TMI Blog2011 (7) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... ner whatsoever, i.e., either by way of a note in the return or by way of a letter in the course of original assessment proceedings. - Since the income escaped assessment on account of withholding of relevant information, it is held that the Assessing Officer was within his right to reopen the assessment. Regarding addition - The language of the statute is clear that no adjustment is required to be made to the accounts furnished to the Controller of Insurance in respect of profit on sale of investments - Tribunal in the case of the assessee itself is a binding precedent, which has to be followed - These investments are in the nature of stock in trade as the value thereof is adjusted in the books at the end of each year with a view to find out appreciation or depreciation therein - Appeal is dismissed - IT Appeal No. 3910 (Delhi) of 2007 - - - Dated:- 22-7-2011 - I.P. Bansal, K.G. Bansal, JJ. Tarundeep Singh for the Appellant. Raj Tondon for the Respondent. ORDER K.G. Bansal, Accountant Member The facts of this case are that the assessee filed its return on 29.10.2004 declaring nil income. However, the tax was paid u/s 115JB on book profit of Rs. 381,11,15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance) shall be taken to be the balance as disclosed in the annual accounts by the assessee, the copies of which were required under the insurance Act, 1938 (4 of 1938) to be submitted to the prescribed Controller of Insurance (referred to in Schedule 1 of the Income-tax Act, 1961). It is, therefore, clear that the income earned by the assessee from the non-insurance activities are taxable like profit and gains of business and profession. After the omission of Rule 5(b) of first schedule of the I. Tax Act, 1961, with effect from A.Y. 1989-90, the assessee has been crediting directly the profits on the realization of investments/sale of shares of companies and redemption of such investment into the balance sheet under the head general reserve account without subjecting it to the profit: and loss account of the corresponding year. Since this part of the profit and gain is not attributable to the insurance business, the same does not constitute a valid cause for claiming it exempted. Further, taking profit and gains attributable to such activities directly to the balance sheet without subjecting it to the profit and less account of the corresponding year constitute furnishing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such assessment year by reason of the failure on the part of the assessee to either make a return u/s 139 or to respond to a notice issued under sub-section (1) 0f section 142 or section 148 to disclose fully and truly all material facts necessary for his assessment for that assessment year." It is clear from the above that the two Critical aspects need to be addressed in any action under Section 147 are whether the Assessing Officer has "reason to believe" that any income chargeable to tax has escaped assessment and whether the proposed reassessment is within the period of limitation prescribed under the proviso to section 147. Explanation (1) to the said provision makes it clear that production of account books or other evidence from which Assessing Officer could with due diligence discover material evidence would not necessarily amount to disclosure within the meaning of the proviso that stipulates an extended period of limitation for action in cases where the escapement arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Explanation (2) to Section 147, on the other hand, stipulates the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry notices were issued u/s 143(2) and 142(1) for the purpose of completing reassessment proceeding. After hearing the assessee at length, the assessment was completed on 25.01.2007 in which the aforesaid sum of Rs. 505,33,63,209/- was included in the total income. 2. This order was challenged before the CIT(A)-XIX, New Delhi, both in respect of jurisdiction to reopen the assessment and including profit on sale of investments in the total income. Three other grounds regarding withdrawal of interest, and charging of interest u/ss 244A, 234B 234D were also raised. The learned CIT(A) dismissed the appeal of the assessee on 16.08.2007. In regard to reopening the assessment, her findings are that the expression "reason to believe" cannot be equated with the expression "reason to suspect". However, the expression "reason to believe", employed in section 147 also does not mean that a conclusive finding is to be given based on evidence on record. Thus, the expression falls somewhere between the aforesaid extremes. Therefore, if on the basis of material on record justifiable reasons exist to prima facie show that income has escaped assessment, then action can be taken u/s 147. In reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count, is not borne by facts on record. Actually, these facts are wrong. As a matter of fact, section 27B of the Insurance Act permits investment as specified therein including inter alia - (i) shares of any company which have been guaranteed by any other company, such other company having paid dividends on its equity shares for three years immediately preceding or for at least 3 out of 4 or 5 years immediately preceding, and (ii) shares of any company on which dividends of not less than 4% including bonus have been paid for three years immediately preceding or for at least 3 out of the 4 or 5 years immediately preceding. It has also been provided that an insurer shall not invest or keep invested any part of his assets in the shares or debentures of any one company other than a banking company or investment company exceeding 10% of his assets, or 10% of the prescribed share capital and debentures of the company, whichever is less. The assessee has made investments in conformity with these provisions and no infringement has been pointed out either by regulatory authority or by the Assessing Officer. Income from such investments is a part and parcel of the insurance business. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to such profits, are now termed as book profits. None of these adjustments are admittedly applicable in the case of the assessee. The assessee had credited the profits on sale of investments to the profit and loss account. There has been a minor error in recorded reasons in this behalf. However, such a minor error does not make any difference to the conclusion that the income had escaped assessment or that the Assessing Officer had reason to believe in this matter. The reason is that the amount was deducted in computing the total income. The present stand of the learned counsel leads to an anomalous situation that profits on sale of investments are not brought to tax while the loss incurred on depreciation in the value of investments stands allowed. Although, the Assessing Officer initially disallowed this amount in the assessment order but the assessee has got relief in this matter. It is further submitted that the matter regarding taxation of the profit was not discussed at all in the course of original assessment proceedings. The issue discussed was regarding profit or loss on appreciation or depreciation in the value of investments thus, the context was totally different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the matter came to the notice of the Assessing Officer while examining the return of income for immediately succeeding year. Consequently, he recorded reasons and formed the belief that income had escaped assessment. Accordingly, notice u/s 148 was issued. 