TMI Blog2014 (6) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason to believe is intended to be a check, a limitation, upon his power to reopen the assessment - where the information furnished is found to be false, there could not be possibly any objection to the notice u/s 148 - Till completion of scrutiny assessment, the information provided mentioned clearly that investments made by the petitioner were from the funds of the companies and, therefore, there was no question of treating them as bogus - subsequently when on an investigation, after completion of assessment under sub-section (3) of section 143, the same is found to be bogus, notice u/s 148 of the Act deserves to be held valid - To a limited extent, the court has looked into the conclusion arrived at by the AO in examining whether there was any material available on the record for the AO to form a requisite belief and whether such material had any rational link with the income that escaped assessment and from such scrutiny, no inference is called for. Proceedings of reassessment initiated by the AO on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les P. Ltd. and M/s. Ami Securities, he contended that he had been only in contact with one Shri Rajesh Jain of Delhi and one Shri Amrutlal of Mumbai who in turn introduced him to the said companies for the purpose of providing him with marginal funding for IPO applications. When asked about the whereabouts of Shri Rajesh Jain and Shri Amrutlal and also about contact person for the said purposes, the assessee feigned ignorance. When asked to furnish complete details of how the loan amounts, refunds and profit were extended by the said parties to him, the assessee failed to comply.' In view of the above, I have, therefore, reason to believe that the assessee's income has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. Therefore, this is a fit case for reopening of assessment. In response to such notice, the objections have been raised by the petitioner herein, vide communication dated June 6, 2013, inter alia, contending that any notice issued beyond the period of four years is invalid unless the income has escaped assessment on account of non-disclosure of all material facts truly and fully by the petitioner. It is also contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was passed in the original assessment assessing the income of the petitioner at Rs. 1.51 lakhs (rounded off). However, subsequently it was noticed that the sources of income of Rs. 33.40 lakhs pertaining to purchase of shares remained unexplained, as the companies which funded the said investments were found bogus. Such investments were also not recorded in the books of account of the petitioner and they were squared off during the financial year itself, details were called for. During the course of recordance of statement under section 131(1)(a) of the Act on February 8, 2013, the husband of the assessee, Shri Ashwin Jain, admitted that all transactions were undertaken in the name of the family members and the companies which funded the investment were, viz., New Generation Finvest P. Ltd. ; SRS Vijay Sales P. Ltd. and M/s. Ami Securities. For the purpose of providing marginal funding for IPO applications, he was introduced to these companies through Shri Rajesh Jain of Delhi and Shri Amrutlal of Mumbai. However, whereabouts of these persons were not given and the details with regard to the loan amount, refund and profits, etc., were not furnished. Resultantly, it is the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alternative remedy available to the petitioner, he cannot be allowed to undergo the hazards of reopening when the very basis of such proceeding is absent. He urged that the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO reported in [1961] 41 ITR 191 (SC) ; AIR 1961 SC 372 had quashed the notice on the ground of lack of jurisdiction. Identical are the facts in the instant case where the petitioner has disclosed fully and truly all material facts. He urged the court that in the reasons recorded, the Assessing Officer has solely relied on the material produced by the investigating team and there is no independent application of mind on his part. The Assessing Officer himself has no reason to believe that the income has escaped assessment. He also urged that the petitioner had not dealt with other two companies mentioned in the statement given by the husband of the petitioner, who is a separate entity in the eyes of law. The books of account of the petitioner, according to the learned counsel, reflected the entire transactions, and, therefore, the order rejecting the objection wrongly states that these transactions were not reflected in the books of account and were squ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 437 (SC) ; (b) Mahesh Kumar Gupta v. CIT reported in [2014] 363 ITR 300 (All) ; [2013] 33 Taxmann.com 409 (All) ; (c) Signature Hotels (P.) Ltd. v. ITO reported in [2011] 338 ITR 51 (Delhi) ; (d) Chhugamal Rajpal v. S. P. Chaliha reported in [1971] 79 ITR 603 (SC) ; and (e) Bakulbhai Ramanlal Patel v. ITO reported in [2011] 56 DTR (Guj) 212. Learned counsel, Shri Manish Bhatt, appearing for the Revenue, forcefully submitted that in the wake of the alternative remedy available with the petitioner, no