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TMI Blog2014 (6) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... n to believe that the income of the petitioner has escaped the assessment on account of non-disclosure of all material facts truly and factually, has issued such a notice. The reasons recorded for reopening of assessment under section 147 of the Act are as under : "(a) The following sources of investment have been found to be unexplained as the companies who funded the investment have been found to be bogus. The investments were also not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself. The explanation offered by the assessee is also not been found to be satisfactory in view of the following fact : 'In the statement recorded on oath under section 131(1A) of the Act on February 8, 2013, Shri Ashwin C. Jain admitted that all the transactions had been undertaken by him in the name of his family members. Upon being enquired, about New Generation Finvest P. Ltd., SRS Vijay Sales 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice dated March 28, 2013, issued under section 148 of the Act for the assessment year 2006-07 ; (b) pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of reassessment ; (c) pass any other order(s) as this hon'ble court may deem fit and more appropriate in order to grant interim relief to the petitioner ; (d) any other and further relief deemed just and proper be granted in the interest of justice ; (e) to provide for the cost of this petition." On issuance of notice, the respondent filed affidavit-in-reply, inter alia, contending that the petition is premature as there is alternative statutory remedy available under the provisions of the Act and in the event of the petitioner not succeeding in convincing the Assessing Officer in dropping the proceedings under section 147 of the Act, the appeal proceedings are available. It is also contended that for the assessment year under question, the return was processed under section 143(1) of the Act and on scrutiny, the order was passed in the original assessment assessing the income of the petitioner at Rs. 1.51 lakhs (rounded off). However, subsequently it was noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in shares were for more than rupees one lakh, which was a part of AIR information. The assessee had produced ledger accounts and vouchers in response to the AIR information which shows the investment in the profit made therefrom. Therefore, to say that the investment was not recorded in the books of account is contrary to the material on record. Learned counsel, Shri H. V. Vora, appearing for the petitioner, has strenuously and fervently submitted in support of the averments set out in the petitions. He urged that in a matter of scrutiny assessment originally made in the case of the petitioner, when the Assessing Officer has chosen not to make any additions and when the very issue was duly considered in a proceeding under section 147 beyond the period of four years from the end of the relevant assessment year, in the absence of anything to indicate that disclosure was not full and true on all material facts necessary for the purpose of assessment, no jurisdiction is available to the Assessing Officer. He urged that despite alternative remedy available to the petitioner, he cannot be allowed to undergo the hazards of reopening when the very basis of such proceeding is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons recorded that income chargeable to tax, which has escaped assessment is rupees one lakh or more, notice itself deserves to be quashed, as held by this court in case of Bakulbhai Ramanlal Patel v. ITO reported in [2011] 56 DTR (Guj) 212. It is further urged that section 151 desires the satisfaction of the Commissioner to be recorded while permitting the reassessment proceedings on the reasons recorded by the Assessing Officer that it is a fit case for issuance of a notice under section 148, if such notice is issued after the expiry of four years from the end of the relevant assessment year. However, merely writing "Yes" to the proposal would mean a mechanical nod which would be contrary to the settled principle as rendered in the case of Central India Electric Supply Co. Ltd. v. ITO reported in [2011] 333 ITR 237 (Delhi). 8.3 Following are the authorities sought to be relied upon by the learned counsel for the petitioner in support of his contentions, these are (a) ITO v. Lakhmani Mewal Das reported in [1976] 103 ITR 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truly all material facts necessary for the assessment. The requirement of the proviso to section 147 deserves to be satisfied, and, therefore, in the absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped the assessment by reason of failure on the part of the petitioner-assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act would be invalid. 11.2 In the case of Phool Chand Bajrang Lal v. ITO (supra), the apex court was dealing with a case of reassessment. In the original assessment, the assessee-firm claimed that it had borrowed certain amount from a Calcutta based company. The Income-tax Officer directed the assessee to file a copy of account of the said Calcutta company to support the loan transaction and in reply thereto, the assessee produced a confirmatory letter from the said company confirming the payment of loan to the 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, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income-tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific . . . Again, in A. L. A. Firm v. CIT [1991] 189 ITR 285 (SC), a threejudge Bench of this court, to which one of us (S. C. Agrawal J.) was a party, after an elaborate discussion of the subject opined that the jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe, that income chargeable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the transaction was genuine or not, if one the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealer's case [1971] 79 ITR 609 (SC) as laying down law to the contrary fell into an error and did not appreciate the import of that judgment