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TMI Blog2012 (4) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... icer noticed that the assessee had filed return for the assessment year 1998- 1999 declaring nil income after claiming deduction of Rs.61,32,678/- under Section 80-1A of the Act. The return was processed under Section 143(1) of the Act. The Assessing Officer had reason to believe that the income of the respondent had escaped assessment because of the failure on the part of the assessee/respondent to disclose all material facts truly and fully which required further investigation. Consequently, the case was taken for re-assessment under Section 147 and notice under Section 148 of the Act was issued to the assessee. The Assistant Commissioner then noticed that neither the wages and attendance registers of the workers nor any details about their numbers and remuneration drawn have been produced and in this event, proceeded to disallow the exemption claimed this, coupled with the fact that the assessee has declared gross profit of Rs.67,11,564/- on net sales of Rs.1,73,23,023/- making the gross profit ratio at 38.74%, he holds that this is an astonishingly high rate which is not comparable to any other similar case in the line of business of the assessee. Copy of the assessment order i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e takes into consideration a number of decisions on the point; namely; Sri Krishna (P) Ltd. vs. Income Tax Officer, (1996) 221 ITR 538 (SC), Chugamal Rajpal vs. S.P. Chailiha & Others, (1971)79 ITR 603 (SC), Smt.Rina Sen Vs. CIT (1998)101 Taxman 151 (Patna). 5. In a nutshell what the Commissioner held was that the powers could not be used to exercise jurisdiction simply for proceeding on a roving or fishing inquiry. Adverting to the decision of the Supreme Court in Ganga Saran & Sons (P) Ltd. vs. ITO 112: (1981) 130 ITR 1(SC), where it was held that expression `reason to believe' must be stronger than the words `satisfied' which in the present case were missing. The Commissioner then holds that the reasons recorded by the Assessing Officer are inferential and belief according to the inferences drawn by him is not on the basis of any evidence or information on record. He then proceeds that comparison of book results of M/s.Shivam Knit Fab for the assessment year 2003-2004 with the book results of the appellant-assessee for the year 1998-1999, based on this the Assessing Officer restricted the claim of the appellant to 14% of the net profit and worked out the eligible profit under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Income Tax Act. A number of decisions were also cited by the respondent in support of its contention. 8. We find that the Tribunal records as an undisputed fact that the assessee had filed return for the assessment year 2000-2001 which was processed under Section 143(1) of the Act and assessed under Section 143(3) of the Act and had recorded that the conditions for grant of deduction under Section 80-1B were satisfied. It then paraphrases the reasons for reopening the assessment which are:- (i) "That the assessee had disclosed abnormal GP at 38.7% and net rate of profit at 35.4%. According to the AO, such a high rate of profit appears to have been worked out by either suppressing the manufacturing and administrative expenses or not debiting even genuine expenses. (ii) That whether the assessee fulfils the conditions eligible for deduction u/s 801A or not are to be investigated & (iii) That the expenses on wages amounting to Rs.2.58,040 are too low for engaging 10 or more workers in the business of manufacturing of articles and things." 9. The learned Tribunal then proceeds that whether the net rate of profit of 35.4% is reasonable or unreasonable would depend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision of the Supreme Court in Indian Oil Corporation vs. Income Tax Officer, Central Circle V, Calcutta and Others, (1986)3 SCC 409. The Court holds:- "25. The principles on this branch of law are well settled. 26. To confer jurisdiction under clause (a) of Section 147 of the Act beyond the period of four years but within a period of eight years from the end of the relevant year under Section 148 of the assessment year, two conditions were required to be fulfilled : first is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to tax had been under-assessed or escaped assessment; the second was that he must have reason to believe that such escapement or under -assessment was occasioned by reason so far as relevant for the present purpose to disclose fully and truly all material facts necessary for the assessment of that year. Both these conditions are conditions precedent to be satisfied. See in this connection the observations of this Court in Calcutta Discount Co. Ltd. v. I T O, AIR 1961 SC 372. The obligation, therefore, of the assessee primarily was to disclose fully and truly all material and relevant facts; that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of non-production of the relevant auditors' certificate which was asked for at one stage, it was not open to the Revenue to turn around and say that the income of the assessee had escaped assessment or been underassessed due to the failure of the assessee to disclose those very auditors' reports. Under-assessment was due to the laches on the part of the Revenue and not due to any omission on the part of the assessee and notice issued under Section 148 was quashed. This was challenged before a Division Bench of the Calcutta High Court which held that: "23. ... ... ... ... ... the assessee had failed to disclose: (1) the basis of allocation of expenses; (2) correspondence between the London principal and the assesseecompany on the relevant subject; (3) existence of auditor's certificate fixing percentage that would be reasonable for allocation in respect of the subsidiary companies including the assessee. These were some of the important materials which the assessee failed to disclose." (p-418) 15. The Supreme Court quashed the order of the Division Bench upholding the order of the learned Single Judge. 16. Considering the facts in this case the Supreme Court, upholding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (2007)291 ITR 500 (SC), the Supreme Court considered the ambit and scope of Section 143(1)(a), (3) and Section 147. The Court holds:- "16. 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 the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. " (pp.511-512) 20. Reliance was also placed by the Revenue on the decision of the Allahabad High Court in Shyam Bansal vs. Assistant Commissioner of Income-Tax, (2008)296 ITR 25(All) which we need not consider in detail as the principles are now well settled by the Supreme Court in the cases (supra) which have been reaffirmed in Commissioner of Income-Tax vs. (1) Kelvinator of India Ltd. (2) Eicher Ltd., (2010)320 ITR 561(SC) holding:- "6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from Ist April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-Ist April, 1989, po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." (pp.-564-565) 21. Learned counsel relies upon the decision of the Supreme Court in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited, (2008)14 SCC 208. There, again, the provisions of Sections 147, 148 to 152 were considered by the Supreme Court by holding:- "21. The scope and effect of section 147 as substituted with effect from 1.4.1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied, firstly, the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly, he must also h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider any other precedent as the law settled by the Supreme Court is clear on the point. It is not the mere whim or opinion of the Assessing Officer which would entitle him to invoke the powers for re-opening assessment. 24. From the order of the Tribunal, what we find is that after paraphrasing the reasons set out by the Assessing Officer for reopening the assessment proceedings, the learned Tribunal holds that: (a) whether the net rate of profit of 35.4% is reasonable or unreasonable depends upon the facts and circumstances of each case. The Assessing Officer does not indicate as to how this ground for reopening exists. The Tribunal then holds that the Assessing Officer had already proceeded to accept the returns of the respondent herein for the assessment years 2000-2001, 2001-2002 under Section 143(3) where the profit rate disclosed was between 30% and 40%. The assessee's own case was comparable as an indicator/factor which should have been taken into consideration and not that of any other assessee for a different period which could not be the foundation or the reason to reopen assessment. We may not go that far but we hold that when this high rate of profit is acce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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