interference is desirable. He urged that though the original assessment was completed on scrutiny, it is very clear from the reasons recorded itself that the petitioner at no point of time had disclosed fully and truly all material facts. He urged that mere disclosure is not sufficient. It has to be true and full disclosure and, therefore, when subsequently, the Assessing Officer had found that the companies which had funded the petitioner for making investment in the shares were bogus, that would not mean the disclosure is full and true. Learned counsel sought to rely upon the following decisions : (a) Phool Chand Bajrang Lal v. ITO reported in [1993] 203 ITR 456 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. For nearly five years, i.e., the assessment years 1963-64 to 1968-69, such deduction of interest, as claimed by the assessee having been paid to the Calcutta company, continued to be allowed by the Income-tax Officer. Later on, the Income-tax Officer entertained some doubts about the genuineness of the loan transaction, and, therefore, a communication was sent to the Income-tax Officer stationed at Calcutta. It was realized that the managing director of the said Calcutta company had confessed that he was only a name-lender and had not advanced any loan to any party during the three assessment years. Thus, these transactions were found to be bogus on the basis of the subsequent information received. In the light of these facts, the apex court held and observed thus (pages 473, 476) : In the present case, as already noticed, the Income-tax Officer Azamgarh, subsequent to completion of the original assessment proceedings, on making an enquiry from the jurisdictional Income-tax Officer at Calcutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash, had not really lent any money but only its name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into his possession subsequent to the previous concluded assessment, reason to believe, that income chargeable to tax and had escaped assessment. It was held that even if the information be such that it could have been obtained by the Income-tax Officer during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income-tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under section 147 of the Act are satisfied. From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under section 147(a) read with section 148 of the Income-tax, Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income-tax has escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent of the provisions. One of the purposes of section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be travesty of justice to allow the assessee that latitude. In our opinion, therefore, in the facts of the present case the Income-tax Officer, Azamgarh rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and therefore income chargeable to tax had escaped assessment. He, therefore, correctly invoked the provisions of sections 147(a) and 148 of the Act. The High Court was, thus, perfectly justified in dismissing the writ petition. There is no merit in this appeal which fails and is dismissed but with no order as to costs. 11.3 In the case of P. Munirathnam Chetty and P. Satyanaraya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment. 11.5 With regard to Commissioner's having exercised the function under section 148(2) of the Act, the same, however, was held not to be mechanical. The court, therefore, held that, The Commissioner's function under section 148(2) is not a mechanical one. He has to peruse the reasons and form an opinion that the assessee has failed to disclose fully and truly all material facts necessary for assessment of that year, and that the same has led to the income chargeable to tax escaping assessment. Obviously, he cannot form this opinion or satisfaction unless the basic facts constituting such non-disclosure are stated in the reasons recorded by the Income-tax Officer. The Income-tax Officer must broadly indicate the fact or facts, which constitute non-disclosure leading to assessable income escaping assessment . At this juncture, some of the judgments sought to be relied upon by the petitioner deserve consideration. 12.1 In the case of Bakulbhai Ramanlal Patel v. ITO (supra), the reasons recorded in the proceedings of reassessment were found to be vague or non-existent and in the light of these facts, the court held that for the purpose of invoking the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion that the transactions were not the genuine transactions and the conclusion arrived at were on a vague feeling that they might be bogus transactions, would not amount to fulfilling the requirements of the provisions of section 151(2). In the case before the apex court, the Commissioner also mechanically accorded permission, and, therefore, the court held that the important safeguards provided in section 147 and section 151 were lightly treated by the Income-tax Officer and the Commissioner, and, therefore, the notice was held invalid. 