TMI Blog2017 (1) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... stion, which being a jurisdictional fact requires adjudication by the Assessing Officer. The petitioner may also have justifiable explanation of repayment, but from the material placed before us, it cannot be said that either the initiation of process of assessment or rejection of objections is on flimsy grounds or in an arbitrary manner. We find existence of reasonable ground, enabling the Assessing Officer to form a belief, with regard to the non-disclosure/escapement of income - In the instant case, we find that the petitioner seeks adjudication, on merits, of the fact in issue, which is impermissible in law. In the absence of definite and authentic information, this Court cannot as a fact finding authority, by way of a roving inquiry examine the matter, holding the proceedings initiated under Section 148 of the Act to be untenable on merits. Assessee is always open to make all such submissions before the appropriate authority. Application of mind by the sanctioning authority - Held that:- the instant case is not that of mere rubber stamping, for the competent authority, in principle, was in agreement with the reasons assigned by the Assessing Officer, so placed before hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e argued before us, for the difference pertained to the amount of income declared and the dates of filing of returns under Section 139 of the Act. Hence we proceed to discuss the facts of CWP No. 3072 of 2016. 3. The issues, which this Court is called upon to consider, are: (a) whether an order passed by an authority under the Act, in view of availability of equally efficacious remedy, is amenable to interference by way of writ jurisdiction, (b) whether exercise of power by the jurisdictional authority, in initiating action for assessment of escaped income, is justiciable by a Writ Court, (c) whether the jurisdictional authority had sufficient material to form reasons of belief, (d) whether such reasons do exist and if so, can this Court go into sufficiency thereof, (e) whether sanction accorded by the appropriate authority is in accordance with law, (f) whether the order passed by the authority is in conformity with the settled procedure of law, and (g) whether action of the authorities below can be said to be arbitrary, whimsical or capricious. 4. Petitioner, a permanent resident of Himachal Pradesh, is regularly assessed to income tax. On 02.08.2012, he filed a return, dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2012-13) and information received from and copies of the statements recorded by the Investigation Wing and the following facts emerge:- 4.1 Sh. Virbhadra Singh is showing his return with gross total income of ₹ 18,66,089/- from salary and income from other sources. 4.2 Sh. Virbhadra Singh has received interest free unsecured loans of ₹ 2.4 Crores from Sh. Vakamulla Chandrashekhar in Financial Year 2011-12. 4.3 Sh. Vakamulla Chandrashekhar submitted that he advanced the above mentioned loans to Sh. Virbhadra Singh out of his agricultural income of ₹ 3.4 Crores in Financial Year 2011-12 and out of unsecured loans taken by him from Sh.Gurusharan Singh (Rs. 0.49 Crores), Jai Bharat Foods (Rs. 0.73 Crores) etc. 4.4 However, it was proved that Sh. Vakamulla Chandrashekhar was not having sufficient agricultural land to substantiate his claim. 4.5 Sh. Ram Parakash Bhatia, who was controlling various paper entities including Jai Bharat Foods, admitted on oath that he had provided accommodation entries to Sh. Vakamulla Chandrashekhar in lieu of unaccounted cash. He also stated on oath that no actual agriculture produce were purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proof or evidence, justifying income from agricultural source or unsecured loans, creditworthiness of the creditor remained to be examined; (iii) Though in the hands of the loaner, a sum of ₹ 3,40,85,000/-, so claimed as income from agriculture was assessed as an income from undisclosed source, under Section 68 of the Act, yet genuineness of the transaction required examination. More so, when such assessment was subject matter of challenge in an appeal before the appropriate jurisdictional authority; (iv) Even though assessee was not maintaining books of accounts, but however, information to which only he had access, in the nature of bank accounts etc. required submission and examination, in deciding a jurisdictional issue of fact; (v) In the absence of any prior assessment, there is no jurisdictional error in the Assessing Officer, calling upon the assessee to place all material in its power and possession, enabling the officer to decide the fact in issue; (vi) There was proper application of mind by the sanctioning authority; and (vii) Assessee s participation in the assessment proceedings would also help proper adjudication of the case on merits. 