1999] 236 ITR 832 (Guj), in Inductotherm (India) P. Ltd. v. James Kurian, Asst. CIT [2007] 294 ITR 341 (Guj). 8. Mr. R. P. Agarwal, learned senior counsel for the assessee, while con-curring with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. v. Union of India [2005] 275 ITR 609 (Gauhati) of the Bom-bay High Court in Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) [2004] 268 ITR 332 (Bom) and of the Calcutta High Court in Anil Kumar Bhandari v. Joint CIT [2007] 294 ITR 222 (Cal). 11. We have considered the submissions of the learned counsel for the parties and also perused the records. 12. Section 147 of the Act, as it stood prior to April 1, 1989, authorized the Assessing Officer to take action under the said provision of law, if,-(a) the Assessing Officer has reason to believe that by reason of omission or failure on the part of an assessee to make a return under section 139 for any assessment year or to disclose fully or truly all material facts for his assess-ment for that assessment year, any income chargeable to tax has escaped assessment for that assessment year ; or (b) notwithstanding that there has been no omission or failure, on the part of the assessee, the Assessing Officer has in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year, subject to the provisions of sections 148 to 153 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or thereafter, i.e., under the unamended as well as the amended provision of law. The expression "reason to believe" has naturally to be understood in the context of the provisions contained in section 147 of the Act. It is also the requirement of section 147 of the Act that the Assessing Officer before proceeding to take action under the said provision of law and issuing notice under section 148 of the Act, has to record his reasons, which is open to scrutiny by the higher courts. 14. The expression "reason to believe" came to be discussed in various deci-sions of various High Courts as well as of the apex court. The apex court in Sheo Nath Singh [1971] 82 ITR 147, has observed that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person, based upon reasonable grounds and though the Assessing Officer may act on direct or substantial evidence but he cannot act on mere sus-picion, gossip or rumour. It has further been observed that the Assessing Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that the expression "reason to believe" cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. What requires is the formation of a belief from the examination he makes and if he likes from any information that he receives. It has also been observed that in cases where the Assessing Officer had overlooked something at the first assessment, there can be no question of any change of opinion when the income which was chargeable to tax is not actually taxed, though ought to have been under the law, due to an error committed at the first assess-ment. The same view has also been taken by another Division Bench of the Gujarat High Court in Inductotherm (India) P. Ltd. [2007] 294 ITR 341. A Division Bench of the Delhi High Court in Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 has also opined that an action under section 147 of the Act is permissible even if the Assessing Officer gathers his "reasons to believe" from the very same record which was not the subject-matter of the completed assessment proceeding. 16. The expressions "reason to believe", "assessment" and "intimation" occurring in sections 143(1) and 147 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a change of opinion in the context of the earlier assessment made under section 143(1) of the Act and hence is not sustainable in law. 18. What transpires from the judicial pronouncements, as discussed above, is that there must be a live link between the materials on which conclu-sions are based and the actual conclusion of the Assessing Officer in formation of his belief that any income chargeable to tax has escaped assessment. Such reason must be held in good faith and cannot be a pretence and also cannot be based on extraneous or irrelevant consider-ation. Unless the Assessing Officer has "reason to believe" and such reason is material and relevant to form a belief that there is an escaped assess-ment, no action under section 147 of the Act can be taken. Unless there is a rational or intelligible nexus between the reasons and the belief, so that,on such reason any one properly instructed on facts and on law could rea-sonably entertain the belief, the Assessing Officer cannot initiate any action under section 147 of the Act. There is always a necessity of live link between the materials and the belief. The court, however, though, can examine whether there were relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer, for whatever may be the reason. It is open to the Assessing Officer to take into consideration such materials already available before him for the purpose of forming the belief within the mean-ing of section 147 that there is escapement of assessment. The initiation of such proceeding under section 147 is, however, subject to the first proviso thereto. Explanation 2 to section 147 stipulates the cases, which shall be deemed to be escaped assessment within the meaning of section 147. Explanation 2(b) provides that where a return of income has been fur-nished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, it would deemed to be escaped assessment within the meaning of section 147. 21. In the instant cases, it is not in dispute that the transport subsidies received by the assessee relating to the assessment years 1997-98 and 2000-01 were not shown in the profit and loss accounts but in the reserve and surplus account in the relevant returns of income. It is no doubt true that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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