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TMI Blog2014 (12) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.12.2006. (2) That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the information based on which the A.O had reopened the assessment was wholly vague, indefinite, farfetched and remote. (3) That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in annulling the assessment when the matter was setaside to the file of CIT(A) by the Hon'ble ITAT to re-decide the issue regarding non issue of notice u/s 143(2) of the Act, after taking into consideration Madras High Court decision as reported in 294 ITR 233 in the case of Areva T and D India Ltd vs ACIT." 2. Since all these 12 appeals filed by the Revenue involve common facts except for the change in the figures, therefore, both the ld. DR and ld. AR agreed that all these appeals be disposed off on the basis of the facts involved in the case of Rameshwarlal Sajjan Kumar in ITA No. 579/Kol/2010 and whatever view this Tribunal takes in the case of Rameshwarlal Sajjan Kumar, the same may be followed in other cases also. 3. The brief facts of this case are that the original assessment was made u/s 143(3) determining total loss at Rs. 29,44,890/- vide order dt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is a fit case to initiate proceeding under section 148. So, issue notice notice U/s. 148 immediately. Sd/- (R.P. Nag) A.C.I.T, CC.XVI, Kolkata" 3.1 Subsequently, re-assessment u/s 147/143(3) was completed on 29.12.2006 determining the taxable income at Rs. 2,85,65,940/-. The additions made include the cash loan of Rs. 2,64,53,891/- and the interest thereon amounting to Rs. 50,56,938/-. The Assessee went in appeal before the CIT(A) who vide order dt. 7.3.2007 annulled the assessment by observing as under : "11. Considering the fact and that the service of notice u/s. 143(2) is mandatory, it makes no difference, whether a revised return was filed by the assessee in response to notice u/s. 148 or request was made to treat the earlier return filed u/s. 139 as return filed in response to the notice u/s. 148 of the Act. Further, it is also of no significance that the assessing officer continued the assessment proceeding by issuing notice u/s. 142(1) and due compliance of the same was made by the assessee. Recently, this issue was considered and examined in details by Hon'ble ITAT, Ahmedabad and it was held that notice u/s. 142(1) cannot be deemed as notice u/s. 143(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders passed by the A.O. In the said case law, the Hon'ble Madras High Court has observed as under :- "that it was admitted that the notice under section 148 was valid. The facts showed that (i) the original return as well as the subsequent return filed in response to the notice under section 148 of the Act, were the same and there was no difference in the contents of both the returns; (ii) the assessee himself participated in all the proceedings objecting to the reassessment; (iii) the objections of the assessee were not considered by the Assessing Officer; (iv) there was a valid reopening of the assessment, but there were procedural irregularities committed by the Assessing Officer in completing the reassessment. [Matter remanded with a direction to the Assessing Officer to consider the matter afresh, particularly the objections by the assessee for the reopening and issue of notice under section 143(2)]" Keeping in view the fact that the case law was not considered by the Ld. CIT(Appeals), we consider it fit to set aside the issue to the file of the Ld. CIT(Appeals) to redecide the same after taking into consideration the Madras High Court decision as reported in 294 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and direct the Assessing Officer to remove an irregularity in the nature of non issue of notice u/s 143(2) of the I.T. Act in respect of a completed assessment order. Therefore it is not possible for the undersigned to either remove or ask the Assessing Officer to remove the irregularity of non issue of notice u/s 143(2) of the I.T. Act in respect of an assessment order which is already completed. 4. My predecessor had passed the order on 28.02.2008 and till that date finance act 2008 was not implemented. A new section 292BB was added in the Income Tax Act vide Finance Act 2008. The section is narrated as under: "292BB. Notice deemed to be valid in certain circumstances. Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- (a) not served upon him; or (b) not served upon him in time; or (c) serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer had this information at the time of making original assessment. This information was not utilized to make any addition to total income for the Assessment Year under appeal in the original assessment made u/s 143(3) on 15.02.2002. However Assessing Officer inferred from the same information, which was available with him even at the time of making the original assessment, that the preference shares of Rs. 54,00,000/- issued during the Assessment Year under appeal were bogus in light of the confession made by Sri Sunil Kumar Agrawal vide his statement dated 26.03.1999. 4.2 I had called for the statement of Sri Sunil Kumar Agrawal dated 26.03.1999 from the Assessing Officer during the appellate proceedings and examined the same. Appellant is already aware of this statement as apparent from his submission. This is a 10 page statement with annexure running into 46 pages. In this statement Sri Sunil Kumar Agrawal admitted that the polar Group companies had inflated the bills to suppress the income and the excess amount paid on such bills was received back in cash and the total amount of such suppressed income since 1988-89 upto 1998-99 was about Rs. 16-17 Crore. