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SRI C.M. MAHADEVA S/O SRI MANCHE GOWDA Versus THE COMMISSIONER OF INCOME TAX, MYSORE

2015 (12) TMI 906 - KARNATAKA HIGH COURT

Reopening of assessment - disclosure of the purchase of the property was not made in his return of income - contention of assessee is that the reopening of the assessment for the year in question was made merely for the purpose of further investigation - Held that:- In the present case, there is no allegation of the assessee not having made full and final disclosure in his return of income for the relevant assessment year. Much emphasis has been laid on the fact that disclosure of the purchase o .....

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be said that the assessee had concealed any income, even though when there is no dispute about the fact that he had disclosed his agricultural as well as non-agricultural income during the assessment year in question, and there is no finding as to income from which other source had been concealed by the assessee. Learned counsel for the respondent-Revenue has also submitted, that since there was investigation required with regard to the investment made by the assessee for purchase of property f .....

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d not be applicable, is not the correct mode. - Decided in favour of assessee. - ITA NO. 795/2009 - Dated:- 24-8-2015 - MR. JUSTICE VINEET SARAN AND MR. JUSTICE B.MANOHAR FOR THE APPELLANT : SRI. G. VENKATESH, ADV. FOR K.S.HANUMANTHA RAO, ADV.,) FOR THE RESPONDENT : SRI E.I.SANMATHI, ADV.,) JUDGMENT This is an appeal filed by the assessee, who is an individual, whereby the order of the Tribunal, rela ting to the reopening of assessment under Section 148/147 o f the Income Tax Act, 1961 (for shor .....

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m of ₹ 10 lacs on 25.07.2003 were found. Pursuant thereto, a notice under Section 148 of the Act was issued on 28.09.2006, for which reasons had been recorded by the Assessing Officer on 15.09.2006. I n response to the said notice, the assessee-appellant requested the Assessing Officer to treat the return filed on 21.03.2005 under Section 139 of the Act, to be the return filed by the assessee in response to the notice under Section 148 of the Act. He further stated that the investment for .....

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e the Tribunal, in which the assessee filed cross-objections and challenged the reopening of the case under Section 147/148 of the Act. After holding that the reopening of assessment was valid, the Tribunal partly allowed the appeal and made certain additions in the taxable income of the assessee, and at the same time dismissed the cross- objections of the assessee. Aggrieved by the said order, this appeal has been filed by the assessee on merit s, as well as on the legal question with regard to .....

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cts and in the circumstances of the case and in law, the Tribunal was right in travelling beyond what was actually recorded by the AO as reasons for issue of the notice u/s 148, when the AO had categorically admitted in the assessment order u/s 147 that notice under Section 148 was issued for reopening the assessment in order to verify the source of investment? 3) Whether on the facts and in the circumstances of the case in law, the Tribunal was right in foreclosing consideration of the actual r .....

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ll be dealt with first. 6. The contention of learned counsel for the appellant is that the reopening of the assessment f or the year in question was made merely for the purpose of further investigation, which could not be said to b e a valid reason for reopening; and that the Assessing Officer had no substance on the basis of which he could have had reason to believe that income chargeable to tax had escaped assessment for the assessment year in question. It is contended that Section 147 of the .....

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ther hand, Sri E.I.Sanmathi, learned counsel for the respondent-Revenue has submitted that, in the facts of the present case, reading of the first paragraph of the reasons recorded on 15.09.2006, along with its second and third paragraphs, would make it clear that there was a vast gap between the income of the assessee in the year in question, and the investment made by the assessee by way of purchase of the property. It is contended that from the same it can be clearly gathered that there was e .....

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issions. 9. For proper perusal of these questions, we are reproducing below the reason recorded by the Assessing Officer on 15.09.2006 (filed as Annexure- D to the appeal) for issuance of notice under Section 148 of the Act: The assessee has filed R/I for A.Y.2004-05 on 21.3.05 declaring Taxable income of ₹ 75,397/- and Agricultural income of ₹ 50,000/-. The assessee has purchased a residential house for ₹ 10,00,000/- consideration and in addition he has spent ₹ 10,270/- .....

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and documents produced. This transaction relates to Asst. Year 2004-05. The assessee has produced self prepared statements to show that the investments is out of HUF funds. As further investigation are required, proceedings have to commence for A.Y.2004-05. Considering the details filed by the assessee I have reason for believe that sources of investment for the purchase of the property is not acceptable, and further investigations are necessary, I have reasons to believe that in income subject .....

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f investment of purchase of property was not acceptable, and for which further investigation was necessary. As such, the Assessing Officer concluded that he had reason to believe that income subject to tax had escaped assessment within the meaning of Section 14 7 of the Act. While forming such opinion, in the first paragraph the Assessing Officer has given details of the income of the assessee for the relevant assessment year, in which he had made a purchase of a residential house for ₹ 10 .....