12.4 The apex court in the case of ITO v. Lakhmani Mewal Das (supra) held that in the case of reassessment proceedings, the reasons recorded for formation of belief, as contemplated under section 147(a) must have a rational connection with or a relevant bearing on the formation of belief and the rational connection postulates that there must be direct nexus or live link between material coming to the Income-tax Officer's notice and formation of his belief that there has been escapement of the assessee's income from assessment in a particular year because of his failure to disclose fully and truly all material facts. 12.5 In a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctricity from its unit. Its unit were acquired by the State Government in 1964 and compensation thereof was paid in the same year. The assessee had made the claim for higher compensation and the matter was finally settled by the Supreme Court nearly after 10 years and the enhanced compensation was availed of to the assessee in the assessment year 1979-80. 12.8 The Assessing Officer was of the belief that since the income had accrued to the assessee under the head of long-term capital gains given on transfer of assets in respect of its two units, such income was to be taxed in the very assessment year, i.e., 1964 when the transfer took place. Considering the fact that the Supreme Court pronounced its judgment which settled the dispute of enhanced compensation, the Delhi High Court held that there was no lack of disclosure by the assessee with respect to the enhanced compensation and, therefore, reopening of assessment for the relevant assessment year was held without jurisdiction. 12.9 In this very judgment, on the issue of sanction for issuance of the notice as contemplated under section 151, the court held and observed that mere rubber stamping of underlying material would s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation offered by the assessee was not found to be satisfactory, inasmuch as, the statement recorded under section 131(1)(a) of Shri Ashwin C. Jain, husband of the petitioner on February 8, 2013, wherein he admitted that such name sake transactions had been undertaken by him were in the name of his family members. With regard to the three companies, viz., New Generation Finvest P. Ltd. ; SRS Vijay Sales P. Ltd. and M/s. Ami Securities, he stated, inter alia, that he was in contact with one Shri Rajesh Jain of Delhi and one Shri Amrutlal of Mumbai who introduced him to the said companies for the purpose of providing him with margin funding for I. P. O. applications. However, he had no clue with regard to the whereabouts of both these persons. He also failed to furnish details of loan amounts, refunds and profit extended by the said parties to him. The Income-tax Officer on the basis of these details formed his belief that the assessee's income had escaped assessment within the meaning of section 147 of the Act. This was thus a case where there were no full and true disclosures by the assessee. 14.1 It is also to be noted that for approval to be obtained of Additional Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer is required to record a finding to that effect and when no such finding had been recorded, except for a bare averment made in the affidavit-in-reply stating therein that income which had escaped assessment was more than rupees one lakh, and, thus, in the absence of any material on record to indicate that extent of income which had escaped assessment, the court held that the assumption of jurisdiction on the part of the Assessing Officer under section 147 was invalid. 15.1 We notice that as in the case of Bakulbhai Ramanlal Patel v. ITO (supra), in the instant case also, the reasons do not reflect that the income having escaped assessment is more than rupees one lakh or likely to be more than rupees one lakh, as required under section 149(1)(b) of the Act. However, the vital difference favouring the Revenue in the instant case is the fact that in Form No. ITNS 10, while placing the reasons recorded for approval of the Commissioner prior to the issuance of the notice under section 148, the Assessing Officer had recorded in column No. 6 that the income which has escaped the assessment was Rs. 33,40,980, which obviously is more than the statutory requirement of rupee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples can be culled out : (i) To confer jurisdiction to the Assessing Officer to reopen the assessment under section 147 of the Income-tax Act, beyond four years from the end of assessment year, the following two conditions must be satisfied (a) that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment ; and (b) that the same was occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year ; (ii) Both the above conditions are condition precedent and must be satisfied simultaneously before the Incometax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year ; (iii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail ; (iv) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch proceeding under section 147 of the Act. 17.3 The reference needs to be made at this stage of Circular No. 1 of 2009, dated March 27, 2009 ([2009] 310 ITR (St.) 42), of the Central Board of Direct Taxes sought to be relied upon by the Revenue which is a self-explanatory note to the provisions of the Finance Act, 2008, where Note No. 29 concerns amendment in respect of reassessment proceedings. It is meant to clarify the correct legislative intention in respect of the amendment relating to section 151 which has been made applicable with effect from October 1, 1998. It has been stated that the legislative intent is very clear that the Joint Commissioner is only required to be satisfied on the reasons recorded by the Assessing Officer and no notice is required to be issued by him. Possibly this was necessitated as some pronouncements on this issue insisted upon the issuance of notice at the end of the Joint Commissioner. Here, of course, that is neither the case nor insistence of the petitioner. 