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garwal or as evident from the assessment order and also on account of the fact that many of the loans and capital taken by the group concerns were genuine as per the statement of Sri Sunil Kumar Agarwal. On the basis of above mentioned statement of Sri Sunil Kurnar Agarwal and the evidence of seized printouts of laptop in possession of Assessing Officer, the Assessing Officer could have at best considered the reopening of the assessments of Assessment Years 1997-98 and/ or Assessment Year 1998-99 but in absence of any similar evidence for Assessment Year 1999-00 the drawing of similarity of any loan or capital taken during the Financial Year relevant for Assessment Year 1999- 00 is only a suspicion and not any belief. 4.3 Appellant has relied on the decision of H'ble Supreme Court in case of ITO Vs Lakhmani Mewal Das. 103 ITR 437. In this decision, H'ble Supreme Court has held as under: "..the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h creditor of loan or capital even in earlier Assessment Years is genuine or non genuine. Therefore it is quite apparent that the Assessing Officer has formed a reason to reopen the assessment on the information which is wholly vague, indefinite, far-fetched and remote. 4.4 The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of H'ble Supreme Court is applicable in the present case and therefore I hold that the notice issued by Assessing Officer u/s 148 was invalid and therefore the reassessment order of the Assessing Officer is annulled.) Against the said order, the Revenue has come in appeal by taking the aforesaid grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears that in the course of the search several vital information regarding unaccounted loan transaction of the Polar Group of Cos was discovered and these are listed as below: 1. Two Laptops seized from the possession of Shri Sunil Agarwal. 2. Statement of Shri Sunil Agarwal u/s. 132(4) 3. Evidence of unaccounted loan transactions as detailed in LP- 1 to LP- 10 4. Statement of Shri Anil Agarwal recorded u/s. 132(4) 5. Statement of Shri BP. Agarwal recorded u/s. 132(4). (B) Assessment u/s. 143(3) during the Feb./ March-2002. At Flag-B is placed copy of the assessment order passed u/s. 143(3) in the case of Shri Rameswar Lal Sajan Kumar for A.Y. 1999-2000. It will be seen from the assessment order that it is totally devoid of any kind of comments, discussions and conclusion. Such assessment orders, without any discussion and consideration have been passed in all the other 11 cases of Polar Group of Cos. What is not to be lost sight of is the fact that during this very same assessment year search and seizure operation had taken place in course of which incriminating documents had been found. The onus was squarely on the Assessing Officer to have thoroughly examined the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee. Re-assessment has been challenged by the assessee at both pre-assessment stage and post assessment stage. At the pre-assessment stage reasons for re-opening were given to the asseesee and his objections were disposed off by a specific order which was conveyed to the assessee by the AO through his letter No. 710 dtd. 02.11.2006 (this letter is placed at Flag-'D'). During the post assessment period, before the CIT(A) Central-II, Kolkata, the assesee challenged the re-assessment on two grounds: Firstly, it was stated that the notice for re-assessment was issued beyond the four year period, that there was also no reason to believe that income had escaped assessment and that the cases were re-opened on a mere change of opinion. Secondly, the assessee also challenged that as no notice u/s. 143(2) was issued the entire re-assessment proceedings stands nullified. The CIT(A) in his order dtd. 07.03.2007 has not adjudicated on the first issue. On the second issue the CIT(A) has gone by the ratio of the decision of ITAT Ahmadabad as reported in 295 ITR (AT) 169 in the case of ITO -Vs- Smt. Sukhini Modi and others. The Hon'ble Abmadabad Tribunal in this case had held that re-as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin his powers to set- aside the assessment in order to remove irregularities. These are, however, irrelevant, issues because what the Ld. CIT(A) had to decide was only the applicability of the judgment of Madras High Court in the present case. Initial injustice was done to the interest of the Department when CIT(A) in his earlier order dtd. 07.03.2007 arrived at a conclusion based on the judgment of a lower Authority (Ahmadabad Tribunal) without taking into cognisance the judgment of a superior authority (Madras High Court). Further, when the matter was set-aside by the Hon'ble Tribunal to the CIT(A) once again injustice was done to the interest of the Department by the Ld. CIT(A) in his order dtd. 24.02.2009 by not deliberating upon the judgment of the Madras High Court and its applicability to the instant case even though there was specific direction from the Hon'ble ITAT 'C' Bench Kolkata. In my opinion, the CIT(A) Central-II, was bound by the Law to adjudicate on this issue. It is an established principal of Law that a lower Authority is bound by the order passed by the higher Authority. In this context I will draw your attention to the judgment passed by the Hon'ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of Hon 'ble Supreme Court is applicable in the resent case and therefore I hold that the notice issued by Assessing Officer u/s. 148 invalid and therefore the assessment order of the Assessing Officer is annulled." DR's ARGUMENT We have already discussed earlier that the original assessment orders were devoid of any kind of conclusion based on examination