TMI Blog2012 (9) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be quashed - Decided in favor of assessee. - ITA No. 511 & 512/Chd/2012 - - - Dated:- 25-6-2012 - SHRI T.R. SOOD, AND Ms. SUSHMA CHOWLA, JJ. Appellant by: Shri Akhilesh Gupta Assessee by: Shri Sudhir Sehgal ORDER PER T.R. SOOD, A.M In both these appeals identical grounds have been raised which are as under: "1 The ld. CIT(A) erred in quashing the assessment made u/s 147 of the Income-tax Act and holding the re-assessment proceedings null and void. 2. It is prayed that the order of the ld. CIT(A) be set aside and that of the Assessing Officer restored." 2. After hearing both the parties we find that in both these years assessments have been reopened on the basis that the assessee has shown excessive profits because of the availability of deduction u/s 80IA of the Act and such profits were reduced when the deduction was lowered to 25%. 3. On appeal, the ld. CIT(A) decided the issues in favour of the assessee by following the decision of the Tribunal in assessee's own case for Assessment Years 1998-99, 1999-2000 and 2000-01 in ITAs No. 7 8/Chd/2008 and ITA No. 50/Chd/2009. 4. Both the parties were heard. 5. After hearing both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation." [Emphasis, italicized in print, supplied by us] 5. Infact in the latest judgment, the Apex Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) has held that, no opinion is expressed by an Assessing Officer, when an assessment is framed under section 143(1) of the Act and as such, there is no change of opinion on invocation of section 147 of the Act. It was however not been held that in each and every case where return of income is accepted in an intimation under section 143(1) of the Act proceeding under section 147 of the Act can be initiated. On the contrary what has been held is that Assessing Officer has jurisdiction to issue notice under section 148 of the Act if there was '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.' Their Lordships held as under:- "The scope and effect of section 147 of the Act, as substituted with effect from April 1,1989 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 do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC)." [Emphasis, italicized in print Supplied by us] 6. It has therefore been held that "reason to believe" is a mandatory precondition for assumption of jurisdiction under section 147 of the Act. It has been further held that such "reason to believe" must necessarily to be based on relevant material and that relevant material must be such that a reasonable person on information of such material would have formed a requisite belief that income of the assessee has escaped assessment. In this context it would be appropriate to refer to the judgment of Apex Court in the case of Ganga Saran and Sons P. Ltd v. ITO reported in 130 ITR 1 wherein the Supreme Court inter-alia observed that the expression "reason to believe" is stronger than the expression "is satisfied". It was held that belief entertained by the Assessing Officer should not be irrational or arbitrary. Alternatively put it must be reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f issuance of an authorization under section 132 is arbitrary or malafide or whether the satisfaction which is recorded is such which shows lack of application of mind of the appropriate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief then in such a case, action taken under section 132 would be regarded as bad in law." It is thus, trite, that when a challenge is made to the action under section 147 of the Act what the court is required to examine is whether some material exists on record for the Assessing Officer to form the requisite belief and the reasons for the belief have a rational nexus or a relevant bearing to the information of such belief and are not extraneous or irrelevant for the purpose of the said action. But sufficiency of the grounds, which induced the Assessing Officer to act under the said section is not a justiciable issue." [Emphasis, italicized in print, Supplied by us] 7. In the aforestated background now we may advert to the factual position in the instant case. In this case, after the processing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown at Rs.2,96,74,155/- during the period which is insufficient for such a huge production. 9. It is therefore apparent from the reasons recorded that prima-facie belief of the Assessing Officer that deduction under section 80IA of the Act was incorrectly claimed and allowed is unsupported by any material. The Assessing Officer has led no evidence whatsoever to either allege or establish that the expenses incurred were insufficient to carry out the manufacturing process. He has also led no material to assume that net profit declared by the assessee was exceptionally high rate of profit. There is also no material to allege that plant and machinery was insufficient to carry out the manufacturing process. The Assessing Officer has thus not relied upon any material or evidence, which could enable him to assume that income of the assessee, has escaped assessment either by understatement or expenses or overstatement of profits. He has merely proceeded on surmises, conjectures and suspicion to observe that income of the assessee has escaped assessment which in law cannot constitute a reason to believe for invoking section 147 of the Act. Reliance is placed on the judgment of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated or re-opening the assessment. At the same time we have to bear in mind that it is not any and every material howsoever vague and indefinite or distant remote and far-fetched which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of the Act 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening the assessment even if the information is wholly vague indefinite far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence." [Emphasis, Italicized in print, supplied by us] 10. In view of the above in our considered opinion the mandatory pre-condition for taking action under section 147 of the Act that the Assessing Officer should have reason to believe that income of the assessee has escaped assessment and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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