12. In response to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax v. Kalanithi Maran; (ii) Commissioner of Income Tax, Gujarat v. Vijaybhai N. Chandrani, (2013) 14 SCC 661; (iii) Commissioner of Income Tax and others v. Chhabil Dass Agarwal, (2014) 1 SCC 603; (iv) Lalji Haridas v. Income-Tax Officer and another, (1961) 43 ITR 387; (v) Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited, (2008) 14 SCC 208 = (2007) 291 ITR 500; (vi) Raymond Woolen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC) : 2008 (14) SCC 218; (vii) Phool Chand Bajrang Lal and another v. Income-Tax Officer and another, (1993) 203 ITR 456 : (1993) 4 SCC 77; (viii) Ess Ess Kay Engineering Co. P. Ltd. v. Commissioner of Income Tax, 247 ITR 818; (ix) Decision dated 04.03.2016, rendered by the Calcutta High Court in ITA No.297 of 2006, titled as Prem Chand Shaw (Jaiswal) V. Assistant Commissioner, Circle-38, Kolkata Anr; (x) Sunil Kumar Jain v. CIT, 284 ITR 626 (Allahabad); (xi) Mangilal Jain V/S Income Tax Officer, (2009) 315 ITR 105 (Mad); (xii) Shankar Industries v. Commissioner of Income Tax, Central, 114 ITR 689 (Cal); (xiii) Civil Misc. Writ Petition No. 181 (Tax) of 2004, decided on 16.09.2006, by Allahabad High Court, titled as M/s Ema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net income disclosed in original return ₹ 17,60,090/- ₹ 12,97,055/- ₹ 1,97,150/- Date of filing Return 2.8.2012 (P-1) 28.7.2012 (P-1) 7.8.2013 (P-1) Date of Notice u/s 148 of the Act 29.3.2016 (P-2) 29.3.2016 (P-2) 29.3.2016 (P-2) E. Return refiled 20.4.2016 after receipt of notice u/s 148 of the Act. 28.3.2013 for amount of ₹ 14,33,200/- 28.4.2016 for amount of ₹ 1,97,150/- Date on which request for supply of reasons was made 27.4.2016 25.4.2016 28.4.2016 Reasons supplied on 9.5.2016 9.5.2016 9.5.2016 Objections filed on 29.6.2016 (P-4) 16.6.2016 (P-4) 29.6.2016 (P-5). Rejection of Objections is same in all petitions except CWP 3080 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing jurisdiction under Art. 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Art. 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up. (Emphasis supplied) 23. A three-Judge Bench of the apex Court in The Commissioner of Income-tax, Gujarat v. M/s A. Raman and Co., AIR 1968 SC 49, held that: 6. The High Court exercising jurisdiction under Article 226 of the Constitution has power to set aside a notice issued under Section 147 of the Income-tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The Court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information: the Court may also determine whether from that information the Income-tax Officer may have reason to believe that income chargeable to tax had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is discretionary in nature, must be exercised. Where hierarchy of appeal is provided by a statute, party must exhaust the statutory remedies before invoking the writ jurisdiction. The right or liability created by a statute giving a special remedy for enforcing it must be availed of. The Court reiterated the principle laid down in Union of India Versus Guwahati Carbon Ltd., (2012) 11 SCC 651 and in Munshi Ram Versus Municipal Committee, Chheharta, (1979) 3 SCC 83, that when a statute provides for a person aggrieved, a particular remedy to be sought in a particular Forum and in a particular way, it must be sought in that manner, to the exclusion of all other modes and Forums. But it did recognize certain exceptions to this rule and that, inter alia being, where the action of the statutory authority is not in accordance with the statutory provisions; in defiance of fundamental principles of judicial procedure; and in total violation of principle of natural justice. 27. Justifying the action of the petitioner in bypassing the statutory remedy and directly assailing the notice for reassessment, Mr. Vishal Mohan, learned counsel, seeks reliance on the decision rendered by the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court of Madras in Kalanithi Maran (supra). We are unable to persuade ourselves to agree with such submission. The procedure for filing the objections and obligation to decide the same, came to be evolved with the following observations made by the apex Court in GKN Driveshafts (supra), wherein it is held as under: 5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. 32. Since then, the practice has been in vogue. The mechanism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the revenue as well as by the Courts were taken up before the higher courts, either through appeals, revisions or writ petitions. The details of the various proceedings in respect of these appeals are given in paragraph 30 of the written submissions filed by the revenue, which reveals the dilatory tactics adopted in these cases. Courts, we caution, be guarded against those persons who prefer to see it as a medium for stalling all legal processes. We do not propose to delve into those issues further since at this stage we are concerned with answering the questions which have been framed by us. (Emphasis supplied) 35. In the given facts and circumstances, we are not inclined to dismiss the petition on such a ground. However, on this issue, we refrain from making any observation, save and except that petitioner is duty bound to fully cooperate in the expeditious adjudication of all proceedings. REASONS TO BELIEVE 36. The expression reasons to believe stands adequately elaborated by the Apex Court in its various pronouncements. The issue is no longer debatable. 37. By relying upon its earlier decision, rendered by a Constitution Bench (five-Judge) judgment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any basis for holding a reasonable belief, warranting action, under Section 147 of the Act. It further observed that: 19 .Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the same facts and material which was available with the I.