TMI Blog2015 (2) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... sion is inescapable, namely, that in the absence of material the assessing officer had no jurisdiction to initiate the proceedings under Sections 147/148 of the Act. - Decided in favour of asessee. - Civil Misc. Writ Petition (Tax) No. 2062 of 2008 with Civil Misc. Writ Petition (Tax) No. 2117 of 2008 to Civil Misc. Writ Petition (Tax) No. 2120 of 2008 - - - Dated:- 4-2-2015 - Tarun Agarwala and Dr. Satish Chandra, JJ. (Per: Tarun Agarwala,J.) In this group of petitions, the petitioner has challenged the notice issued under Section 148 of the Income Tax Act (hereinafter referred to as the Act ). For facility, the facts of Writ Petition No.2062 of 2008, Arun Gupta vs. Union of India and others is being taken into consideration. The petitioner is an individual assessee and derives his income from salary, house property, capital gains, interest, etc. The petitioner is a partner in various registered partnership firms such as Commercial Instalments, Chandra Brothers, Commercial Body Builders, Kailash Traders and Kailash Auto Centres. In the partnership deed there is a specific clause for payment of interest @ 12% p.a. whether the firm is earning profit or loss in that y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment proceedings were initiated, under Section 147 of the Act for the assessment year 2006-07, by issuance of a notice dated 17.12.2007 under Section 148 of the Act. Upon receipt of the notice, the petitioner filed his reply informing the assessing authority that the original return may be treated as the return in response to the notice dated 17.12.2007. The petitioner also prayed that a copy of reasons to believe may also be supplied, which was duly communicated to the petitioner. Upon receipt of the reasons to believe the petitioner filed his objection praying that the re-assessment proceeding should be dropped. The assessing authority, by his order dated 20.10.2008, rejected the petitioner objection and proceeded to reassess the petitioner for the assessment year 2006-07. The petitioner, being aggrieved, has filed the present writ petition praying for the quashing of the re-assessment proceeding initiated by the assessing authority for the assessment year 2006-07 pursuant to the notice dated 17.12.2007. The relevant portion of the reasons recorded by the assessing officer is as under:- Since the interest received is much less than interest paid re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts which were already existing on the original assessment record and which was brought on record by the petitioner himself by filing his return and consequently, on the same information and evidence which has already been brought on record no re-assessment proceedings could be initiated. The learned counsel submitted that in the absence of any material, which has a live nexus, the entire exercise of initiating re-assessment proceeding was wholly illegal and was liable to be quashed. On the other hand, Sri Bharatji Agarwal, the learned senior counsel for the department submitted that the assessing officer has wide powers to reassess if it has reason to believe that the income had escaped assessment. The learned senior counsel submitted that the assessing officer had a reasonable ground to believe that exorbitant amount of interest was being paid to the family concern and that interest paid was far more than interest earned by the petitioner and that this ground was, by itself, sufficient to reopen the assessment proceedings. The learned senior counsel submitted that the reasons disclosed by the assessing officer justified his action in issuing a notice under Section 148 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The preliminary objection raised by Sri Bharatji Agarwal is rejected. A perusal of the provisions of Sections 147 and 148 of the Act indicates that the Assessing Officer has wide powers to reopen the assessment if he has reasons to believe that the income chargeable to tax has escaped assessment. However, this wide power is circumscribed and does not give jurisdiction to the Assessing Officer to reopen a completed assessment on a mere change of opinion. The reasons to believe is not based nor can it be an outcome of a change of opinion. Further, the proviso indicates that if more than four years have elapsed from the end of the relevant assessment year, in addition to the satisfaction of the Assessing Officer that he has reasons to believe, must also indicate that the assessee had failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. The words reasons to believe , change of opinion , failure to disclose fully and truly material facts and material facts have been a subject of interpretation by various High Courts and also by the Supreme Court of India. In Ganga Saran Sons P. Ltd. Vs. Income-Tax Officer and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. In Calcutta Discount Co. Ltd. Vs. Income-Tax Officer, Companies District I, Calcutta and another, 41 ITR 191, the Supreme Court held : The position, therefore, is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of under assessment , that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notices under section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. In Commissioner of Income Tax Vs. Kelvinator of India Ltd., 256 ITR 1, the Full Bench of the Delhi High Court held that Section 147 of the Act did not confer any power upon the Assessing Officer to initiate reassessment proceedings on a mere change of opinion. In the said case, the assessee in his revised return of income had withdrawn the disallowance in respect of expenses on rent and depreciation of the guest house on the ground that since rent and depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 561 wherein the Supreme Court held that the reason to believe indicated in the notice u/s 148 that there was no tangible material to come to a conclusion that there was a escapement of income from the assessment. In the light of the aforesaid, it is well settled that if a notice under Section 148 of the Act has been issued without the jurisdictional foundation under Section 147 of the Act being available to the assessing officer, the notice and subsequent proceedings would be without jurisdiction and would be liable to be quashed in a writ jurisdiction. If reason to belief is available the Writ Court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material available. A Division Bench of this Court in M/s Rathi Industries Ltd. vs. State of U.P. and another, 2014(7)ADJ 602 (DB) has held:- The question, whether the assessing officer had reasons to believe is a question of jurisdiction, which can be considered and investigated by a Court under Article 226 of the Constitution of India. The words has reasons to believe must not be arbitrary or irrational but must be based on reasons which are relevant and germane to the issue. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee from the assessment in the particular year in question. In our view, there is no rational and tangible nexus between the reason and the belief and the conclusion is inescapable, namely, that in the absence of material the assessing officer had no jurisdiction to initiate the proceedings under Sections 147/148 of the Act. The reasons to believe recorded by the assessing officer refers to the facts which were already on the file. In M/s Vikrant Tyres Limited Vs. State of U.P. and others, 2005 UPTC 501, a Division Bench of this Court held:- 14. Re-assessment on the same material by same authority, if permitted, for no valid reason, will open flood gate for arbitrary action exposing one to unending process, permitting uncertainty, re-opening of closed chapters without assigning good reason, depending upon whims of individuals and in the end precipitating anomalous situations. 15. It, therefore, naturally follows that there has to be some valid ground viz. Some relevant document or material having escaped notice or there has been wrong calculation due to human error bona fide committed, or ignorance of correct and complete facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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