TMI Blog2014 (1) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ck as invalid. Following Hindustan Lever Ltd. vs. R.B. Wadkar, ACIT (No.1) [2004 (2) TMI 41 - BOMBAY High Court] - The assessment made under sec.143(3) cannot be reopened under sec. 148 beyond period of 4 years as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. Reopening of the assessment is not permissible as there is no tangible material – Following Ranjit Reddy vs. Dy.CIT, Hyderabad (2013) 144 ITD 361 [2013 (6) TMI 424 - ITAT HYDERABAD] - One needs to give a schematic interpretation to the words 'reasons to believe' failing which, section 147 would give arbitrary power to Assessing Officer to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The A.O. has no power to review; he has the power to reassess - The A.O. has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief – Decided in favour of assessee. - ITA No. 1233/HYD/2011, 810/HYD/2011, 1496/HYD/2010, 1497/Hyd/2010, 950/Hyd/2011, 811/Hyd/2011, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 148 stating that the assessment cannot be reopened after expiry of 4 years unless there is omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. It was further submitted that there is no record or evidence that any income of the assessee was siphoned off nor there is any evidence that any particular income has escaped assessment. The Assessing Officer however, rejected the contention and examined the accounts which were already accepted under section 143(3), thereby making additions of investments made in the land, credits in the bank account, unsecured loans and addition to fixed assets thereby both the credits and debits have been brought to tax as income as against the NIL income returned in the order under section 143(3) and the total income was determined at Rs.21,76,753/-. 5. The assessee objected before the CIT(A) to the reopening of the assessment on the ground that the provisions of section 148 have been wrongly invoked and accordingly, reopening is not valid in law. The assessee raised the following ground before the CIT(A) in all the present appeals before us. "The Assessing Officer ought not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in- built test to check abuse of power by the assessing officer." ii) This decision of apex court was followed in CIT vs. Goetze (India) Ltd., (reported in 321 ITR 431 (Delhi) ). Similarly, the Madras High Court in the case of CIT vs. K.K. Palaniswamy (321 ITR 474) have brought out the distinction between escapement of income and a matter of change of opinion. In this decision the Madras High Court followed the decision of Apex Court in the case of CIT vs. Foramer France (reported in 264 ITR 566) which judgment was rendered by the apex court even before the decision rendered in the case of Kelvenator of India Ltd. In the case of Forarner France, the apex court made it clear that the law was the same before and after amendment by the Direct Tax Laws (Amendments) Act, 1987 as to section 147. It was further held that when admittedly, there is no failure on the part of the assessee who disclosed fully and truly all the material facts for assessment, it can only be construed as a Change of opinion a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer since could not bring any further material on record to show that the appellant has not fully and truly disclosed all the material facts necessary and relevant to the assessment, by recourse to the provisions of section 147 is not proper and accordingly not justified. 7. Thus relying on the judicial decision that have been mentioned to substantiate the argument that the re-opening of the assessment is bad in law and not warranted on facts. It is further submitted that the decision of the Apex Court in the case of CIT vs. Kelvinator of India Ltd., (reported in 320 ITR page 561) need the consideration of the Hon'ble Commissioner of Income Tax. At page 564 the Apex Court held as under which was mentioned above. "we must also keep in mind the conceptual difference between power to review and power to review, he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the department, then, in the garb of reopening the assessment review would take place. One must treat the concept of "change of opinion" as an in-build test to check abuse of powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was based on proper jurisdiction ? ii) Where the materials relevant for the assessment have been furnished by the appellant and thus available on the records and when the original assessment was completed after scrutiny, can the assessment be reopened after the expiry of four years limit? iii) While reasons recorded being similar and stereotyped in all the cases, and that too without any tangible material in the possession of the assessing officer and equally when reasons recorded thus do not justify the reassessment notice, is the reassessment justified ? iv) In the absence of an allegation in the reasons recorded by the assessing officer that the appellant had failed to make a full and true disclosure of relevant facts whether the initiation of proceedings is justified? 7. The CIT(A) held as under : "4.2 The Assessing Officer is of the view that the appellant company is one of the many companies floated by Sri B. .Ramalinga Raju who was Ex-Chairman of M/s. Satyam Computer Services Ltd where the Central Investigation Agencies have conducted search and seized the books of accounts and incriminating documents and similar action was taken up by Central Investigation Agencie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s.148 and the assessment made thereon is invalid, without jurisdiction and therefore must be quashed. 6. The learned CIT(A)-VII, Hyderabad failed to note that there was no application of mind by the Assessing Officer to the reasons recorded and the entire reopening of the assessment was under the direction of superior officers and therefore the entire assessment suffers from legal infirmity and is totally contrary to the statutory provisions and hence must be quashed. 7. The learned CIT(A)-VII, Hyderabad, failed to note that the Assessing Officer was fully aware of the existence of the companies with whom M/s. Satyam Computers Services Ltd. (SCSL) had entered into transactions which were not fictitious companies and neither their existence or their identity disputed and therefore on the mere statement of Sri B. Ramalinga Raju, Ex.Chairman of M/s. SCSL, the assessment of the appellant company could not be reopened without their being any material or any information having a direct link to the appellant company and therefore, the issue of notice u/s. 148 and the assessment made thereon is invalid, without jurisdiction and therefore must be quashed. 8. The learned CIT(A)-VII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vague, unreasonable, incomplete and irrational. No rational or reasonable person can form or decipher from the reasons that income had escaped assessment. No conclusion or formation of a belief is possible from the said reasons that income chargeable to tax has escaped assessment. The reasons do not show any link, which is a pre-requisite and essential condition for re-opening the assessment. In view of the aforesaid, the reassessment notice and the impugned order issued under Section 148 read with Section 147 for the assessment year 2002- 03 is hereby set aside". 