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2016 (6) TMI 289 - GUJARAT HIGH COURT

2016 (6) TMI 289 - GUJARAT HIGH COURT - [2016] 387 ITR 644 - Reopening of assessment - reasons to believe - Held that:- It is apparent that at the time when the earlier assessment came to be framed under section 143(3) read with section 147 of the Act, all the primary facts were before the Assessing Officer and he had thought it fit to examine certain transactions and on being satisfied about the genuineness thereof, had accepted the return as filed by the petitioner. Now, on the basis of the ve .....

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cessary for its assessment for the year under consideration. In the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, the Assessing Officer lacks jurisdiction to reopen the assessment beyond a period of four years from the end of the relevant assessment year. The impugned notice which has been issued beyond a period of four years from the end of the relevant assessment year, without there being any basis for formatio .....

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facts. In this case apart from the fact that primary facts were already on the record, the Assessing Officer at the time of framing assessment under section 143(3) read with section 147 of the Act noticed the entries made in the cash book and called for details from the petitioner and formed an opinion thereon. - Thus, this is a case of a mere change of opinion based on the self same material which had already been examined at the time when the previous assessment came to be made. - Decided .....

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e Income Tax Act, 1961 (hereinafter referred to as the Act ) seeking to reopen the assessment of the petitioner for assessment year 2008-09. 2. The petitioner submitted a return of income for assessment year 2008-09 on 31st July, 2008 together with the Computation of Income, Balance Sheet, Income and Expenditure Account and Capital Account of the partners. The return was processed under section 143(1) of the Act. Subsequently, the Assessing Officer issued notice under section 148 of the Act on 1 .....

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Act on 24th March, 2014 determining the total income as per the return at ₹ 3,41,930/-. Thereafter, by the impugned notice dated 30th March, 2015, the respondent seeks to once again reopen the assessment of the petitioner for assessment year 2008-09. Being aggrieved, the petitioner has filed the present petition. 3. Mr. J.P. Shah, learned counsel for the petitioner assailed the impugned order by submitting that the main ground for reopening of the assessment is huge cash deposits in the b .....

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ssing Officer without making any variations in the returned income of the petitioner. It was submitted that, therefore, this is a patent case of reopening on the basis of change of opinion on the same set of facts. It was contended that in the present case, the impugned notice has been issued beyond a period of four years from the end of the relevant assessment year and hence, in view of the proviso to section 147 of the Act, there must be some failure on the part of the petitioner to fully and .....

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ssing Officer appears to have recorded the reasons without verifying the records of the earlier assessment. 3.1 Referring to the reasons recorded, it was pointed out that these reasons and the earlier reasons are virtually the same. It was further pointed out that the information received from the ADIT (Inv)-II, Rajkot is that there were total cash deposits of ₹ 96,85,63,426/- in respect of the year under consideration. According to the learned counsel, this is a fact which was already wit .....

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of the source of such huge transactions was required to be verified. It was submitted that all the cash deposits are recorded in the books of account and the very information was there with them at the time of the first assessment, which they reopened on the basis of the cash deposits in the ICICI account and now on the basis of the investigation made by the ADIT, the assessment is sought to be reopened again. It was submitted that the petitioner has disclosed the names of the beneficiaries in .....

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lso been called upon to explain the source of cash deposits with complete supporting evidence in respect of total cash of ₹ 4,70,11,830/- in its bank account with ICICI bank and was also called upon to produce complete books of accounts and vouchers for verification. It was submitted that the Assessing Officer examined the cash deposits and that the assessee has complied with everything in the first reassessment. It was urged that all the facts were there in its books of account and hence, .....

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ence, the assumption of jurisdiction on the part of the Assessing Officer is without any authority of law. It was, accordingly, urged that the impugned notice deserves to be quashed and set aside. 4 Vehemently opposing the petition, Mr. M.R. Bhatt, Senior Advocate, learned counsel for the respondent, referred to the reasons recorded for the purpose of reopening the assessment on the earlier occasion to submit that the information which came to the knowledge of the Department was as regards cash .....

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disclose the names of the beneficiaries. Thus, the total amount of cash deposits discovered during the first reassessment and the present reopening are different. In the earlier proceedings under section 147 of the Act, no inquiry had been made as regards the source of cash of ₹ 96 crores and hence, the contention that the issue was adjudicated in the earlier round is not a correct statement. It was submitted that new material was found in the survey carried out under section 133A of the A .....

