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2015 (10) TMI 2383 - DELHI HIGH COURT

2015 (10) TMI 2383 - DELHI HIGH COURT - TMI - Reopening of assessment - AO received information from the Enforcement Directorate (ED) that in the books of the Assessee there were huge cash deposits - Held that:- The nature of the information provided by the governmental agency in that case did not itself refer to any amounts or entries in the books of accounts of the Assessee. In the present case, however, the information received from the ED makes a reference to what was found in the books of a .....

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As far as RL Travels is concerned, the further information concerning payments made to third parties, which were unable to be verified by the ED, also required to be assessed by the AO by examining the returns filed to discern whether the said transaction was duly disclosed by the Assessee. It is the treatment of the entries in the books of accounts in the returns filed by the Assessee that would be determinative of whether in fact there was any concealment of relevant information or whether a .....

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in favour of assessee. - ITA 292/2015, ITA 299/2015 - Dated:- 20-10-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Kamal Sawhney, Senior Standing Counsel For the Respondent : Mr. Ajay Vohra, Senior Advocate with Ms. Roopali Gupta and Ms. Mehak Gupta, Advocates. ORDER Dr. S. Muralidhar, J. 1. ITA No.292/2015 is an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 ('Act') against an order dated 18th June, 2014 passed by the Income Tax Appellate .....

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both cases is more or less similar, the appeals are being disposed of by this common order. 3. The common question that arises for consideration in both cases, as urged by the Revenue, is whether in the facts and circumstances of the case, the ITAT was right in holding that the reopening of the assessment under Section 148 of the Act was bad in law as the reasons to believe formed by the Assessing Officer (AO) was not in terms of Section 147 of the Act.? 4. The facts in brief as far as ITA No.29 .....

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ssessment under Section 148 of the Act: Information has been received from the Enforcement Directorate that in the books of M/s. Indo Arab Air Services there has been huge cash deposits. In the books of M/s. Indo Arab Air Services, New Delhi there has been cash deposits of amounting to ₹ 3,23,00,550/- during F..Y. 2001-02 as detailed in Annexure-A, but on perusal of records of the assessment year 2002-03 it is noticed that the assessee had no disclosed these transactions in its books of ac .....

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e above basis notice was issued by the AO to Indo Arab, on 27th March, 2009, asking it to file its return of income. The Assessee by letter dated 23rd July, 2009 stated that the original return filed by it may be treated as return under Section 148 of the Act. Inter alia the explanation given by the Assessee for the cash deposits found in its account was that they were counter sales of airline business of around ₹ 18 crore during the AY 2002-2003 out of which a large percentage was in cash .....

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h/18th June, 2003. A copy of the FIR registered in that regard was enclosed. Indo Arab also submitted that under Section 44AB of the Act, a tax audit had been conducted by its Chartered Accountants (CA), who had verified its books of accounts and gave a report on 1st July, 2002 inter alia stating that the balance sheet and profit and loss account give a true and fair view of the statement of affairs of the Assessee. It was pointed out that the said tax audit report and the balance sheet duly sig .....

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rected to be added back to the income of the Assessee. 7. As far as ITA No.299/2015 is concerned, the Assessee, RL Travels, filed its return of income for AY 2002-2003 on 28th October, 2002 declaring a total income of ₹ 45,82,407/-. The following reasons were recorded by the AO for seeking to reopen the assessment under Section 148 of the Act: In the books of M/s. R.L. Travels, New Delhi there has been cash deposits of ₹ 90,50,000/- during the F.Y 2001-02 as detailed in Annexure - A. .....

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of M/s. RL Travels, New Delhi for the FY 2001-02, the Enforcement Directorate observed that in the ledger "Advance for land purchase", the total transaction are amounting to ₹ 91.50 lakhs. Before Enforcement Directorate Sh. Chetan Gupta stated that though some of these payments were mentioned in the books of accounts as if paid by Cheque, in reality he had withdrawn the cash trough self/bearer cheques & entire amount was paid in cash to one party Sh. Dharam. This is indicativ .....

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Air for passenger and cargo. It too contended that inter alia air tickets were being sold in cash/cheque which were duly accounted for in the books of accounts and bank accounts. RL Travels also relied upon the tax audit report given by its CA under Section 44AB of the Act which inter alia stated that its balance sheet and profit and loss account give a true and fair view of the statement of affairs. It was further stated that all the debtors and creditors were duly verified at the time of audi .....

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Commissioner of Income Tax (Appeals) [CIT (A)] through a separate order dated 3rd September, 2012 partly allowed the appeal by Indo Arab and restricted the addition to ₹ 46,38,800/-. As regards the appeal by RL Travels, the CIT (A) affirmed the addition made by the AO. 12. The appeal filed by Indo Arab was allowed by the ITAT by the impugned order dated 18th June, 2014. The ITAT noted that the information in the first place was not correct inasmuch as Indo Arab was regularly assessed to i .....

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e ED were found to be factually incorrect. The ITAT was of the view that the said information ought to have been verified from the available record by the AO to form a reason to believe that income had escaped assessment. 13. With regard to the appeal filed by the RL Travels, the ITAT noted that it was a sister concern of Indo Arab and relying on the order in the case of Indo Arab, the ITAT by the impugned order dated 22nd October, 2014 set aside the addition and quashed the reopening of the ass .....

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(P) Ltd. v. Income Tax Officer (2012) 20 taxmann.com 797 (Del) and Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd.(2007) 291 ITR 500 he submitted that there was no reason for the AO to make a detailed investigation and come to a definite opinion on the basis of the information provided by the ED that the income of the Assessee had escaped assessment. As long as there was information received from a governmental agency it constituted a valid and tangible material on t .....

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material given to the AO and the formation of the reason to believe. A reopening of the assessment under Section 147 of the Act could not be based merely on suspicion. 16. Before proceeding to examine the relevant facts in each of the present cases, the settled legal position concerning the fulfilment of a jurisdictional requirement under Section 147 of the Act prior to the reopening of the assessment requires to be recapitulated. What could constitute 'reason to believe' for the purpos .....

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e taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence. (e) The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a .....

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ioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) the effect of the amendment made to Section 147 of the Act from 1st April, 1989 was explained. It was pointed out that: The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which i .....

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aterial facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, howeve .....

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reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion&qu .....

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to be fulfilled. The Court explained: 13. Having regard to the judicial interpretation placed upon the expression reason to believe , and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words reason to believe have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is .....

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to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section .....

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es a distinction between the meaning and content of the expression reason to believe in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 20. Keeping the above legal position in view when the cases on hand are examined, it is seen that as far as Indo Arab .....

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cash deposits were not reflected in the returns. In fact, the AO contradicted himself in the reasons recorded by him by noticing the information of the ED to the above effect and then stating that on perusal of the records for the AY in question it was noticed that the Assessee had not disclosed these transactions in its books of accounts. Further the AO refers to the ED s information that Mr. Chetan Gupta, partner of the Assessee, failed to explain the sources of the cash deposits as shown in .....

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uspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment. While the law does not require the AO to form a definite opinion by conducting any detailed investigation regarding the escapement of income from assessment, it certainly does require him to form a prima facie opinion based on tangible material which provides the nexus or the link to having reason to believe that income has escaped assessment. 21. It is in this context that the Court fi .....

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