correctly. We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of sections 147(a) and 148 of the Act and is against the settled law laid down by this court. We have to look to the purpose and intent of the provisions. One of the purposes of section 147, appears to us to be, to ensure that a party cannot get away b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had sold certain machinery and had shown three-fourths of sale price as profits. The assessment was accordingly finalized. Depreciation also was allowed at the time of original proceedings. However, later on, it was realized that the same was in excess due to the assessee's failure to disclose availment of initial depreciation. Therefore, the reassessment proceedings were initiated for withdrawing excess depreciation. The court held that the assessee's contention that it was under no obligation to disclose the factum of availment of initial depreciation since the form of return prescribed at the relevant time did not contain any column requiring the assessee to furnish such information could not be accepted. Every assessee is expected to know the law that it was not entitled to claim the normal depreciation above the prescribed ceiling. If that was done and if that had crossed the ceiling by availing of the depreciation, he could be said to have omitted or failed to disclose fully and truly all material facts necessary for the purpose of assessment. 11.5 With regard to Commissioner's having exercised the function under section 148(2) of the Act, the same, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the case of reassessment after the expiry of four years from the end of the relevant assessment year on the ground that the assessee sold his property within three years of conversion, which would result into accrual of short-term gain. In the absence of anything in the reasons recorded to suggest that income chargeable to tax which has escaped assessment was rupees one lakh or more, the reassessment notice issued after four years from the end of the relevant assessment year was held to be invalid. 12.3 The apex court in the case of Chhugamal Rajpal v. S. P. Chaliha (supra) noticed that the Income-tax Officer initiated reassessment proceedings seeking to include certain cash credits appearing in the books of account of the assessee's income on suspicion that the creditors were mere name-lenders though the assessee had produced its books of account and also the statement giving full particulars of creditors at the time of original assessment. The court held that when the Income-tax Officer did not even come to a prima facie conclusion that the transactions were not the genuine transactions and the conclusion arrived at were on a vague feeling that they might be bog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of mind on the part of the Assessing Officer for his having formed a belief that the income chargeable to tax has escaped assessment which is a mandatory requirement, the court held that the jurisdiction assumed by the Assessing Officer for the purpose of reassessment proceeding was invalid. The court also held that (page 54) : "The 'reasons to believe' would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and do not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a conclusion, as this is determined and decided in the assessment order, which is the final stage before the Assessing Officer". 12.7 The Delhi High Court in the case of Central India Electric Supply Co. Ltd. v. ITO (supra) was dealing with a case of reopening. Such reassessment proceedings were initiated alleging that there was non-disclosure of primary facts on the part of the assessee-company which was engaged in generation and supply of electricity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amining the application of these statutory provisions, in the present case, it is necessary to revert to the facts. Admittedly, the assessee had made disclosure in respect of the investment made in three companies and the assessment was completed under section 143(3) on July 1, 2008, after scrutiny. In the reasons recorded for reopening assessment under section 147, the Assessing Officer has noted the fact that the return of the assessee for the assessment year 2006-07 was filed on December 6, 2006, where he declared his come at Rs. 1,46,710, such return was processed under section 143(1) and her case was selected for scrutiny through CASS and, accordingly, the assessment order was passed on July 1, 2008, assessing her income at Rs. 1,51,890. From the sources of investment, the Assessing Officer is of the belief that the companies who funded the investment were found to be bogus. The investments were not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself and the 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, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner, it is true that in the reasons recorded, the Assessing Officer has not specifically recorded that income chargeable to tax which had escaped assessment for the year under consideration was rupees one lakh or more. The impugned reassessment notice issued after four years of the close of the relevant assessment year, since is attacked on the ground of invalidity, it needs to be noted here that in the decision of this court in case of Bakulbhai Ramanlal Patel v. ITO (supra), the reasons did not reflect that the income having escaped assessment was more than rupees one lakh or likely to be more than rupees one lakh, as is required to be done under the provisions of section 149(1)(b). The court, therefore, held that while reopening the assessment beyond the period of four years from the end of relevant assessment year, such recordance is inevitable. Since there is a statutory bar against reopening the assessment, in case where the amount of income escaping the assessment does not amount to rupees one lakh or more. The Assessing 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-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner does not as such help the cause of the petitioner. Further, as recorded earlier, there was ample material on record to suggest that income