TMI Blog2017 (9) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, in our opinion, it is not permissible to criticize the formation of belief and to declare it as invalid from the inception by carrying out threadbare examination of documents, materials and the evidences which have come on record during the assessment proceedings. It is one thing to hold that a certain addition or disallowance made by the Assessing Officer was impermissible on the basis of materials on record. It is entirely another thing to say that on the assessment of evidence on record the formation of belief by the Assessing Officer that income chargeable to tax had escaped assessment was wrong. In the present case, the Tribunal has evaluated the evidence on record in minutest detail as if each limb of the Assessing Officer's reasons recorded for issuing notice of reopening was in the nature of an addition made in the order of assessment which had either to be upheld or reversed, which was simply impermissible. - order of ITAT set aside. - Decided in favour of revenue - Tax Appeal No. 472 of 2017 - - - Dated:- 6-9-2017 - MR. AKIL KURESHI AND MR. BIREN VAISHNAV, JJ. For The Appellant : MR KM PARIKH, ADVOCATE For The Opponent : MR B S SOPARKAR, ADVOCATE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.02.2013 under section 148 of the Act to reopen the assessment of the respondent-assessee for the said assessment year 2009-10. The Assessing Officer had recorded following reasons for issuing the notice: A survey u/s. 133A was carried out in the case of Laxmiraj Distributors Private Limited, Baroda on 30.08.2012. During survey proceedings some incriminating documents were found, which are inventoried and impounded as annexure BF-1 to BF- 15. On scrutinizing the annexure BF-1, it was noticed that the assessee had introduced unaccounted capital through share capital and share premium. The assessee company raised an amount of ₹ 7,52,00,000/- by allotting its shares to 10 different companies, located at Surat, Ahmedabad and Kolkata. The assessee company had allotted total 7,52,000 shares with face value of ₹ 10/-at a premium of ₹ 90/- in F.Y. 2008-09. Later in F.Y.2009-10, the assessee purchased back these shares from these 10 companies at a rate of ₹ 10/-each share. The assessee company paid back ₹ 75,20,000/- to purchase the allotted shares. The details of working is as under: Sr. No Name of Allottee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office of the undersigned, where his statement u/s 131 was recorded. While recording statement, the director of the company was asked vide Q. No. 57 to 70 of the statement recorded u/s 131 of the Act on 03.09.2012 about details of investors of the company and the investments made by them. But the director Shri Parasmal Jain who is the only beneficiary to enjoy the profits of the company and who take care all the matters of the company, was unable to give any detail in respect of investors. Even he was not able to name any one of investors who made such huge investments in the company. Later, on the same day the director of the company Shri Parasmal Jain, vide his hand written letter admitted ₹ 9 crores as his unaccounted income. He also stated in the letter that the breakup-and the nature of this unaccounted income will be submitted in short duration of time. Accordingly, the assessee company vide its submission dated 04.09.2012 received this . 1,2012, through the director Shri Rarasmal V Jain, submitted the year wise nature of the A.Y.Particulars Amount (Rs.) 2009-10 Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions made by the Assessing Officer and confirmed by the CIT(Appeals). With respect to the legality of the notice for reopening, the assessee had raised following five contentions: i. The Assessing Officer has not established a live link between the material relied upon to reopen the assessment and the escapement of income; ii. The reopening of assessment is done without application of mind as the Assessing Officer has not looked into the material available before him; iii. The Assessing Officer had initiated the proceedings on the basis of incorrect facts and irrelevant material; iv. The Assessing Officer had reopened the assessment without any fresh tangible material in his possession to show that income of the assessee had escaped assessment; v. The validity of the notice has to be adjudged on the basis of the reasons recorded which cannot be supplemented by additional reasons. 6. The detailed arguments were made by both sides before the Tribunal on the question of validity of the reopening of the assessment as well as on the merits of the additions. The Tribunal, by the impugned judgement, held that reopening of assessment was bad in law. Consequently, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial in BF-Ol forming part of the paper so as to even prima facie indicate at slightest pretext that there is even any evidence much less a conclusion indicating assessee s unaccounted income have been invested in the share capital in question. He fails to refer to any such material. We accordingly observe that the impugned reopening reasons nowhere indicate any live nexus between the income sought to be reassessed. Our View therefore is that the Assessing Officer has proceeded on a mere apprehension leading to the impugned long drawn process of roving inquiry which has held to be not permissible by the hon ble apex court. This met reason accordingly fails the test of cause-effect relationship as discussed in preceding paras. The assessee s first limb of argument is thus accepted. 