TMI Blog2017 (1) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Sumanth, J. ) This Tax Case (Appeal) filed by the assessee raises the following two substantial questions of law admitted for consideration of this Court. 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law on holding that the appellant is not entitled to claim the expenditure of ₹ 5,50,000/- paid to the retiring partner under section 37 of the Act as the same was made out of business exigencies? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the Assessing Officer is justified in reopening the assessment by issuance of notice under section 148 of the Act when no new material was unearthed justifying the re-opening of the assessment? 2. The assessee is a partnership firm. One of the partners Sri.P.C.Kapur retired from the firm on 1.4.1997 and the deed of retirement provided for a sum of ₹ 5,50,000/-(Rupees five lakhs and fifty thousand ) to be paid by the firm to the retiring partner 'as compensation for his agreeing to retire from the firm'. The aforesaid sum of ₹ 5.5 lakhs was claimed as a deduction for the purposes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t simply based on the same material that had been available to him all along. 7. The sine qua non for the initiation of proceedings in terms of section 147 of the Act is reason to believe on the part of the assessing officer that income chargeable to tax has escaped assessment. While the court cannot examine the sufficiency of reasons on the basis of which re-assessment is initiated, the existence or otherwise such reason to believe is certainly open to verification and would be evident from the reasons recorded prior to issue of notice under section148 as required in terms of section 148(2) of the Act. In order to examine this aspect of the matter, the records were called for and have been duly produced for our perusal by Mr..Narayanaswamy. The reasons recorded are as follows: The debit claimed towards lump sum payment made as a compensation for future profits forgone by the retiring partner ₹ 5,50,000/- is not allowable for the following reasons: 1. The payment has not been authorised by partnership deed. 2. Serving of future profit is contingent one. Contingent expenditure cannot be allowed. 3. Future profits does not relate to the AY in question. And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same materials that were available with the authority as part of the record. 11. The phrase reason to believe in section 147 relates to such other new or tangible material as may have come to the knowledge of the assessing officer pursuant to the original proceedings for assessment. The Supreme Court in CIT Vs. Kelvinator of India (320 ITR 561) states thus in the context of the belief that should form the basis for a re-assessment; 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 fulfillment of certain pre-conditions 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 as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To conclude, the Division Bench holds thus: This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the section. 15. There is yet another relevant aspect. Mr.Kapur, to whom the payment was made in the present case, also retired from two other firms simultaneously, M/s.Jarvis International (hereinafter referred to as Jarvis ) and M/s Aryavartha Impex (hereinafter referred to as Aryavartha ). The facts in the case of Jarvis, Aryavartha and TANMAC, the appellant before us, are identical. However, it appears that the Department, in the cases of Jarvis and Aryavartha, issued notices u/s.143(2) of the Act and completed scrutiny assessment proceedings within time. Thus, in those cases, when proceedings for re-assessment were initiated by issue of notice under section 148, the Tribunal in the case of Jarvis and the Commissioner of Income Tax (Appeals) in the case of Aryavartha as confirmed by the Income Tax Appellate Tribunal, took the view that the assumption of jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words reason to believe vis-`-vis section 143(1) and section 143(3). We are unable to appreciate what permits the Revenue 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 or is accepted without demur is not a matter which is within the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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