chargeable to tax had escaped assessment for the reason of the assessee failing to disclose truly and fully all material facts. Additional condition outlined in the proviso to section 147 of the Act thus stood satisfied. Merely because in the reasons recorded, the Assessing Officer did not repeat such phrase would not be fatal to the notice of reopening. What is of importance is the substance and not the form. As long as it can be demonstrated that such condition was satisfied and there was material before the Assessing Officer on the basis of which he came to such a conclusion, in what manner in the reasons recorded, he conveyed the same is not material. In the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy CIT (OSD) (No. 1) reported in [2012] 346 ITR 228 (Guj), it was observed that (page 240) : "From the above judicial pronouncements, the following principles 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made for the relevant assessment year and "the notice is to be issued after the expiry of four years from the end of the relevant assessment year". Thus, while issuing notice of reopening on expiry of four years period from the end of the relevant assessment year, in a case assessment was previously framed under section 143(3) or section 147, seeking approval of the Joint Commissioner by the Assessing Officer is a must. Requirement under the law is that the Joint Commissioner needs to be satisfied on the reasons recorded by the Assessing Officer. 17.2 Of course, in the judicial pronouncements discussed hereinabove, the courts have time and again emphasized that the Income-tax Officer when proposes to reopen the assessment under section 147(a) and requests the Commissioner to accord necessary sanction for reopening the assessment, the Commissioner so as to obviate any impression that he had not applied the mind and also to infuse more confidence in the assessee should state brief reasons while sanctioning such 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that the income chargeable to tax had escaped the assessment. 17.6 The assessee at the time of original assessment in a scrutiny provided details of all the three companies. And as per the reasons recorded, the investments made by the assessee were funded by the companies which were found to be bogus. These details were culled out from the statement on oath given by the husband of the petitioner under section 131(1)(a) on February 8, 2013. The assessment, as noted hereinabove, was concluded on scrutiny on July 1, 2008. Undoubtedly, the assessee provided details of companies since the investment was funded by such companies at the time of assessment. However, later on very existence of the companies was in doubt inasmuch as one Shri Rajesh Jain of Delhi and Shri Amrutlal of Mumbai were the persons through whom the husband of the petitioner was introduced to such companies and when whereabouts of these two persons were inquired, he had pleaded ignorance. The Assessing Officer, therefore, noted that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at limited extent, the court may look the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by him and further whether that material had any rational connection or a live link with the formation of the requisite belief. In the instant case also, these observations and findings would have a direct bearing. The Assessing Officer, at the time of making the original assessment though made an enquiry, could not have found by further inquiry or investigation whether such transactions were genuine or not. However, on the basis of the subsequent informations, he arrived at such conclusion after satisfying both the conditions prescribed under section 147 that the assessee failed to disclose fully and truly all material facts at the time of original assessment and, therefore, the income chargeable to tax had escaped assessment. The Assessing Officer certainly would assume jurisdiction under section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recording of reasons for such reopening by the Income-tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the Income-tax Officer, that it is a fit case for issuance of such notice. The power conferred upon the Income-tax Officer by sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessee from harassment resulting from mechanical reopening of assessments but this protection avails of only to those assessees who disclose all material facts truly and fully. The apex court, while referring to the decision of the Constitution Bench in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), observed and held thus (page 547 of 221 ITR) : "In that case, the alleged non-disclosure of material facts fully and truly-to put in the words of the court-was the failure of the assessee to disclose 'the true intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether, in the above circumstances, the assessee can say, with any justification, that he had fully and truly disclosed the material facts necessary for his assessment for that year. Having created and recorded bogus entries of loans, with what face can the assessee say that he had truly and fully disclosed all material facts necessary for his assessment for that year. True it is that the Income-tax Officer could have investigated the truth of the said assertion-which he actually did in the subsequent assessment year-but that does not relieve the assessee of his obligation, placed upon him by the statute, to disclose fully and truly all material facts. Indubitably, whether a loan, alleged to have been taken by the assessee, is true or false, is a material fact -and not an inference, factual or legal, to be drawn from given facts. In this case, it is shown to us that ten persons (who are alleged to have advanced loans to the assessee in a total sum of Rs. 3,80,000 out of the total hundi loans of Rs. 8,53,298) were established to be bogus persons or mere name lenders in the assessment proceedings relating to subsequent assessment year. Does it not furnish a reasonable ground for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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