32. We come to second reason of the impugned reopening that the assesses company bought back the share capital in question from the ten investor companies by paying them a sum of ₹ 75.20 lacs. This reason no more survives in View of Assessing Officer's remand report as well as CIT (A)'s lower appellate findings that it is the relatives of assessee's directors who have been found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning notice (supra). There is thus nothing in Shri Jain's statement which could be held to be treated as an admission or that it is pointing towards introduction any unaccounted income in share capital. The CBDT circular dated 10-03-2003 {as reiterated on 18/12/2014 vide clarification no. 286/98 /2013-IT(Inv-II)} has already clarified that search /survey teams have to collect evidence instead of obtaining confessions of the concerned assessee. Hon'ble jurisdictional high court in Kailashben case (supra) takes notes of the same in para 13 of the judgement to conclude that an addition in absence of corroborative evidence ought not to be made merely on the basis of assessee's admission. We accordingly reject Revenue's contentions supporting this third limb of the impugned reopening as well. 34. This leaves us with the last reason of reopening stated to be based assessee's written correspondence dated 03.09.2012 and 04.09.2012 disclosing names of ten investor companies through whom it had allegedly introduced the impugned unaccounted money. We revert back to page 648 of the paper book. Shri Jain submitted a hand written letter dated 03.09.2012 that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gments on this legal aspect are not germane to the issue since the re-openings therein fulfilled all relevant parameters as per facts involved therein. The same are accordingly distinguished. 36. We rely upon our detailed discussion hereinabove to finally conclude that all four reasons of the impugned reopening recorded by the Assessing Officer have to be held as not sustainable as per the settled law. We accordingly quash the impugned re-opening. The assessee's additional ground is accepted. All other arguments advanced at both parties behest qua merits of the case are rendered academic. 7. We may recall that the return filed by the assessee was originally accepted without scrutiny. The notice for reopening was issued after the survey was carried out at the premises of the company during which, various documents were found and impounded. Statement of the Director of the company was recorded. In fact, after such survey was over, the company had written a letter to the Assessing Officer showing its willingness to offer income of ₹ 7.52 crores for the assessment year 2009- 10 under the head of share capital reserves. The letter of course suggested that this was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. 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 (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]. 9. The ratio of decision in case of Rajesh Jhaveri Stock Brokers P. Ltd (supra) laid down by the Supreme Court was reiterated in later judgement in case of Deputy Commissioner of Income Tax and anr vs. Zuari Estate Development and Investment Company Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 between June 1, 1994, to May 31, 1999, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended, does not arise. 14. Additionally, section 148 as presently stands is differently couched in language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Amendment) Act, 1987, the provision read as follows: 148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection. ( 2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. 17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Despite this clear distinction, the common thread that would run through both sets of exercises of reopening of assessment is that the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment. Such reason to believe, as held by Supreme Court in case of Commissioner of Income Tax vs. Kelvinator of India Ltd. reported in [2010] 320 ITR 561 , would mean a tangible material to enable the Assessing Officer to come to a conclusion that there is escapement of income from assessment. The reason must have live link with the formation of the belief. At the same time, the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) had reiterated that at stage of issuance of notice (for reopening of assessment) the question is whether there was relevant material on which a reasonable person could have formed the requisite belief and the final outcome of the proceedings is not relevant. 