of seized material. When there is no discussion on the issue in the assessment order and no details were called for by the Assessing Officer or filed by the assessee on the issue, no finding either positive or negative was arrived at during the course of original assessment proceedings. Hence, there is no question of any change of opinion. I rely upon the following Case Laws to substantiate my point of view: Kalyanji Mavji &Co. Vs. CIT (SC) 102 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-99 reopening of cases can be done by the AO if he has reasons to believe that income has escaped assessment even though there was no failure on the part of the assessee. In this context, I will draw your attention to the following cases Rakesh Agarwal Vs. ACIT(Del) 225 ITR 496 Prafulla Chunni Lal Patel Vs. M.J. Makwana ACIT Gujarat 236 ITR 832. On the basis of the above arguments I request your honours to set-aside the invalid and flawed order of Ld.CIT(A) dtd. 24.12.2.009 and confirm the additions made by the AO in all the 12 cases of Polar Group u/s. 147/143 of the IT Act." 5. The ld. AR on the other hand vehemently contended that the AO while framing the assessment u/s 143(3) had all the material available with him on account of the search and there was no failure on the part of the Assessee to disclose fully and truly all the material facts. In the absence of failure on the part of the Assessee, the proceeding u/s 147 cannot be initiated. The search conducted on 9.1.1999 resulted in seizure of the laptop computer from the personal custody of Shri Sunil Kumar Agarwal. The statement of Shri Sunil Kumar Agarwal was recorded on 12.4.1999. The assessment was completed on 7.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012." 6.1 From reading of this section, it is apparent that this section empowers the AO to assess or re-assess income chargeable to tax if he has 'reason to believe' that income for any assessment year has escaped assessment. This section authorizes the AO not only to re-assess but also to assess the Assessee in respect of an income which escaped assessment. For initiating the proceedings under this section, no doubt there must be 'reason to believe'. 'Reason to believe' would mean cause or justification. If the AO has cause or justification to know or suppose that income has escaped assessment, it can be said that assessing officer has 'reason to believe' that the income has escaped assessment. 6.2 The question whether the AO had 'reason to believe' is a question of jurisdiction. The expression 'reason to believe' as contained in Sec. 147 of the Act does not mean purely subjective satisfaction on the part of the AO but it means that the belief must be held in good faith and it is open to the court to examine whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh set aside the issue to the file of CIT(A) to re-decide the same after taking into consideration the decision of Hon'ble Madras High Court in Areva T and D India Ltd. Vs. Asst. CIT reported in 294 ITR 233 (supra). While setting aside the order to the file of CIT(A), the Tribunal stated that the Assessee's are at liberty to substantiate their claims, both legally as well as on merits. This is a fact that in this case the CIT(A) vide its order dt. 7.3.2007 has not decided the other grounds taken by the Assessee and annulled the assessment only on the issue relating to the notice issued u/s 143(2). Since the Revenue has challenged the order of CIT(A) on this very issue, the Tribunal has set aside, the said issue as the jurisdiction of the Tribunal u/s 254(1) is limited to the grounds of appeal before it. CIT(A) while deciding the first round of appeal has clearly observed in para 12 that "since assessment order u/s 147/143(3) itself has been held to be invalid, the other issues raised by the appellant is not being considered as it will be only of academic interest." The natural consequence, in our opinion, of the order of the Tribunal on the grounds taken by the Assessee before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of H'ble Supreme Court is applicable in the present case and therefore I hold that the notice issued by Assessing Officer u/s 148 was invalid and therefore the reassessment order of the Assessing Officer is annulled." 6.5 The Assessee has not filed any appeal or cross objection before us. Now, the only issue with which is vested with us for adjudication is whether the AO has 'reason to believe' on the basis of the information available with him. Whether the reasons to believe recorded by the assessing officer are bonafide or not, initiated on the basis of the statement of one of the partner of the assesee at the time of search and seizure. 6.6 In the absence of bona fide reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n substituted w.e.f. 1.4.1989 has clearly laid down under para 17 of its decision that under the substituted Sec. 147 for 'reasons to believe' existence of only the first condition is sufficient. If the AO, for whatever reasons, has reason to believe that income has escaped assessment, it confers jurisdiction to re-open the assessment. It is further stated that both the conditions must be fulfilled if the case falls within the ambit of proviso to Sec. 147. The CIT(A), we noted, has not allowed the relief to the assessee on the applicability of proviso to section 147 and that is not the issue before us. No doubt the ingredients of Sec. 147 are to be fulfilled. We noted that the Hon'ble Supreme Court in the case of Raymond Wollen Mills Ltd vs. ITO, 236 ITR 34 when a similar question had come before the Hon'ble Supreme Court did not decide the issue whether any new fact came to the knowledge of the ITO after completing the assessment proceedings. 