TMI Blog2008 (1) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... of the unabsorbed loss of ₹ 172479 relating to the assessment year 2002-03 which ought to have been brought forward in the assessment year 2003-04 looking to the fact that the said returns were filed within time in Range V, Lucknow but the copy of the Income-tax return for the assessment year 2003-04 was filed before the Assessing Officer (ACIT Central Circle IV, Lucknow) in compliance to the notice under section 148. 4. Because the learned CIT (Appeals) has erred in law and on facts in not appreciating the pronouncement in the case of T. Govindappa Setty v. ITO 231 ITR 898 (Kar.) accordingly, the said case has not been controverted and looked into by the CIT(A). 5. The appellant craves leave to add/alter, amend any of the grounds of appeal before or at the time of hearing. 2. The assessee has mainly challenged the reopening of the assessment and action of the learned CIT(A) in not allowing carry forward losses which is the result of sustaining reopening of the assessment and reassessment framed thereafter. 3. The fads of the case are that the assessee is a distributor of M/s. Singhal Paints (P.) Ltd. and M/s. Surcom Paints (P.) Ltd. of paints, varnishes in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier years solely on the consideration that the return of income was not filed with the relevant territorial jurisdiction. 7. While reopening the assessment, the Assessing Officer has recorded the following reasons The assessee is assessed to tax in Central Circle-II, Lucknow, however, he has failed to file his return in the circle of his jurisdiction, the knowledge of which he had at the time of filing of return. Cases are centralized with an aim of conducting compulsory scrutiny year after year till the same are decentralized. In the instant case the assessee has failed to file his return for the income earned by him during the year. He has failed to his hooks and accounts scrutinized which was also compulsory. This has resulted in escapement of assessee s income from taxation earned during the year. As I have reason to believe that assessee s income has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. Issue notice under section 148. 8. The learned AR for the assessee submitted that there is no material with the Assessing Officer to come to the conclusion that the income has escaped assessment. In fact the Assessing Officer cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Return filed elsewhere cannot be treated as a valid return and, therefore, their being no return of income, Assessing Officer, Central Circle could have rightly formed reasons to believe to reopen the assessment. In the present case according to the learned DAL, Assessing Officer had sufficient reasons to reopen the assessment. The learned DR, submitted that the return filed by the assessee with the ACIT, Range 5 is non est and so is the assessment framed thereupon. As the assessee is deemed to have not filed the return of income reopening under section 148 by Assessing Officer of correct jurisdiction is valid. 12. We have considered the rival submissions and perused the record. Regarding the issue whether return filed with the ACIT, Range-5 could be treated as non est, we are of the considered view that once ACIT, Range-5 does not hold jurisdiction over the assessee on the date when the assessee has filed the return with him, the return so filed on 22-8-2003 could not be treated as valid. If on that date ACIT, Circle II, was holding jurisdiction over the assessee then it is the duty of the ACIT, Range-5 to transfer the return to the ACIT, Central Circle-II. Be it may the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief entertained by the Assessing Officer must not be arbitrary or irrational but must be based on information which should be relevant and material. Reason to suspect is not reason to believe. These two terms cannot be interchanged. The reasons are link between information and conclusions. There should be rational nexus between the facts considered and prima facie conclusion arrived at, Similar views were expressed by the Hon ble Delhi High Court in Spny India Ltd. v. CIT [2005] 276 ITR 278 (Delhi). 15. Hon ble Calcutta High Court in Peerless General Finance Investment Co, Ltd. v. Dy. CIT [2005] 273 ITR 16 (Cal.) held that reasons for formation of belief must have rational connection with the information received. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of the belief that there has been escapement of income from the assessment in a particular year. Every material howsoever vague and indefinite or distinct or remote or far fetched could not warrant the formation of the belief relating to escapement of income. 16. Hon ble Supreme Court in Knlyanji Mavji Co. v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be separate provisions to deal with such a situation where the assessee does not get his accounts audited even though required by law do so. There fore, his reason advanced by the Assessing Officer to reopen the assessment is superfluous and does not stand to reasonableness. The presumption of escapement of income on the basis that accounts were not got audited is simply arbitrary, vague and irrational. Somebody has to look into the accounts, auditor or the Assessing Officer himself, to show that accounts revealed earlier taxable than what the assessee has declared in the return of income. 19. Another reason advanced by the Assessing Officer is that the assessee failed to file his return. No doubt the assessee did not file the return of income in the Central Circle-II but merely for non-filing of return of income in Central Circle-II could not lead to believe that income chargeable to tax has escaped assessment. In this regard it is relevant to refer to Explanation 2 to section 147 as under :- Explanation 2.- For the purpose of this section, the following shall also be deemed to he cases where income chargeable to tax has escaped assessment, namely :- (a) Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that income chargeable to tax has escaped assessment on account of failure the assessee to file return of income. The job of correlating the information available with the Income-tax Department or elsewhere, and the formation of belief on that basis for reopening the assessment , on the charge of escapement of income cannot be relegated to the CIT(A) or to the Tribunal. It is only the satisfaction of the Assessing Officer which will give him jurisdiction to reopen the assessment. If he does not take into account the information available in the record of income tax department while forming the belief for reopening the assessment, then no other authority can supplement the information to sustain the reopening. If the Assessing Officer fails to consider various information available with the department while forming the belief then the reopening of the assessment will fail and so the assessment. 20. We find, from the perusal of the page 12 of the paper book submitted by the assessee that the return of income filed with the ACIT, Range 5, Lucknow contained following particulars :- Paint Traders Linkers Computation of total income for the year ending 31-3-2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions as enumerated therein, the reopening cannot be upheld for the reasons already described. As a result, we hold that issuance of notice under section 148(1) was improper and without authority of law. The assessment so framed on the basis of such reopening is quashed. 23. Now one argument raised by the learned AR is to be considered. He submitted that carry forward losses brought forward from the earlier assessment years is not allowed by the Assessing Officer this year. According to him at worst only the losses for the assessment year 2003-04, i.e., the current year could not be allowed to be carried forward if return is treated as non est. So far as the losses relating to earlier years is concerned it has already been directed to be carried forward in the assessment of those years. Thus unabsorbed business losses would be available to be set off against the income of the subsequent years. 24. In our considered view, this issue is academic in as much as decision thereon, is not required for disposal of this appeal. This issue will arise in the subsequent years in case the department refused to set off such brought forward losses from the earlier years. Hence this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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