12. We may test the decision of the Tribunal on the basis of these legal principles. We may recall, the Assessing Officer had recorded detailed reasons. These reasons referred to survey action carried out in case of the respondent-assessee company on 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f course, must be based on a tangible material which would have a live link with the formation of the belief and cannot be based on unconnected, remote or vague material. It is equally well established that the notice for reassessment cannot be issued for a mere roving or a fishing inquiry. Nevertheless, the formation of belief is a subjective satisfaction of the Assessing Officer to be arrived at on the basis of objective consideration of materials on record. The validity of such formation of belief is of course open to challenge. Nevertheless, in our opinion, it is not permissible to criticize the formation of belief and to declare it as invalid from the inception by carrying out threadbare examination of documents, materials and the evidences which have come on record during the assessment proceedings. It is one thing to hold that a certain addition or disallowance made by the Assessing Officer was impermissible on the basis of materials on record. It is entirely another thing to say that on the assessment of evidence on record the formation of belief by the Assessing Officer that income chargeable to tax had escaped assessment was wrong. The conclusion, that a certain addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reopening was in the nature of an addition made in the order of assessment which had either to be upheld or reversed, which was simply impermissible. 15. We may refer to some of the decisions cited on behalf of the assessee. In case of Krupesh Ghanshyambhai Thakkar vs. Deputy Commissioner of Income Tax reported in 77 taxamann.com 293, this Court observed that the Assessing Officer cannot resort to reopen the assessment for a fishing or roving inquiry or to seek to verify any claim. This is a well settled proposition with which, there could be no dispute. 16. Decision in case of TANMAC India vs. Deputy Commissioner of Income Tax, Circle-I, Pondicherry reported in 78 taxmann.com 155 of the Madras High Court seems to be suggesting that if after issuing intimation under section 143(1) of the Act, the Assessing Officer does not issue notice of scrutiny assessment under section 143(2) of the Act, it would not be open for the Assessing Officer thereafter to resort to reopening of the assessment. The High Court placed heavy reliance on the decision of Delhi High Court in case of Commissioner of Income Tax vs. Orient Craft Ltd . reported in 354 ITR 536 in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such facts. We are afraid, the Supreme Court never meant to convey that to reopen an assessment, which was accepted under Section 143(1) of the Act, there must be some tangible material, which is alien to the record . 18. The Court thereafter referred to the Division Bench judgement in case of Gujarat Power Corporation Ltd vs. Assistant Commissioner of Income Tax reported in 350 ITR 266 and it was held that in case of reopening of assessment within 4 years from the end of relevant assessment year, the concept of true and full disclosure would not apply and the expression tangible material does not mean material alien to the original record. 19. The decision in case of Orient Craft Ltd. (supra) was also considered by Delhi High Court in case of Indu Lata Rangwala vs. Deputy Commissioner of Income Tax reported in 384 ITR 337 . The Court referring to the decisions of Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and Zuari Estate Development and Investment Company Ltd. culled out legal proposition. Relevant portion of which reads as under: 35.1 The upshot of the above discussion is that where the return initially filed is processed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Division Bench relied on the decision of Supreme Court in case of Kelvinator of India Ltd.(supra) held that the notice was invalid on the ground that there was no failure on part of the assessee to disclose truly and fully all material facts. The observations of the Court may be noted: 7. The facts of the case show that there was no denial of the fact that the assessee had disclosed the details as regards the carry forward of the losses as well as the income computed and all these details were very much there before the Assessing Officer; that there is no denial of the fact that there was no failure on the part of the assessee in disclosing the facts necessary for assessment and that there is no such allegation that the escapement of income was on account of the failure of the assessee in not disclosing fully and truly all material facts. In the circumstances, applying the Supreme Court decision referred to above, we have no hesitation in accepting the plea of the assessee that the assumption of the jurisdiction beyond four years is hit by limitation as provided under Section 147 proviso. Even though, on the merits of the assessment, the assessee's case has to fail, ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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