6.8 Although, we are of the opinion that the issue is duly covered by the decision of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) but still we decided to go throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond is given in Sec. 34(1)(b). Sec. 34(1)(a) empowers the AO to assess or re-assess the escaped income, where the AO has reason to believe, due to the omission or failure of the Assessee to make a return of his income u/s 22 or to disclose fully and truly all the material facts necessary for his assessment. U/s 34(1)(a) 'reason to believe' is qualified by the words 'omission or failure'. Sub-clause (b) applies to a case where there may be no omission or failure but the AO, in consequence of information in his possession, has reason to believe about the escaped income. U/s 34(1)(b) thus the 'reason to believe' for escapement of the income must have arisen in consequence of the information coming in the possession of the AO. The Hon'ble Supreme Court has analysed the word 'information' as used in Sec. 34(1)(b) in the case of Kalyanji Mavji and Co. vs CIT, 102 ITR 287 (SC) and has categorically held in the following manner : "The word "information" in section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under section 34(1)(b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). 6.12 In this section also, for the purpose of 'reason to believe' it is necessary that the 'reason to believe' must have arisen in consequence of the information in the possession of the AO. The information must precede the reasons to believe if we read the provisions of Sec.147(b). We noted that the Hon'ble Supreme Court had occasion to interpret the word 'information' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected." 6.13 From the provisions of Sec. 34(1)(b) and 147(b) which were under the Income Tax Act prior to 1.4.1989 it is apparent that for arriving at 'reason to believe' that income chargeable to tax has escaped assessment it was necessary that the AO must have information in his possession prior to arriving at reasons to believe that income escaped assessment. This information has been interpreted by the courts from time to time in the form of tangible fresh material or facts but when we looked into the provisions of Sec. 147 which has been substituted w.e.f. 1.4.1989, we noted that there are drastic changes in this section. Now, the only condition which requires to be fulfilled is that the AO must have 'reason to believe' that any income chargeable to tax has escaped assessment. This section does not talk that 'reason to believe' must be based or must have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. The words 'escaped assessment', where the return is filed, cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration, or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based. In cases where the AO had overlooked something at the first assessment, there can be no question of any change of opinion, when the income which was chargeable to tax is actually taxed as it ought to have been under the law, but was not, due to an error committed at the first assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the AO has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words 'reason to believe' cannot mean that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further whether that material had any rational connection or a live link for the formation of the requisite belief." 6.18 Thus, while the court will not judge the adequacy of the reasons provided by the Assessing Officer, the court must assess whether the belief is based on relevant and specific information that could lead to such a belief. This wellaccepted principle has found acceptance in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); Central provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 (SC), Sri Krishna Pvt. Ltd. v. ITO [1996] 221 ITR 538 (SC); [1996] 9 SCC 534." 6.19 We have perused the reasons recorded by the AO. In our opinion the reasons recorded cannot be regarded to be arbitrary, irrational. The reasons refer to the material i.e. the statement of the partner of the firm recorded u/s 132(4) during the course of the search. It clearly states that during the course of search conducted on Polar group of cases which included the Assessee, two laptop computers were found and seized from the possession of the Partner of the firm, Shri Sunil Kumar Agarwal. It is not denied that Shri Sunil Kumar Agarwal is a key person of Polar group. Subsequently, the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal amount of such suppressed income since 1988-89 upto 1998-99 was about Rs. 16-17 crores. CIT(A) was of the opinion that in the statement nothing has been mentioned in respect of the cash loan obtained during the impugned assessment year and therefore drawing of any loan or capital during the impugned assessment year is not a belief but a suspicion. In our opinion, at the time of initiation of the proceedings the AO has to look into whether there is information or material relevant to the assessment year under consideration for the escapement of income. The said statement as contended by the ld. D.R and as stated by us above clearly prove that information in this statement also relate to impugned assessment year. It is not denied before us that the Assessee has introduced fresh capital during the year. This is an undisputed fact that in this case even though search has taken place in the case of the Assessee but the AO has not whispered even a single word while framing the original assessment about the search and the consequence thereof. The AO has not considered the statement of Shri Sunil Kumar Agarwal. The order passed is silent as to the reasons for the conclusion