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on an income tax officer for use in any proceedings under the Act including section 147 thereof and hence, the information received from the ADIT (Inv) during the course of survey under section 133A can be used for the purpose of reopening assessment under section 147 of the Act. Reliance was placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax v. P. Mohanakala, (2007) 291 ITR 278, to submit that the onus is on the assessee to establish the genuineness of a tra .....

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posits and the petitioner having failed to do so, the same is required to be added under section 68 of the Act. Thus, there is a live link between the information and the formation of belief. 4.2 Mr. Bhatt further submitted that during the course of survey, the investigating agency had found that the petitioner is not maintaining complete records and that the petitioner has not disclosed the names of the beneficiaries of the cash transactions. It was submitted that in terms of the report submitt .....

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he record for the purpose of assessment. Reliance was placed upon the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-Tax Officer, Companies District I, Calcutta, 1961 41 ITR 191, for the proposition that the words used in the provision are omission or failure to disclose fully and truly all material facts necessary for the assessment of that year which postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessmen .....

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es on the assessee. Adverting to the facts of the present case, it was submitted that the petitioner failed to make a full and true disclosure as regards the addresses and the permanent account numbers of the parties. Therefore, the primary facts were not brought on record. Under the circumstances, the contention that the assessee had fully and truly disclosed all material facts does not merit acceptance. 4.3 Reliance was also placed upon the decision of the Supreme Court in the case of Kantaman .....

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om the books produced, the Income Tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess the income which has escaped assessment. It was submitted that in the facts of the present case, merely because the cash book was already on record, would not mean that the Income Tax Officer is not precluded from exercising the power to assess the income which has escaped assessment. It was submitted that it is settled .....

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Electricity Co. P. Ltd. v. Commissioner of Income-Tax, Bombay, (1970) 78 ITR 466, wherein the court had recorded that from the cryptic statement of the Income Tax Officer in the original assessment order that no adjustment is necessary , the Tribunal was not justified in drawing the inference that the Income Tax Officer had considered all the relevant facts. Reliance was placed upon the decision of the Supreme Court in the case of Indo- Aden Salt Mfg. & Trading Co. P. Ltd. v. Commissioner o .....

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failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted. According to the learned counsel, in the facts of the present case, the primary facts are the identities of the beneficiaries. 4.5 Reliance was placed upon the decision of the Supreme Court in the case of Income Tax Officer v. Selected Dalurband Coal Co. Pvt. Ltd., (1996) 21 .....

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f Sri Krishna Pvt. Ltd. v. Income-Tax Officer and Others, (1996) 221 ITR 538, for the proposition that the enquiry at the stage of finding out whether the reassessment notice is valid is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. It was submitted that once the Assessing Officer holds that there is non-disclosure, the same amounts to a finding of fact. Reliance was placed .....

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iance was also placed upon the decision of this court in the case of Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commissioner of Income Tax, (2012) 346 ITR 228, wherein the court had observed that from the return filed and the documents annexed with the return, nowhere it could be ascertained as to what was the holding of the assessee company in terms of voting power in SDBL. If, upon further inquiry by the Assessing Officer, such details could be gathered and the nature of payment r .....

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could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of section 147 of the Act. It was submitted that the above decision would be squarely applicable to the facts of the present case. Reliance was also placed upon the decision of this court in the case of Yogendrakumar Gupta v. Income-Tax Officer, (2014) 366 ITR 186 (Guj.), for the proposition that where the Assessing Officer forms his belief on the basis of subseque .....

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irrelevant or non-specific information. To that limited extent, the court may look at the view taken by the Income Tax Officer and examine whether any material is available on record from which the requisite belief could be formed by the Assessing Officer and whether that material has any rational connection or live link with the requisite belief. It is also immaterial that at the time of making the original assessment, the Assessing Officer could have found by further inquiry or further investi .....

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failure or omission to disclose fully and truly all material facts, is essentially a question of fact. The term failure on the part of the assessee is not restricted only to the income-tax return and the columns of the incometax return or the tax audit report. This is the first stage. The expression failure to fully and truly disclose material facts also relates to the stage of assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose ful .....

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ed but did not uncover is not a good ground to deny and strike down the notice of reassessment. Reliance was also placed upon the decision of the Delhi High Court in the case of Remfry and Sagar v. Commissioner of Income-Tax, (2013) 351 ITR 75 (Delhi), for the proposition that it is not necessary for the Assessing Officer to list the documents that were required to be furnished, but not actually furnished by the assessee in the course of the original assessment proceedings. The primary condition .....