5.2 Coming to the reasons, there is an error in recording that the aforesaid profit was directly credited to general reserve account. From the discussion made before us, as well as from the order of the learned CIT(A), it is clear that in so far as this year is concerned, the profit was credited to profit and loss account, although, for some earlier years, such profits were credited to general reserve account. It was also mentioned by the Assessing Officer that this profit is not attributable to insurance business but that does not constitute a valid ground for claiming the profit to be exempt from tax. In brief, the case of the learned counsel is that the reasons do not have live nexus with the facts on record and it is a case of change of opinion. On the other hand, the case of the learned DR is that minor error in the reasons do not detract us from the fact that income has escaped assessment. Since no opinion was formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me had escaped assessment? The learned counsel has relied on a number of decisions to support his case. We may discuss them at this juncture. In the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), the question before the Hon'ble Court was regarding validity of reopening of the assessment under pre-amended section 147(a) of the Act. The proposition laid down by the Hon'ble Court to the extent it is applicable to the facts of our case is that there must be a rational connection between material coming to the notice of the Income Tax Officer and formation of his belief. The case of United Electrical Co. (P.) Ltd. v. CIT [2002] 258 ITR 317/125 Taxman 775 (Delhi), dealt with the reopening of an assessment after lapse of more than 4 years from the end of relevant assessment year. The ratio of the case in so far as facts of our case are concerned is that there should be a rational connection or relevant bearing between the facts on record and "reason to believe". Such is also the decision in the case of CIT v. Batra Bhatta Co. [2008] 174 Taxman 444/[2010] 321 ITR 526 (Delhi), in which the appeal of the revenue has been dismissed by mentioning that there is a concurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if, it is held that the material was not obtained in due process of law, the same was capable of being used as it had evidentiary value. The relevant issue in this connection is that the Assessing Officer must have relevant material, which forms the foundation of belief that income had escaped assessment. On the basis of both these cases, it can be said that the Assessing Officer came in possession of some information or material on the basis of which the opinion was formed that income had escaped assessment. In the instant case, no further material has come on record. The decision of the Tribunal in the case of the assessee regarding this issue was rendered prior to even filing the original return. However, the case of the learned DR is that the issue came to the notice of the Assessing Officer in the course of the assessment of immediately succeeding year. Having considered the rival submissions we are of the view that income has certainly escaped assessment within the meaning of section 147, as discussed above. Although, the facts were available on record, it is also equally true that such facts, which were in the knowledge of the assessee, were not specifically brought to the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopen the assessment. In the case of Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170/[1999] 105 Taxman 386 (Delhi), this issue was examined. The Hon'ble Court inter alia considered the decision in the case of Kalyanji Mavji Co. v. CIT [1976] 102 ITR 287 (SC) and Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996/2 Taxman 197 (SC). While deciding the case at hand, the Hon'ble Court mentioned that the reasons and the statement in counter affidavit point out that the Income-tax Officer was not right in allowing deduction u/s 80-I and it was wrongly allowed, therefore, he was of the opinion that income had escaped assessment. Although, he used the phrase "reason to believe", admittedly, nothing new had happened between passing the original assessment order and recording the reasons. It was only fresh application of mind on the same facts by the same Assessing Officer. The order of the CIT(A) dated 28.02.1994 was there before him and that order stands till date. Therefore, what he recorded by way of reasons could have been said in the original order also. Thus, it is a case of mere change of opinion, which does not provide jurisdiction to the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing the return u/s 143(1)(a), there would be no question of change of opinion. On the basis of the decision in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), his further case is that sufficiency or correctness of the material is not a thing to be considered at this stage. Thus, the provision contained in the Insurance Act do not assume importance at this stage. 5.7 We have considered this matter also. The concept of "change of opinion" has been a subject matter of discussion in various decisions under the old as well as the new provisions. Hon'ble Supreme Court, in the case of Kalyanji Mavji Co. ( supra ), took the opinion that this is an amorphous concept, which gets relegated to the background if there is material on record to come to the conclusion that there is reason to believe that income has escaped assessment. However, this view did not find favour with the same court in the case of India Eastern Newspaper Society ( supra ). These decisions were rendered under the old provision where coming into possession of information was one of the necessary pre-conditions for reopening the assessment u/s 147(b). This concept has been approved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, but the same was not pointed out to the Assessing Officer in any manner whatsoever, i.e., either by way of a note in the return or by way of a letter in the course of original assessment proceedings. The Assessing Officer has not made a mention of this decision even in the recorded reasons. However, it is a matter of fact that a deduction patently inadmissible as per statutory language has been claimed in spite of adverse Tribunal decision. We are of the view that such an issue should have been brought to the notice of Assessing Officer specifically, failing which it can be held that special circumstances exist by way of facts on record so as to lead to the conclusion that the Assessing Officer had reason to believe that income had escaped assessment. Since the income escaped assessment on account of withholding of relevant information, it is held that the Assessing Officer was within his right to reopen the assessment. 6. This brings us to the merits of the addition. We have already reproduced the provision contained in Rule 5 of Schedule-1 in paragraph No. 5.4 ( supra ). The language of the statute is clear that no adjustment is required to be made to the accounts fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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