the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 34 (SC), while dealing with the validity of commencement of reassessment proceedings under section 147 of the Act, the apex court has held that there is prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. The High Court of Gujarat in Praful Chunilal Patel v. M. J. Makwana, Asst. CIT [1999] 236l1R 832 has opined that in terms of the provision contained in section 147, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income has escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words "reason to believe" cannot mean that the Assessing Officer should have, finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and if he likes from any information that he receives. If he discovers or finds or satisfies himself that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid." In Birla VXL Ltd. vs. Asst. CIT (1996) 217 ITR 1, a Division Bench of the Gujarat High Court has opined thus (page 3) : "Explanation 2 to section 147 of the Act, as appended to the newly substituted section 147 makes certain provisions, where, in certain circumstances, the income is deemed to have escaped assessment giving jurisdiction to the Assessing Officer to act under the said provision. Another requirement which is necessary for assuming jurisdiction is that the Assessing Officer shall record his reasons for issuing notice. This requirement necessarily postulates that before the Assessing Officer is satisfied to act under the aforesaid provisions, he must put in writing as to why in his opinion* or why he holds belief that income has escaped assessment. 'Why' for holding such belief must be reflected from the record of reasons made by the Assessing Officer. In a case where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly, 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, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief I or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the belief which the Income-tax Officer entertains at that stage is a tentative belief on the basis of the materials before him which have to be examined and scrutinised on such evidence as may be available in the proceedings for reassessment. The Division Bench held that there must be some grounds for the reasonable belief that there has been a nondisclosure or omission to file a true or correct return by the assessee resulting in escapement of assessment or in underassessment. Such belief must be in good faith, and should not be a mere pretence or change of opinion on inferential facts or facts extraneous or irrelevant to the issue and the material on which the belief is based must have a rational connection or live link or relevant bearing on the formation of the belief. In N. D. Bhatt, lAC of I. T. v. I. B. M. World Trade Corporation [1995] 216 ITR 811 (Born), it has been held thus (page 823) : "It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so recorded can be looked at for sustai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove 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. (emphasis supplied) In this context, we may refer with pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration.(emphasis is ours) At this juncture, it is profitable to refer to the authority in GKN Drive shafts (India) Ltd. v. ITO [2003} 259 ITR 19 (SC) ; [2003] 179 ITR 11 (SC )wherein their Lordships of the apex court have held thus (page 20) ; "We see no justifiable reason to interfere with the order under challenge. However we clarify that when a notice under section 14 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound I dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years." In Sarthak Securities Co. P. Ltd. vs. ITO (Writ Petition No.6087 of 2010 decided on October 18, 2010)(2010) 329 ITR 110 (Delhi), a Division Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that the transactions involving Rs. 27lakhs mentioned in the table in annexure P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The Assessing Officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the Director of Income-tax (Inv-V) as regards the transactions entered into by the assessee-company with a number of concerns which had made accommodation entries and they were not genuine transactions. As we perceive, it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under section 147 of the Act. The reason to believe has been appropriately understood by the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso risen from 2 per cent to 10 per cent for the same period. On the basis of the information contained in the letter of the Deputy Director and the documents annexed to it, the Income-tax Officer could have had reason to believe that the fair market value of the shares was far more than the sale price and that the market quotations from the Calcutta Stock Association shown by the respondent at the time of original assessment were manipulated ones and that as a result income chargeable to tax had escaped assessment. It could not be said that the information that was contained in the letter was not definite information, and could not be acted upon by the Income-tax Officer for taking action under section 147(b) of the Act. Merely because the notice was sent on the next day after receipt of the letter, this did not mean that the Income-tax Officer did not apply his mind to the information contained in the said letter. On the basis of the facts and information contained in the said letter, the Income-tax Officer, without any further investigation, could have formed the opinion that there was reason to believe that income of the respondent chargeable to tax had escaped assessment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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