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e Assessing Officer. The court referred to other particulars provided and observed that furnishing of such particulars could in no way be considered as furnishing the primary facts in relation to the allowability of payment of licence fee which could be adjudicated upon only if the terms and conditions stipulated in the agreement were made known to the Assessing Officer. 4.8 Reverting to the facts of the present case, Mr. Bhatt submitted that merely furnishing the names of the parties cannot be .....

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e under section 147 of the Act must fail. It was submitted that as to what facts are material would depend upon the facts of each case. For the purpose of assessment, all the requirements of section 68 of the Act are required to be satisfied and hence, the proviso to section 147 of the Act would apply and the onus is on the assessee to establish the genuineness of the transaction. The Assessing Officer is, therefore, wholly justified in exercising powers under section 147 of the Act by issuing t .....

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primary facts are those that are necessary for the Income Tax Officer to decide whether an income is chargeable to tax. It was submitted that if called upon, the assessee would have discharged the onus of proving the genuineness of the transaction; however, the discharging of the onus has to be at the instance of the Assessing Officer alone. It was submitted that the Assessing Officer during the course of the assessment proceedings did not call upon the petitioner to discharge such onus and hen .....

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ome under section 68 of the Act, the focus is on the nature and the source of income and the addresses and PAN numbers are relevant only when the Assessing Officer further wants to check up and examine the depositors. It was submitted that this is a patent case of absence of any omission on the part of the petitioner and hence, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts relevant for the assessment, the assumption of jurisdiction on .....

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to tax has escaped assessment; and secondly, that such escapement is by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Both the reasons have to co-exist. 7. For the purpose of testing the validity of the impugned notice, the court would be required to examine as to whether there is any material available on the record on the basis of which the requisite belief could be formed by the Assessing Officer and further whe .....

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so placed involves a further obligation to disclose all material facts necessary for his assessment for that year fully and truly. If at any subsequent point of time, it is found that either on account of an omission on the part of the assessee to file the return or on account of his omission 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, the Assessing Officer is entitled to reopen the asse .....

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for his assessment for that year, income has escaped assessment. The existence of the reason to believe is supposed to be a check, a limitation, upon his power to reopen the assessment. The power conferred upon the Income Tax Officer by sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessees from harassment resulting from mechanica .....

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had been inventoried as Annexure BF . As per the data available, the ADIT had worked out the total cash deposit of ₹ 2998.56 crore from financial year 2007-08 till the date of the survey, that is, 18th September, 2014 out of which ₹ 96,85,63,426/- related to assessment year 2008-09. It is further recorded that the beneficiaries of these cash deposits have not been disclosed by the assessee despite being given numerous opportunities to explain the same, therefore, the cash deposits ma .....

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asons:- The assessee filed its return of income for A.Y. 2008- 09 on 31-07-2008 declaring total income of ₹ 341930/-. The return was processed u/s 143(1) of the Income Tax Act, 1961. No regular assessment was made in this case. Subsequently, the department came to know that the assessee deposited huge cash to the tune of ₹ 4,70,11,830/- during the period from 01-04-2003 to 25- 4-2008 in its accounts maintained with the ICICI Bank. The genuineness of the sources of such huge cash tran .....

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a notice dated 27th September, 2013 under section 142(1) of the Act inter alia calling upon the petitioner to furnish copies of bank statements of all the bank accounts maintained by it with narration of debit and credit entries exceeding ₹ 50,000/-. The petitioner was also called upon to furnish the complete accounts of all FDRs shown in the balance sheet. It was further stated that the petitioner had deposited total cash of ₹ 4,70,11,830/- in its bank account with ICICI bank durin .....

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th March, 2014 inter alia stating thus:- (1) Sir we are regularly assessed to tax since long. We have filed our Return of Income for the year under consideration with Income tax officer ward-2(1) Rajkot with declaring of Total Income ₹ 105657/-. Our firm s nature of business is cheque discounting, issuing cheque, demand draft issuing etc. we are doing business of shroff with name of M/s Sidhnath Enterprise 8-Chokhawala chambers, Danapith Rajkot. In our shroff business we have received cash .....

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The above all commission income was shown by us in our profit & Loss account. We are regularly maintained our books of accounts like cash book, ledger, bank book, vouchers etc. Copies of accounts were already filed before your good self in our last submission. (2) Sir further we have like to clarify that we have license of shroff from Gujarat Government. We have also having service Tax number from central Excise department regarding our shroff activities. Copies of above both certificates a .....

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tatement and also copy of certain pages of our cash book, from this your good self verify that we have received cash from our various clients and it is deposited in our bank accounts as per need. We have mention cash book pages number on bank statement for your verification. We are enclosing some vouchers of cheque discounting demand draft issuing for verification of your good self. (4) Hence our cash deposited in bank accounts are properly account for and commission income of above transaction .....

