TMI Blog2011 (3) TMI 1576X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of sec147 have not been satisfied. In the case of SHANKARLAL NAGJI CO. VERSUS INCOME TAX OFFICER [ 2009 (2) TMI 70 - GUJARAT HIGH COURT] , it was held that a completed assessment cannot be reopened merely to make inquiries. From the reasons recorded it is apparent that the AO has reopened the assessment merely to make inquiries. In the facts of the present case, it is not the case of the AO that any income chargeable to tax has escaped assessment. The case of the AO is that in case the petitioner is a defaulter, under the provisions of the Act. Even if the petitioner were liable to pay penalty, the same would not give rise to a conclusion that income has escaped assessment. Reason to Believe - In CHHUGAMAL RAJPAL VERSUS SP CHALIHA AND OTHERS [ 1971 (1) TMI 9 - SUPREME COURT] , the SC held that Before issuing a notice u/s 148, the ITO must have either reason to believe that by reason of the omission or failure on the part of the assessee to make a return u/s 139 for any assessment year to the ITO 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. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving remuneration and interest therefrom. For the asst. yr. 2003-04, the petitioner filed return of income declaring total income of ₹ 2,18,850 on 27th Nov., 2003 under s. 139(1) of the Act, which came to be assessed and accepted by the AO. Subsequently, after a period of about six years, the impugned notice has been issued along with brief reasons for reopening the assessment. 3. Pursuant to the notice, the petitioner filed return of income on 28th April, 2010 declaring total income of ₹ 2,18,850 and vide letter dt. 26th April, 2010, the petitioner also requested for a copy of the reasons recorded for reopening the assessment and also objected to the reopening of the assessment. Upon filing the return of income, the AO issued notice under s. 143(2) of the Act on 16th June, 2010 for making further inquiry in connection with the reassessment. In terms of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO Ors. (2003) 179 CTR (SC) 11: (2003) 259 ITR 19(SC) the petitioner by a letter dt. 28th June, 2010 requested for a copy of the reasons recorded before issuance of notice under s. 148 of the Act. According to the petitioner, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is that the reason to believe must be of the AO of the petitioner and not that of any other authority. It is equally settled that the AO has to apply his mind to the information, if any, collected and must form a belief thereon. It was submitted that in the present case, the reasons stated for reopening the assessment were unfounded and were only a matter of further investigation by the AO. According to the learned advocate, the AO ought to have at the first instance, called for the details of the matter which was required to be investigated and thereafter on the basis of the evidence on record, if need be, issued a notice for reassessment. It was submitted that the reasons as recorded for seeking approval, clearly show that jurisdiction under s. 147 has been assumed for making roving and fishing inquiries, which is not permissible in law. 6. Inviting attention to the reasons recorded, it was submitted that the respondent himself is not certain as to whether the amount received is loans and advances or trading receipts/trading payments and that, no satisfaction has been recorded as regards any income having escaped assessment. It was submitted that acceptance or repayment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Referring to the reasons recorded, it was submitted that there is nothing in the entire reasons recorded to indicate that the amount of tax which has escaped assessment is more than rupees one lakh. It was submitted that in the circumstances, in the present case, since the notice has been issued beyond a period of four years from the end of the relevant assessment year, the statutory requirements as envisaged under cl. (b) of sub-s. (1) of s. 149 of the Act are clearly not satisfied and hence, the proceedings are without jurisdiction on this count also. 9. In support of his submissions, the learned advocate placed reliance upon the following decisions : (a) The decision of this High Court in the case of Shankarlal Nagji Co. Ors. vs. ITO Anr. (2009) 20 DTR (Guj) 116: (2010) 322 ITR 90(Guj). (b) The decision of the Supreme Court in the case of P.S. Subramanyan, ITO Anr. vs. Simplex Mills Ltd. (1963) 48 ITR 182(SC). (c) The decision of the Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha Ors. (1971) 79 ITR 603(SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax has escaped assessment, which should be recorded by him in writing prior to issuance of the notice. Since the belief is that of the AO, the sufficiency of the reasons for forming is not for the Court to judge but it is open to the assessee to establish that there in fact existed no belief 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 by the AO and examine whether there was any material available on record from which the requisite belief could be formed by the AO and further whether that material had any rational connection or a live link for the formation of the requisite belief. [See Phool Chand Bajrang Lal Anr. vs. ITO Anr. (1993) 113 CTR (SC) 436: (1993) 203 ITR 456(SC)]. Since, the assessment is sought to be reopened after a period of four years from the end of the relevant assessment year, in the light of the provisions of s. 149(1)(b) of the Act, the reasons recorded should also reflect that the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55. In view of the above facts and circumstances of the case, detailed investigation/verification is required and it is also required to bring the assessee in tax net. In view of the Expln. 