9.1. The learned Counsel for the assessee further relied on the decision of Xerox Modicorp Ltd. vs. DCIT (2013) 350 ITR 308 (Del.) wherein it was held as follows : "It was held that it is settled law that the assessing authority cannot keep improving his case from time to time and that the reassessment proceedings have to stand or fall on the basis of what was stated in the reasons recorded u/s. 148(2) and nothing more. No failure to furnish full and true particulars relating to the royalty payments, including the failure to file the relevant agreements, had been alleged in the reasons recorded. If anything, the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im independently to assess some other income. 17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in s. 147(1) and on the basis of the precedent on the subject. We agree with the submissions which has been urged on behalf of the assessee that s. 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the AO may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Expln. 3 to s. 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh (supra). Parliament has not taken away the basis of that decision. While it is open to Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The AO did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The AO has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under s. 148 of the Act. Read in this light, what has been recorded by the AO as the "reasons to believe" is nothing more than a report given by him to the CIT. As held by the Supreme Court in Chhugam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the Order of the CIT(A) and submitted that the reply given by the Assessing Officer for reopening under section 147 is exhaustive and reiterated the same which is as follows : "4.1. The objections raised by the assessee against the reopening of the assessments were rejected by way of a speaking order dated 14.12.2009 which is reproduced as under: 'please refer to this office letter dated 20.11.2009 calling for certain details which would throw some light on your efforts to get the books of accounts and other documents produced before the undersigned. In response to the same you have filed a letter on 8.12.2009 stating that the documents submitted date wise are as per annexure. However, no annexure has been attached. You are requested to file the annexure at the earliest. Further along with the above letter reasons for reopening of assessment for AY 2002-03 were also supplied and in response thereof you have filed your objections with the above mentioned reply. The objections put forth by you regarding the proceedings initiated u/s 148 are not acceptable in view of the following reasons. "It is the stated position of the law that the sufficiency of reasons to belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening the proceedings whether to assess, re-assess or to re-compute income it is predicated on a test whether a reasonable person would form a belief that there was relevant material for initiating proceedings under section 147 of the Act. Notwithstanding the foregoing, it is brought to your kind notice that you have adequate alternate remedies available to you against the reassessment in so far as much that order is appealable as per the provisions of the Income Tax Act, 1961 u/s 246A before ClT(A). Accordingly, you are requested to file the details as called for by the department as the part of the subject assessment proceedings in your case, to enable the department to pass suitable assessment orders. In view of the above, the objections raised by you against proceedings u/s 147 are hereby rejected. You are requested to furnish all the information as called for the purpose of finalization of the reopened assessment." 11. We have heard both the parties. We find that the assessment has already been completed under section 143(3) after scrutiny in which the department has accepted the claims of the assessee. For the concept of change of opinion, the Supreme Court has held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required to form an opinion before he proceeded to issue a notice. The validity of reasons, which were supposed to sustain the formation of an opinion, was challengeable". 14. In the case of Hindustan Lever Ltd. vs. R.B. Wadkar, ACIT (No.1) (2004) 268 ITR 332 (Bom.) (H.C.) the Hon'ble Bombay High Court held as follows : "That the notice was clearly beyond the period of four years. The reasons recorded by the Assessing Officer nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, the Assessing Officer had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed." 15. In the case of Mahalaxmi Motors Ltd. vs. DCIT reported in (2004) 265 ITR 53 (A.P.) (H.C.) the jurisdictional High Court has held that when all the facts had been fully disclosed by the petitioner, the notice of re-assessment was not valid and was liable to be quashed. 16. We rely on the decisions of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.) and ACIT vs. Major Deepak Mehta (2012) 344 ITR 641 to conclude that the A.O. has not complie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial, he came to the conclusion that it was not permissible for the Assessing Officer to reopen the assessment. The learned Accountant Member, however, took a different view relying on the decision of Hon'ble Supreme Court in the case of Rajesli Jhaveri Stock Brokers (P) Ltd. (supra) and the matter, therefore, was referred to a Third Member for resolving inter alia, the following point of difference :- "Whether on the facts and circumstances of the proceedings initiated by the A.O. u/ s 147 is liable to be confirmed or quashed when there was no fresh material available with the AO and the assessment had been completed originally u/ s 143( 1 )." The Third Member agreed with the view taken by the learned Judicial Member relying mainly on the decision of Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) and Eicher Ltd. 320 ITR 561. It was held by the Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that a reassessment notice issued u/ s 148 in a case where the original assessment was made u/ s 143( 1) cannot be challenged on the ground of a mere change of opinion, it is open to an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment. (iv) The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening. (v) As can be seen from the assessment order, the assessment completed has no relation at all with the reasons for reopening. Even though assessee belongs to Satyam Group of Companies, there is no evidence of siphoning of funds or escapement of income. What the Assessing Officer has done in the assessment is denial of the explanations given by the assessee with reference to various investments made through the books of accounts, various credits and loans obtained and also addition to fixed assets on the reason that the evidences have not been filed. Thus as can be seen from the order, there is no nexus at all with reference to the reasons for reopening and the assessment completed. 19. Hence, there being no nexus or live-link with the reasons recorded and the 'formation of belief' to come to a conclusion that there was escap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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