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ond as well as in the third paragraphs the main thrust is that further investigation was required. 12. Section 147/148 of the Act is not meant for reopening an already concluded assessment by first issuing notice and then proceeding to investigate and find out if there was any lacuna in the accounts. If such further investigation, by reopening a conclude d assessment, is permitted, it would give rise to fishing and rowing enquiries, because, in every case, the Assessing Officer can then issue no .....

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t, in Chhugamal Rajpal -vs- S.P.Chaliha [(1971) 79 ITR 603], considered a case where notice under Section 148 was issued after recording the reasons in the form of a report of th e Income-Tax Officer, which is reproduced below: Report in Connection with the starting of proceeding" under Section 147 of the Income-tax Act, 1951 . Name of District Ward of Circle A Ward, Muzaffarpur G. I.R. No. 303-C. 1. Name and address of the assessee S. Chugamal Rajpal, Muzaffarpur. 2. Status R.F. 3. Assessm .....

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essment Kindly see overleaf Sd/- S. P. Chaliha I.T.O. 30-4-66 A-Ward, Muzaffarpur. 8.Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148 Yes (Sd.) K.Narain 13-5-66 Commissioner of Income-tax, Bihar and Orissa, Patna 9.Whether the Board is satisfied that it is a fit case for the issue of notice under s.148. Secretary, Board of R evenue During the year the assessee has shown to have taken loans from various parties of Calcutta. From D.I.s Inv. No. .....

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dhakissen Shyam Sunder. The amount of escapement involved amounts to ₹ 100,000/-. Sd/- S. P. Chaliha, 30- 4-66. Income-tax Officer, A-Ward, Muzaffarpur." On considering the aforesaid report/reasons, the Supreme Court was of the view that the Income Tax Officer did not set out any reason for coming to the conclusion that it was a fit case for issuance of notice under Section 148 of the Act and further held that in his report he vaguely refers to certain communications received by him f .....

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hat the Assessing Officer must give reasons for issuing notice under Section 148 of the Act i.e, he must have prim a facie grounds before him for issuing notice under Section 148, which is not for the purpose of holding any further proper investigation. It further held that "In other words his conclusion is that there is a case f or investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under s.148. Before issui .....

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f 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. 16. The facts of the aforesaid case are quite similar to the one on hand. In the present case also the reason for reopening is for further investigation to find out the source of investment for the purchase of the property, which is not permissible in law. 17. Further in the case of Income-Tax Officer - vs- Lakh .....

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s failure to disclose fully and truly all material facts. 18. In the present case, what we find is that there is no nexus or live link between the material which had come to the notice of the Assessing Officer, and the formation of his belief that there was escapement of income by the assessee which may be assessable to tax. Merely by mentioning the income of the assessee in the assessment year, and the investment made by him for the purchase of residential property, it cannot be concluded that .....

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asons have to be recorded by the Assessing Officer before the issuance of notice under Section 148 of the Act, as reply has to be given by the assessee to such reasons which are recorded in the notice. Nothing can be left for the party to conjecture and then presume that such could be a reason for the Assessing Officer to believe that there has been escapement of income from assessment to tax. 20. The submission of Sri E.I.Sanmathi, learned counsel for the respondent-Revenue is that the differen .....

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taken from friends and relatives. It was only if there was any definite information that the asessee had some additional income, which was not disclosed by him and was invested in purchase of property, then alone the no tice under Section 148 of the Act could have been issued , and that also after recording the basis on which the Assessing Officer had formed his opinion that he had reason to believe that any such income had escape d assessment. The same is totally lacking in the present case. 21 .....

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o believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under s.147(a) are has reason to believe and these words are stronger than the w .....

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ired to entertain the belief before he can issue notice under s.147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason 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 .....

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ance on the Judgment of the Del hi High Court in the case of Rajat Export Import India Pvt. Ltd. -vs- Income Tax Officer (2012) 341 ITR 135. In the said case, the reasons recorded by the Assessing Officer before issuing notice under Section 148 of the Act were definite reasons i.e., the assessee therein had taken certain accommodation entries from particular persons, details which had been given in the reason to believe , wherein it had been recorded that a definite sum of ₹ 3 lacs chargea .....

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for the relevant assessment year. Much emphasis has been laid on the fact that disclosure of the purchase of the property was not made in his return of income for the relevant assessment year. On being asked, Sri E.I.Sanmathi, learned counsel for the respondent-Revenue, could not place before the Court any provision of law which required the assessee, in the assessment year 2004-05, to disclose about the fact of having made the actual investment in his return of income. In the absence of any le .....

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