TMI Blog2014 (8) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 30.09.2011 which, in turn, has arisen from an order dated 15.12.2010 passed by the Assessing Officer u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (in short the Act ) pertaining to the assessment year 2005-06. 2. In this appeal, assessee has raised the following Grounds of Appeal :- 1. The learned CIT (Appeals), Pune has erred in law and on facts in confirming the addition made by the AO. 2. The learned CIT (Appeals), Pune has erred in confirming the action of the AO by holding that the reopening of assessment is as per the main provisions of sec. 147 and the AO has satisfied the provisions for reopening of the assessment without considering the following facts: i. That the assessment order U/sec. 143(3) r.w.s. 147 is without jurisdiction and bad in law. ii. The assessment U/sec. 143(3) r.w.s. 147 is null and void as the same is based upon the change in the opinion of the A.O. iii. The learned A.O. erred in assessing the total income of the appellant at ₹ 32,10,750/- U/sec. 143(3) r.w.s. 147 of the Income Tax Act, 1961. 3. The learned CIT (Appeals), Pune has erred in law and on facts in confirming action of the AO of treating Short term capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has filed return of income declaring income from interest and share dealing. The major source of income is from short term-gain by selling of shares. On going through the records and details regarding sale of shares, it is observed that the assessee frequently engaged in purchase and sale of shares. It is evident from the above that the share trading is the main activity of the assessee. However, the assessee has shown the income under the head of Short term capital gain and paid taxes at the rate of 10% instead of normal rate of tax. In view of this, I am satisfied that it is a fit case for issue of notice u/s 148. 4. As per the Assessing Officer, the assessee was carrying out the activity in sale and purchase of shares as main activity and a major source of income. According to him, income derived by the assessee from the above activity needed to be taxed as business income as against capital gains shown by the assessee. In the subsequent assessment finalized on 15.12.2010 u/s 147 r.w.s. 143(3) of the Act, the income from such activity has been assessed as business income whereby the total income has been assessed at ₹ 32,10,750/-. Although such assessed income corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Assessing Officer even in a case where an assessment has been completed originally u/s 143(1) of the Act. The learned counsel pointed out that according to the Third Member decision in the case of Telco Dadajee Dhackjee Limited (supra) even in case of an assessment originally completed u/s 143(1) of the Act, availability of fresh material was found to be a necessity to justify reassessment proceedings whereas in the present case, the said proposition is applicable with even more force inasmuch as in the instant case the original assessment has been framed u/s 143(3) of the Act. 8. In the background of the aforesaid proposition, learned counsel has referred to the material placed in the Paper Book to point out that even during the course of original assessment proceedings carried out u/s 143(3) of the Act the Assessing Officer was not only aware of the activity of purchase and sale of shares undertaken by the assessee but has fully applied his mind on such income, as is evident by the discussion in para 3 of the assessment order dated 26.12.2007 (supra). In this view of the matter, it is sought to be pointed out that the proceedings initiated by the Assessing Officer by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assessment, the assessee withdrew the revised return along with the claim of deduction @ 30% from the total income. Thereafter the Assessing Officer completed the assessment determining the total income at ₹ 56.41 crores. Subsequently, a notice u/s 148 of the Act was issued seeking to reopen the assessment proceedings and thereafter in the consequent assessment finalized u/s 147/143(3) of the Act, the total income was assessed at ₹ 20.05 crores which, inter-alia, included an amount of ₹ 6.31 crores as unexplained expenses u/s 69C of the Act. In-fact, the notice u/s 148 of the Act was issued in connection with the aforesaid addition. In this background, the CIT(A) as well as the Tribunal came to conclude that the initiation of proceedings u/s 147 of the Act was invalid because the material on the basis of which the assessment was sought to be reopened was always available during the time of original proceedings leading to the assessment finalized u/s 143(3) of the Act. The aforesaid concurrent finding recorded by the CIT(A) as well as the Tribunal was sought to be assailed before the Hon ble High Court. The Hon ble High Court upheld the aforesaid stand of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) even in a case where the return was first processed u/s 143(1) of the Act, in the absence of any fresh tangible material the Assessing Officer could not formulate a belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. The Third Member has upheld the stand of the assessee after considering the rival judgements cited before him. The Tribunal explicitly referred to and explained that the Hon ble Supreme Court in the case of Kelvinator of India Ltd. (supra), while expounding the words reason to believe , held that there should be tangible material to come to the conclusion that certain income has escaped assessment. In this background, the Third Member came to conclude that even in a case where the return was earlier processed u/s 143(1) of the Act, absence of a tangible material bars the Assessing Officer from entertaining even a prima-facie belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. The following discussion in the order of the Third Member dated 12.05.2010 (supra) is relevant :- 9. After careful consideration of the matter I am inclined, with