2to s. 147 of the IT Act, the case of the assessee is that where cash transaction made is to be verified. Therefore, I have reason to believe that deemed income has escaped assessment by not disclosing the true income relating to asst. yr. 2004-05. Hence, it is a fit case for issuance of notice under s. 148 of the IT Act. Submitted for kind perusal and necessary approval for issuance of notice under s. 148 of the Act, if deemed fit. 14. A perusal of the reasons recorded indicates that the assessment is sought to be reopened by recording nine grounds. Examining each ground individually : the first ground is that the assessee has not filed his return of income for the year under consideration. This factual basis for reopening the assessment is admittedly incorrect, in as much as, the respondent has categorically accepted the fact that the petitioner had filed return of income for asst. yr. 2003-04 under s. 139(1) of the Act and the return was assessed and processed by the respondent u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95,88,550 mentioned in the third ground as well as the amount of ₹ 2,02,050 alleged to have been paid in cash on account of interest. Further, as noticed hereinabove, according to the AO, the aforesaid cash amount of ₹ 57,80,120 allegedly received by the petitioner requires detailed investigation and that in either case, the petitioner is a defaulter either under s. 269SS or 271B of the Act or both. Thus, it is not the case of the AO that any income has escaped assessment. According to him, if the petitioner has received the aforesaid amount, he is a defaulter under the provisions of s. 269SS or 271B of the Act or both. The learned advocate for the petitioner is, therefore, justified in contending that in case the petitioner is a defaulter under either of the said provisions he may at best be liable to penalty under the provisions of s. 271D or 271E of the Act, however, the same would not lead to any conclusion that the income chargeable to tax has escaped assessment. 17. In relation to the third ground relating to an amount of ₹ 95,88,550, it is stated in the reasons that the petitioner has paid the said amount in cash in form of either payment of loan and adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough his employee, so called benamidar; (iv) made payment of ₹ 21,729 on 10th June, 2002 towards stamp duty through his employee, his so called benamidar; (v) purchased property for ₹ 1,90,000 in the name of his son who has no source of income and (vi) has agricultural income amounting to ₹ 99,955. In respect of grounds (i) to (v) according to the AO the source of the said amounts either needs to be verified or investigated. As regards agricultural income, the AO has only recorded a statement of fact without stating as to how the same gives rise to escapement of income. 19. For the purpose of invoking the provisions of s. 147 of the Act, formation of requisite belief precedes the initiation of the proceedings. In the circumstances, in the light of the provisions of sub-s. (2) of s. 148, before issuing notice under s. 148 of the Act, the AO is required to record reasons for the formation of belief that income chargeable to tax has escaped assessment. In the present case, on a plain reading of the reasons recorded, as noted hereinabove no such belief appears to have been recorded by the AO. However, in the penultimate para of the reasons recorded, the AO has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where the respondent's income was under-assessed or where excessive relief was granted in computing that income. It is a case where tax had been paid in advance and upon subsequent regular assessment for the period for which the tax had been paid it was found that what had been paid was in excess of what was actually due. This is really a case of over-assessment though only provisional and not of under-assessment at all. The payment of interest was in no sense a relief granted in computing income; it was paid at the rate calculated according to the law then in force. No doubt in view of the subsequent amendment of the law and in view of this amended provision being given retrospective operation covering the date when the original assessment had been made, if the interest has to be computed according to the amended law then a smaller sum might have been payable as interest. But when it was computed, the new law was not in fact there and, therefore, the computation had been according to the law then in force. That computation cannot be reopened under s. 34 because it cannot be said that it is a case either of under-assessment or of excessive relief having been granted. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Delhi High Court held that the proceedings under s. 147 are not to be invoked at the mere whim and fancy of an AO and it has to be seen in every case as to whether the invocation is arbitrary or reasonable. In the facts of the said case, the Court held that merely because the AO felt that the issue required 'much deeper scrutiny', was not ground enough for invoking s. 147. The Court held that it is not belief per se that is a pre-condition for invoking s. 147 of the Act but a belief founded on reasons. The expression used in s. 147 is If the AO has reason to believe and not If the AO believes . There must be some basis upon which the belief can be built. It does not matter whether the belief is ultimately proved right or wrong, but, there must be some material upon which such a belief can be founded. 27. In the case of Sheo Nath Singh vs. AAC (supra), the Supreme Court held that there can be no manner of doubt that the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely to be more than rupees one lakh as laid down under the provisions of s. 149(1)(b) of the Act and as such, the assessment is time barred, a perusal of the reasons recorded indicates that nothing has been recorded by the AO to indicate as to what is the amount of income which is alleged to have escaped assessment. In the light of the provisions of s. 149(1)(b) of the Act, while reopening the assessment beyond a period of four years from the end of the relevant assessment year, since there is a statutory bar against reopening the assessment in case where the amount of income escaping assessment does not amount to rupees one lakh or more, the AO is also required to record a finding to that effect. In the present case, no such finding has been recorded. Except for a bare averment in the affidavit-in-reply wherein it is stated that the income which has escaped assessment is more than rupees one lakh, there is no material on record to indicate the extent of income which has escaped assessment. In fact, as observed hereinabove, there is nothing to indicate that the AO has reason to believe that any income whatsoever has escaped assessment. In the circumstances, on this count also, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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