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sed had attended from time to time and filed written submissions. The Assessing Officer observed that the assessee is engaged in the shroff business, wherein it discounts cheques, issues demand drafts, etc. Assessee had produced its cash book, wherein cash receipts were recorded, which were utilised to purchase demand drafts for parties who gave cash. Various issues were discussed at length during the assessment proceedings. After verification, the Assessing Officer determined the total income i .....

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were made in respect of certain bank accounts like Kotak Mahindra Bank. The Assessing Officer had called for all the bank statements and had examined the cash book wherein the cash receipts had been recorded. Out of the cash receipts, the Assessing Officer called for clarifications in respect of certain receipts and was satisfied with the explanation given by the assessee and did not deem it fit to make any addition. 13. Thereafter, a survey came to be carried out under section 133A of the Act. .....

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its from Financial Year 2007-08 to 18th September, 2014 at ₹ 2,998.56 crore and for the year under consideration at ₹ 96,85,63,426/- and called upon the petitioner to disclose the beneficiaries of such cash deposits. It appears that the petitioner sought some time to produce such details, in the meanwhile, since the limitation for issuing notice under section 148 of the Act was about to expire, the Investigation Wing forwarded the information to the Assessing Officer to take action, .....

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The cheque is drawn in favour of the beneficiary. For arranging this transaction, the firm charges commission. Reference has been made in the reply to instances where the petitioner has received cash from parties and has issued cheques in lieu thereof which were deposited by such parties in its account and the cheques were cleared at Rajkot. Based on this, the Assessing Officer had stated that she had reason to believe that income chargeable to tax has escaped assessment on account of the failur .....

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of cash received by it which had been encashed by the concerned party by depositing the same in its bank account. It may be noted that it is not the case of the respondent that the beneficiary after encashing such amount had returned the same to the petitioner nor has any material been unearthed in this regard. Insofar as the petitioner is concerned, as stated in the affidavit-in-reply, it is its business to receive cash and issue cheques in lieu thereof for which it charges commission. Under th .....

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esides, as is evident from the facts narrated hereinabove, all the cash deposits have been recorded in the cash book. During the time of the first reopening, the Assessing Officer had called for all details of all the bank accounts of the petitioner and picked up some parties and examined the nature of the deposits made by them and was satisfied as regards the veracity thereof and accepted the income as shown in the return. Thus, though all the cash deposits were noticed by the Assessing Officer .....

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Officer did not deem it fit to examine each and every cash deposit and was satisfied with examining the cash deposits on the basis of sampling, whereas the present Assessing Officer now deems it fit to examine all the cash deposits. 15. As noticed earlier, in the present case, since the assessment is sought to be reopened beyond a period of four years from the end of the relevant assessment year, it is the case of the Assessing Officer that the petitioner has failed to disclose fully and truly .....

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as to whether the petitioner is required to show the addresses and PAN of the parties in the cash book maintained by it. The learned counsel for the revenue has asserted that the petitioner is required to record the addresses and the Permanent Account Numbers of the parties in the cash book. He, however, is not able to point out any basis for saying so. In fact, on a plain reading of the reasons recorded for reopening the assessment, it is apparent that it is not the case of the Assessing Offic .....

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osits recorded in the cash book and called upon the petitioner to disclose the identity of the beneficiaries. In the order rejecting the objections, the Assessing Officer has stated that the survey revealed cash deposits to the tune of ₹ 2998.56 crores in the petitioner s bank account for the period starting from financial year 2007-08 to 18th September, 2014 that is the date of survey. The survey also revealed cash deposits to the tune of ₹ 96,85,63,425/- for the year under consider .....

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it is stated that despite numerous opportunities, the beneficiaries of these cash deposits have not been disclosed; in the order rejecting the objections, it is the case of the Assessing Officer that the cash deposits had not been disclosed; whereas in the affidavit-in-reply, it is the case of the Assessing Officer that cheques were issued in lieu of cash and such cheques were encashed by the beneficiaries in their bank accounts at Rajkot, which gives reason to believe that income chargeable to .....

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g material is found, the survey party cannot assume the jurisdiction of the Assessing Officer and call for information in relation to the material which is already on record. In case any concealed income has been discovered, it may justify reopening the assessment. In the present case, no concealed income has been discovered by the survey party, but the assessment is sought to be reopened for the purpose of verification of facts. 16. On behalf of the respondent, it has been contended by the lear .....