res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be free to reopen the same under section 148 even in the absence of a live link between the reasons recorded and the formation of the belief would be to make the conditions of section 147 and section 148 otiose as regards notices of reopening issued in cases where the return was originally processed under section 143(1). There is no exclusion in section 147 to the effect that where the return was earlier processed under section 143(1) it is not necessary for the Assessing Officer to hold or entertain a belief that income chargeable to tax had escaped assessment for the reasons recorded by him. Therefore, the condition that the Assessing Officer must have reason to believe and the further condition that those reasons must have a live link with the formation of the belief is applicable equally to cases where the return was processed under section 143(1) as also to cases where the return was examined and an assessment was made by a speaking order under section 143(3). The only distinction recognized in section 147 between the two is where it Is provided by the proviso that where the earlier assessment was made under section 143(3), no action for reopening the assessment can be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment or that the materials before the Assessing Officer had no live link or nexus with the formation of such belief or that the reasons are based on gossip or rumour or were a mere pretence, this is made clear by the observations of the Court at page 512 of the report where it was held that so long as the ingredients of section 147 are fulfilled the Assessing Officer can reopen the proceedings even where intimation under section 143(1) had been issued. Thus fulfillment of the conditions of section 147, including the one that there should be reason to believe , is essential for the validity of the notice under section 148. It is while expounding the words reason to believe that the Supreme Court in the later judgment in CIT vs. Kelvinator of India Ltd. (supra) held that there should be tangible material to come to the conclusion that income had escaped assessment Thus, in my humble understanding of both the judgments, while resorting to section 147 even in a case where only an intimation had been issued under section 143(1)(a) it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore me did the Department produce any tangible material on the basis of which the reasons were recorded to demonstrate that there was a live link or nexus between them and the requisite belief. 12. In the view I have taken, I do not consider it necessary to refer to the various authorities cited by both the sides. I accordingly answer the point of difference No.1) by holding that the proceedings initiated by the Assessing Officer under section 147 are liable to be quashed on the ground that there was no tangible material before the Assessing Officer, even though the assessment was completed originally under section 143(1). 13. On the basis of the aforesaid discussion, it is to be appreciated that absence of fresh tangible material would not enable the Assessing Officer to entertain a belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. If the Assessing Officer forms a belief that income chargeable to tax has escaped assessment on the basis of the material already available at the time of original assessment proceedings, it would obviously not be a valid reopening of assessment of section 147 of the Act. 14. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (alongwith proofs) has been made by you in the year i.e. 2004-05. The reply of the assessee to the said Questionnaire has also been placed at pages 15 to 20 of the Paper Book. Ostensibly, the Assessing Officer required the assessee to provide proof of short term capital gains as to the contract notes, proof of purchase, extract of Demat account and also the proof of having made any investment during the year under consideration. In the reply to the said Questionnaire, it is evident that scrip-wise detail of the gain/loss has been enumerated. The Investments made during the year under consideration have also been enumerated. In-fact, we find that having regard to such details, specifically in relation to the loss declared by the assessee on sale and purchase of shares of TCS, the Assessing Officer has made an addition also. The Assessing Officer has also discussed in para 3 of the assessment order the short term capital loss of ₹ 72,777/- declared by the assessee on sale of Reliance mutual fund, which has also been re-determined by him. The entire discussion in para 3 of the assessment order is in relation to the income/loss declared by the assessee under the head short te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aboratory vs. JCIT, 252 ITR 673. The relevant extract from the decision of the Hon ble Bombay High Court in the case of Dr. Amin s Pathology Laboratory (supra) has also been extracted, which read as under :- . After the amendment, the only restriction put in the section is reason to believe . That reason has to be a reason of a prudent person. That reason should be fair and not necessarily due to failure of the assessee to disclose fully or partially some material facts relevant for assessment. That, if any item has escaped from assessment which was otherwise includible within the assessment and the Assessing Officer notices it subsequently by his own investigation or by reason of some information received by him, one cannot say that it constitutes change of opinion. 16. In our considered opinion, the aforesaid submissions of the Revenue are relevant when one is to examine the principle of change of opinion. However, in so far as the proposition that the Assessing Officer is precluded from forming a belief that income chargeable to tax has escaped assessment merely on the basis of the material already available on record is concerned, there is no dispute. Nevertheless, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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