TMI Blog2009 (8) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... im) Investment Pvt. Ltd., incorporated under the Sikkim Registration Act, 1961, advanced an interest free loan of Rs. 25,49,300 to the petitioner company. On or about October 31, 1983, the petitioner company filed its return for the assessment year 1983-84, corresponding to the financial year 1982-83, showing a loss of Rs. 63,270. The said return was apparently filed along with the annual report of the petitioner company containing the audited profit and loss account and balance-sheet for the relevant year, which disclosed the alleged loan of Rs. 25,49,300 allegedly advanced by Mimec (Sikkim) Investment Pvt. Ltd. to the petitioner company. The petitioners have claimed that the said loan was also disclosed in the balance-sheet of Mimec (Sikkim) Investment Pvt. Ltd. for the year in question. On March 20, 1986, the Assessing Officer completed the assessment for the assessment year 1983-84 under section 143(3) of the Income-tax Act, 1961, and computed the total income of the petitioner company at Rs.71,040 for that assessment year, as against the loss return of Rs. 63,270 after disallowing certain deductions claimed. The loan referred to above was accepted The petitioners appealed ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the previous year relevant to the assessment year 1989-90. The Assessing Officer has in his reasons in writing, stated that investigations conducted in course of proceedings for the assessment year 1989-90, revealed that Mimec (Sikkim) Investment Pvt. Ltd., which was a wholly owned subsidiary company of the petitioner company, was no longer traceable. The assessee had stated that the said company was actually functioning from Calcutta, from the same address as the petitioner company. The Assessing Officer also noted that the balance-sheet and the profit and loss account of Mimec (Sikkim) Investment Pvt. Ltd. reflected, advance of over Rs. 29 lakhs to the petitioner company within a few days of incorporation in Sikkim, but the source of the amount had not been properly explained. The Assessing Officer concluded that creation of a subsidiary company in Sikkim in the financial year 1982-83, when the Income-tax Act, 1961, did not apply to Sikkim, and the procurement of loan of Rs. 29 lakhs from the said subsidiary company founded by unknown sources, within a few days of its incorporation, was nothing but an arrangement to bring in funds to the company from undisclosed sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. had no source of income, except income from dividend, the petitioner company did not explain the source from which the loan was funded. The petitioner company was under no obligation to disclose the source from which Mimec (Sikkim) Investment Pvt. Ltd. obtained funds for the loan to the petitioner company. In any case, the materials on record, including the reasons recorded for reopening the assessment do not show that the petitioner company was called upon to explain the source from which the loan given by Mimec (Sikkim) Investment Pvt. Ltd. to the petitioner company was funded. It is not the case of the Revenue that the petitioner company did not explain the source from which the loan was funded, even though it was called upon to do so. It is also not the case of the Revenue that any information furnished by the petitioner with regard to the source of funds for the loan was false. The Revenue further submitted that the notice under section 148 of the Act was issued for the assessment year 1983-84 on May 11, 1992, after obtaining the approval of the Commissioner of Income-tax and after proper recording of reasons. The notice or the order of reassessment made pursuant there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) Where a return of income has been furnished 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 ; (c) Where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 148. Is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under section 147, is existence of the factors specified in the proviso to section 147. It is a matter of record that the petitioners duly filed their return of income for the assessment year in question pursuant to which assessment was completed. The question is, whether there was any failure to disclose fully and truly, material facts necessary for assessment for that assessment year. As observed above, there is no dispute that the loan of about Rs. 29 lakhs odd from Mimec (Sikkim) Investment Pvt. Ltd. had been disclosed in the income-tax return. It is not the case of the Revenue, that the Revenue was not aware of the said loan when income for the relevant assessment year was assessed. The loan from Mimec (Sikkim) Investment Pvt. Ltd. having been disclosed in the return, it was for the Assessing Officer to make necessary investigations with regard to the source of funds of Mimec (Sikkim) Investment Pvt. Ltd., if it deemed it necessary to do so. Having accepted the loan and passed orders of assessment, it is not permissible for the same Assessing Officer and/or his successor in office to reopen the assessment, after expiry of four years from the relevant assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer to draw the correct inference in law, initiation of reassessment proceedings after expiry of four years from the end of the relevant assessment year cannot be justified, in view of the clear language appearing in the proviso to section 147. This view also finds support from the judgment of the Supreme Court in Gemini Leather Stores v. ITO reported in [1975] 100 ITR 1 (SC). In Parashuram Pottery Works Co. Ltd. v. ITO reported in [1977] 106 ITR 1 (SC), the Supreme Court held that failure on the part of the Assessing Officer to allow correct depreciation to the assessee was not a valid ground for initiation of reassessment proceedings. The Supreme Court held that when, on the basis of the facts on record the Income-tax Officer determines the amount of depreciation allowable to the assessee erroneously, the responsibility for that mistake cannot be ascribed to be an omission or failure on the part of the assessee. The Supreme Court quashed the initiation of reassessment after expiry of four years from the end of the relevant assessment year. In CIT v. Cholamandalam Investment and Finance Co. Ltd. reported in [2009] 309 ITR 110 (Mad), the Madras High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling of any return in pursuance of the notice would not invest the Income-tax Officer with power to reassess income of the assessee pursuant to such return. In the State of Madhya Pradesh v. D. K. Yadav reported in AIR 1968 SC 1186, the Supreme Court, inter alia, held that it was well established that where the jurisdiction of an authority depended upon a preliminary finding of fact, this court in exercise of its writ jurisdiction would be entitled to examine whether the findings on jurisdictional facts were correct or not. In Raza Textiles Ltd. v. ITO reported in [1973] 87 ITR 539 (SC) ; AIR 1973 SC 1362, the Supreme Court held that no authority, much less a quasi-judicial authority, could confer jurisdiction on itself by deciding any jurisdictional fact wrongly. The question of whether the jurisdictional fact had rightly been decided or not was a question open to examination by the High Court in an application under article 226 of the Constitution of India. In Raza Textiles Ltd. [1973] 87 ITR 539 (SC), the Supreme Court held that, if in an application under article 226 of the Constitution of India, the Income-tax Officer had assumed jurisdiction by deciding a jurisdictional f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , be it said, may not be based on mere suspicion : it must be founded upon information." In ITO v. Lakhmani Mewal Das reported in [1976] 103 ITR 437 (SC), the Supreme Court reiterated the view taken in Calcutta Discount Co. [1961] 41 ITR 191 (SC) and held that reasons for the formation of belief contemplated by section 147(a) should have a rational connection or relevant bearing on the formation of belief. Rational connection postulates that there must be a live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that, there had 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. In Union Carbide (India) Ltd. v. ITO reported in [1973] 87 ITR 529 (Cal), this court reiterated the conditions and limitations for issuance of notice under section 148 of the Income-tax Act, 1961. This court held that in order to be entitled to issue a notice under section 147(a) of the Income-tax Act, 1961. The Income-tax Officer issuing the notice must hold the belief that due to omission or failure on the part of the assessee to disclose fully o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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