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ome Tax Act, 1922 refers only to primary facts and the duty of the assessee is to disclose such primary facts. There is no duty cast on the assessee to indicate or draw the attention of the Income Tax Officer what factual or legal inference can be drawn from the primary facts disclosed. 17. The Supreme Court in the case of Income Tax Officer, Azamgarh v. Mewalal Dwarka Prasad, (1989) 2 SCC 279 held thus:- 8. With this conclusion the decision of the High Court would ordinarily have been reversed. .....

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ccounts by the Income Tax Officer when he examined the same in course of the assessment proceedings. He had called upon the assessee to substantiate the genuineness of the transactions and the assessee had produced material to support the same. The Income Tax Officer accepted the documents produced and treated all the three transactions to be genuine and on that footing completed the assessment. The primary facts were before the Income Tax Officer at the time of the regular assessment and he cal .....

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al facts used in clause (a) referred only to primary facts and the duty of the assessee was confined to disclosure of primary facts and he had not to indicate what factual or legal inferences should properly be drawn from the primary facts. In the facts appearing on the record we are in agreement with Mr Manchanda that clause (a) of Section 147 did not apply to the facts of the case as the alleged escapement of income for assessment had not resulted from failure on the part of the assessee to di .....

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t the petitioner in its cash book has not noted the addresses and the Permanent Account Numbers of the parties who made the cash deposits. In the present case, as noted hereinabove, the Assessing Officer reopened the assessment by issuing notice under section 148 of the Act on 31st March, 2008 in respect of cash deposits made by the assessee in its ICICI bank account. During the course of the assessment proceedings, the Assessing Officer had also called for details of all bank accounts and also .....

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was satisfied with examining certain samples of the transactions and upon being satisfied with the genuineness of the same, did not deem it fit to look into each and every transaction recorded in the cash book. As held by the Supreme Court in the case of Income- Tax Officer, I Ward, Distt. VI. Calcutta and Others v. Lakhmani Mewal Das, (1976) 103 ITR 437 (SC), the duty is cast upon the assessee to make true and full disclosure of the primary facts at the time of the original assessment. Product .....

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ty of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If an Income Tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. In the present case, the Assessing Officer, at the time of the first reopening, examined the cash transactions to the extent he thought necessary and on the basis of th .....

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acts from the record, she would have found that certain cash deposits have already been examined at the time of assessment under section 143 (3) read with section 147 of the Act and had been accepted while framing assessment under section 143 (3) read with section 147 of the Act and would not have sought to reopen the assessment in respect of total amount of cash deposits recorded in the cash books. It is not the case of the respondent that the cash deposits of ₹ 96,85,63,426/- in respect .....

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at income to the tune of ₹ 4,70,11,830/- had escaped assessment in the earlier proceedings under section 147 of the Act. In the said proceedings, the Assessing Officer called for details of all the bank accounts and after lengthy discussion, ultimately accepted the income as returned by the assessee. Now on the self same material, the Investigation Wing is of the opinion that the cash deposits need to be verified and on the basis of such information received from the Investigation Wing, th .....

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all the primary facts were before the Assessing Officer and he had thought it fit to examine certain transactions and on being satisfied about the genuineness thereof, had accepted the return as filed by the petitioner. Now, on the basis of the very same set of facts, the assessment is sought to be reopened merely by placing reliance upon the survey carried out by the Investigation Wing under section 133A of the Act during the course of which no fresh material has come to light, but on the basi .....

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assessment beyond a period of four years from the end of the relevant assessment year. The impugned notice which has been issued beyond a period of four years from the end of the relevant assessment year, without there being any basis for formation of the requisite belief that income chargeable to tax has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts, therefore, cannot be sustained. 21. As regards the decisions of the S .....

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Officer examined the same and made inquiry in respect thereof, to the extent he so deemed fit. This is not a case where the Assessing Officer has not looked into the cash book and has not applied his mind to the contents thereof. Hence, this decision does not in any manner support the case of the respondent. For the same reason, the decision of the Supreme Court in Malegaon Electricity Co. P. Ltd. (supra) would not be applicable to the facts of the present case. In Income Tax Officer v. Selected .....

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, the assessment is sought to be reopened. Insofar as the decision of the Supreme Court in Raymond Woollen Mills Ltd. v. Income Tax Officer (supra) is concerned, this court has already expressed the opinion that there is prima facie no material on the basis of which the Assessing Officer could reopen the assessment. This decision also, therefore, does not carry the case of the respondent any further. The decision of this court in Dishman Pharmaceuticals and Chemical Limited v. Deputy Commissione .....

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