-T.O. at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the true and full facts in the case and the I.-T.O. would have the jurisdiction to reopen the concluded assessment in such a, case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. 20. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. (Emphasis supplied) 41. It is also the law that the Assessing Officer is not precluded to reopen assessment of an earlier year on the basis of his finding of fact, so made on the basis of fresh material, so discovered, in the course of assessment of next assessment year [Ess Ess Kay Engineering Co. (supra)]. 42. In Calcutta Discount Co. Ltd., v. Income-tax Officer, Companies District I, Calutta and another, AIR 1961 SC 372, the apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 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 of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid. (Emphasis supplied) 44. The Apex Court in Income Tax Officer, Cuttack and others v. Biju Patnaik, 1991 Supp. (1) SCC 161, observed that while examining the existence of reasons, record can be looked into. 45. In M/s Niranjan Co. Pvt. Ltd. v. Commissioner of Income Tax, West Bengal-I and others, 1986 (Supp) SCC 272, the apex Court held that: 21. It was contended on behalf of the assessee/appellant relying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure P-2) came to be issued without obtaining prior sanction and/or no reasons of belief were ever prepared or placed before the sanctioning authority, but when confronted, Shri Vishal Mohan, learned counsel, in all fairness did not press the point any further. 48. Now in the instant case, the fact that investigation came to be conducted against the Tarini Group owned by Vakamulla Chandershekhar (loaner) is not disputed in the petition. The Assessing Officer, as is evident from the reasons of belief and response filed to the petition, was in receipt of information from the Deputy Director of Income Tax (Investigation), Faridabad, which revealed that out of his agricultural income and advances received from his friends, loaner had advanced payments as interest free unsecured loan to the petitioner and his family members. 49. The factum of advancement of such money came to be admitted only in response to the notice. Prior thereto, both the petitioner and his family members maintained stoic silence. 50. Also, the source from which the loaner itself received such income, prima facie, was found to be false, which fact surfaced only during the course of investigation conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a question which needs to be examined by the Assessing Officer, for the writ petitioner wants the Court to believe that loan was repaid with interest at the rate of 10%. No authentic document of such transaction stands placed before us. In fact qua payment of interest no document stands placed either by the petitioner s wife or his son. In the case of petitioner, the document annexed does not conclusively establish payment of interest. The Assessing Officer, in our considered view, has considered the entire material while forming its prima facie view with regard to the alleged payments of interest. Also what was the purpose of loan and what was the source from where it came to be returned is a question, which being a jurisdictional fact requires adjudication by the Assessing Officer. The petitioner may also have justifiable explanation of repayment, but from the material placed before us, it cannot be said that either the initiation of process of assessment or rejection of objections is on flimsy grounds or in an arbitrary manner. 54. The burden to prove the income which stands accounted for, is on the assessee. In Sreelekha Banerjee V. Commissioner of Income Tax, (1963) 49 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the jurisdictional authority, i.e. Assessing Officer at New Delhi only on 27.3.2015. Before us there is nothing on record to show that prior to initiation of impugned action, the present jurisdictional officer was aware of passing of any such order. Perhaps for this reason, such fact is missing in the reasons recorded by the Assessing Officer. 56. Assuming hypothetically that order of assessment against the loaner, which is subjudice, attains finality, even then what would be its effect on the nature of transactions and creditworthiness of the loaner would be a matter of consideration by the Assessing Officer. Whether such order itself would be sufficient establishing creditworthiness of the loaner, particularly when in the last six preceding years, he disclosed income from agricultural source to be less than ₹ 3,00,000/- and its unusual increase to ₹ 85,00,000/- only in the year in question, is again a matter to be considered by the Jurisdictional Officer. Prima facie it stands noticed by the officer that income of the loaner, cumulative from all sources, for the last five preceding years, is far less than ₹ 5.9 Crores, the amount lent to the petitioner and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f reasons, obtaining sanction, and issuance of notice, was carried out without application of mind and in undue haste is factually incorrect. 