17.4 However, so as to aver such allegations of non-application of mind all that is desirable is that the Joint Commissioner should briefly state his reasons. However, only because he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the source of investment in such circumstances remained unexplained as the companies are found to be bogus and in the books of account of the assessee, such investments were not found and were squared off during the financial year itself. 17.7 To such last portion of reasons recorded, i.e., the absence of reflection of such investment in the books of account and the same having been squared off during the financial year itself has been rigorously challenged by the petitioner. It as contended that this is completely bereft of facts, and, therefore, assumption of jurisdiction should be held invalid. 17.8 In our mind, even if the assessee is in a position to point out that such investments were part of his books of account and were not squared off in the years itself, the far more vital in the reasons recorded is the aspect of the companies from whose fund investments were made in the Assessing Officer's belief are bogus, such details had been culled out from the statement recorded by none other than husband of the petitioner who also had stated that he had carried out the transactions in the name of his family members. It is not being disputed by the petitioner that her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 147. The contention raised before us that the Assessing Officer had all the powers to further probe into the controversies of the transactions as reflected in the return at the time of original assessment proceedings also need not be gone into at this stage. As again held by the court in the case of Phool Chand Bajrang Lal (supra), (page 478) : one has to look to the purpose and intent of the provisions. One of the purposes of section 147 appears to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude . 19.1 In the instant case also, we noticed that the Assessing Officer on the basis of the material provided by the investigating wing ; particularly the statement recorded under section 131(1)(a) notices the falsehood in the disclosure made by the assessee at the time of original assessment. Assuming that the dealing of the petitioner was only with one company and not all of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure of the assessee to disclose 'the true intention behind the sale of the shares'. The assessee had stated during the assessment proceedings that the sale of shares during the relevant assessment years was a casual transaction in the nature of mere change of investment. The Income-tax Officer found later that those sales were really in the nature of trading transactions. The case of the Revenue was that the assessee ought to have stated that they were trading transactions and that his assertion that they were casual transactions, in the nature of change of investment, amounted to 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' within the meaning of section 34. This contention of the Revenue was rejected holding that the true nature of the transaction, being a matter capable of different opinions, is not a material or primary fact but a matter of inference and, hence, it cannot be said that there was an omission or failure of the nature contemplated by section 34 on the part of the assessee. Now, what needs to be emphasized is that the obligation on the assessee to disclose the material facts-or wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year. Does it not furnish a reasonable ground for the Income-tax Officer to believe that on account of the failure-indeed not a mere failure but a positive design to mislead of the assessee to disclose all material facts, fully and truly, necessary for the assessment for that year, income had escaped assessment ? We are of the firm opinion that it does. It is necessary to reiterate that we are now at the stage of the validity of the notice under section 148/ 147. The enquiry at this stage of the only to see whether there are reasonable grounds for the Income-tax Officer to believe and not whether omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. 19.2 Thus, where the information furnished is found to be false, there could not be possibly any objection to the notice under section 148. Till completion of scrutiny assessment, the information provided mentioned clearly that investments made by the petitioner were from the funds of the companies and, therefore, there was no question of treating them as bogus. However, subsequently when on an investigation, after completion of assessment under sub-section (3) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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