TMI Blog2010 (10) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... USTICE HON'BLE MR. JUSTICE MANMOHAN Mr. Udaibir Singh Kochar, Adv. Ms. Rashmi Chopra, Adv. DIPAK MISRA, CJ. By this writ preferred under Article 226 of the Constitution of India, the assessee-petitioner has prayed for issue of a writ of certiorari for quashment of the notice dated 25th March, 2010, Annexure P-II, issued under Section 148 of the Income Tax Act, 1961 (for brevity the Act‟) pertaining to the assessment year 2003-04 by the Income Tax Officer, the 1st respondent herein. 2. The facts which are imperative to be unfurled are that the assessee-petitioner filed its return for the assessment year 2003-04 on 31st March, 2004 declaring an income of Rs. 15,360/-. The said return was processed and intimation under Section 143(1) was issued on 6th April, 2004 accepting the return. As put forth, the petitioner decided to issue shares in accordance with its Memorandum and Articles of Association during the previous year relevant to the assessment year 2003-04 and for the said purpose approached a number of prospective investors. Four private limited companies, namely, Nishant Finvest Pvt. Ltd., Shri Dinanath Luhhariwal Spinning Mills Pvt. Ltd., Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner, and Ms. Rashmi Chopra, learned counsel for the revenue. 6. It is contended by Mr. Kochar that the reasons recorded for initiation of proceedings under Section 147(2) do not disclose the basis. The proceedings have been initiated on the ground of information received from the investigation wing but the order of the assessing officer does not reflect any independent application of mind to the information so received. It is urged that the respondent No.1 has failed to appreciate the ratio laid down in the decision rendered in Lovely Exports (P) Ltd.BI (supra) when all the requisite information was available with the assessing officer from the very beginning. 7. Ms. Rashmi Chopra, learned counsel for the revenue, in support of the order, submitted that the order passed by the assessing officer reflects application of mind and the sufficiency of reasons cannot be gone into at this stage. 8. The singular question that emerges for consideration is whether in the case at hand, the initiation of proceedings under Section 147 is justified in law or not. 9. The assessing officer, while issuing the notice, has stated thus:- "Whereas I have reason to believe that your income ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been completed u/s 143(3) of the I.T. Act. As the assessee had received bogus accommodation entry of Rs.1050000/- during the AY 2003-04, I have reason to believe that income chargeable to tax has escaped assessment." 11. After receipt of the said communication, the assessee-petitioner filed objections to the initiation of proceedings under Section 147 of the Act. We think it apposite to reproduce the main part of the objections, which read as follows:- "1. The reasons do not disclose the basis on which the Addl. DIT has termed the receipt of money by the assessee from four incorporated bodies viz. Nishant Finvest (P) Ltd., Shri Dinanath Luhariwala Spining Mills (P) Ltd., K.R. Fincap (P) Ltd. and Division Trading (P) Ltd. towards share application money as bogus accommodation entries. If any investigations were carried out by Addl. DIT or any witnesses were examined by him who implicated the assessee, the report of such investigations or the statements of the witnesses do not form part of the reasons 2. " ." 3. Further, the alleged information provided by the Addl. DIT has been accepted as gospel truth without any verification by the A.O. The law postulates the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner, that there has been no application of mind and further no new material has been brought to his notice. It is contended by him that the assessing officer was very much aware of the names of the existing four companies and that being the position, the decision in Lovely Exports P. Ltd. (supra) gets squarely attracted and not following the ratio of the said decision amounts to improper exercise of power which makes the order vulnerable and totally untenable. 14. In this context, we think it apt to refer to Section 147 of the Act, which reads as under. "147. Income escaping assessment. 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 income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148." 15. On scanning of the anatomy of the aforesaid provision, it is clear as crystal that the formation of belief is a condition precedent as regards the escapement of the tax pertaining to the assessment year by the assessing officer. The assessing officer is required to form an opinion before he proceeds to issue a notice. The validity of reasons, which are supposed to sustain the formation of an opinion, is challengeable. The reasons to believe are required to be recorded by the assessing officer. 16. In this regard, it is apt to reproduce a passage from N.D. Bhatt, Inspecting Assistant Commissioner, Income Tax Another. v. I.B.M. World Trade Corporation, [1995] 216 ITR 811(Bombay): - "It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the court, on the strength of affidavit or oral submissions advanced." [underlining is ours] 18. In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd, [2007] 291 ITR 500 (SC), it has been ruled thus:- "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s above." 10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as reasons' on the basis of which he was proceeding to issue notice under Section 148. We are afraid that these cannot be the reasons for proceeding under Section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well settled. There is no substantial question of law which arises for our consideration." [Emphasis is ours] 20. On a perusal of the aforesaid decisions, it is graphically clear that once the ingredients of Section 147 are fulfilled, the assessing officer is competent in law to initiate the proceedings under Section 147. To put it differently, the conditions precedent as engra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. 24. Resultantly, the initiation of proceedings under Section 147 and issuance of notice under Section 148 of the Act are hereby quashed. In the facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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