65. From the affidavit, so filed in response to the petition, which goes unrebutted, and for which no opportunity was sought, it is evident that the Assessing Officer had been applying his mind for more than three months, it being a different matter that he could have expedited the same. Be that as it may, information which came to be received by him in December, 2015, was processed and placed before the appropriate authority on 29.3.2016. It is not that the sanctioning authority had no material before according sanction. Only after perusing the reasons of belief, so recorded by the Assessing Officer, and finding it to be a case fit for issuance of notice, did the authority accord its sanction. It is brought to our notice that offices of the Assessing Officer and the Sanctioning Authority are in the very same building and petitioner is also a local resident. It was convenient for the authority to have dealt with the matter the very same day. It is not a herculean, much less an impossible task to accomplish. 66. Significantly, no malafid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng such sanction. 71. Also attention is invited to the decision rendered by the Madhya Pradesh High Court in Arjun Singh (supra), wherein it was observed that exercise of power by the sanctioning authority, in less than 24 hours indicated non application of mind. On first brush, it appears to be so. But closer scrutiny reveals the decision to be distinguishable on facts. The jurisdictional authority was trying to reopen assessment, on the basis of alleged escapement of income, in relation to which, after registration of the F.I.R., not only the Court of competent jurisdiction discharged the assessee but even the jurisdictional officer, after investigation had concluded the adjudicatory proceedings, ten years prior to the initiation of impugned action. The Court found the Assessing Officer not possessing any material, enabling him to record reasons of belief. Also simultaneous issuance of notices of inquiry and reassessment came to be initiated against the assessee who was called upon to furnish information of money spent on the construction of a house and much prior to conclusion of such inquiry, the Assessing Officer, by pre-judging the issue, without any basis or material, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e succeeding financial years. It is in this backdrop, it held the revenue itself, not sure of the year of its taxability, hence such income could not be deemed to be chargeable to tax, having escaped assessment. 76. In fact, the principle of protective precautionary assessment came up for consideration before the apex Court in Lalji Haridas (supra), wherein by upholding, action of reassessment initiated by the Revenue, they observed that In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr. Nambiar would be justified in resisting the enquiry which is proposed to be held by respondent No.1 in pursuance of the impugned notice issued by him against the appellant. Under these circumstances we do not propose to deal with the point of law sought to be raised by Mr. Nambiar . 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st another entity and where it appears that the income may have been received either by A or by B or by both together, it would be open to the income-tax authorities to determine the said question by taking appropriate proceedings against both A and B. In the case of R. Dalmia [1972] 84 ITR 616 the Delhi High Court has held that where the items of escaped income in respect of which the assessment is proposed is specific but the question as to whether the income, if earned, was earned by one person singly or by him along with others is a matter of inquiry, if the Income-tax Officer has reason to believe that it could have been earned either by one person singly or by him along with others there is nothing to prevent him from initiating proceedings against the concerned assessees in both capacities. In such a case where it appears to the Income-tax Officer, that certain income had been received during a particular year but it is not clear who has received that income it is open to the Income-tax Officer to start proceedings against all the persons individually or collectively to ascertain the correct position. In the case of Sohan Singh [1986] 158 ITR 174 the Delhi High Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o germane for just adjudication of facts in issue. There is proper compliance of procedure. Also the assessee can adequately represent himself before the authority which otherwise has jurisdiction to initiate the impugned action. 82. It is not a case of lack of jurisdiction. It is also not a case where the authority has exceeded its jurisdiction or the action is based on no material or that no reasons are recorded by the Assessing Officer or that reasons assigned are absolutely irrelevant or based on extraneous factors/circumstances. It also cannot be said that the impugned action is not bonafide or is based on vague , irrelevant or unspecific information. It is not that the Assessing Officer has prejudged the issue and proceeded to initiate action with a predetermined mind. In fact, there is no such assertion in the petition. Also no malafides stand alleged. 83. It cannot be said that rejection of the objections are based on frivolous or extraneous factors and circumstances. There is complete and proper application of mind to the attending facts and circumstances. The objections rejected, by a speaking order, also stands duly communicated to the petitioner. Mere rejection of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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