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TMI Blog2017 (12) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner filed its e-return of income disclosing total income Rs. 24,18,597/-. Upon scrutiny assessment being made under Section 143 (3) of the Act, the income of the petitioner was assessed at Rs. 25,94,450, vide assessment order dated 28.12.2011. During those assessment proceedings, various queries were made to the assessee amongst others with respect to the investment made in shares amounting to Rs. 1.45 crores made through a broker Motilal Dhulichand (P) Ltd. and another investment made in the construction of a building at plot no. 12B Dada Nagar Kanpur amounting to Rs. 55,42,976/-. The exact nature of queries is borne out from the order-sheet entries copies of which have been annexed along with the supplementary affidavit filed in these proceedings. Thus, vide order sheet entry dated 18.11.2011 the petitioner had been asked to reply and justify the investment in construction of a factory at 12 B Dada Nagar, Kanpur as also to produce the purchase deed of the said plot. Further, the petitioner had been required to file evidence to justify investment in share capital amounting to Rs. 1.45 crores. In reply to the aforesaid queries, the petitioner appears to have filed at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to the notice of the assessing authority that the assessee had made an investment of Rs. 1.45 crores in shares through M/s Motilal Dulichand (P) Ltd. and that such investment had been made from the loan taken by it from Canara Bank. Similarly, it has been alleged that the assessee had invested an amount of Rs. 55,42,976/- in the building at 12B Dada Nagar Kanpur from funds drawn from the aforesaid bank loan and that building had been used for a non-business purpose. Apparently, because the petitioner did not claim depreciation thereon it has been reasoned that the petitioner has not treated it as a business asset. Thereafter, it has been further noted that the total outstanding loan from Canara Bank, as on 31st March 2009 stood at Rs. 2,13,94,853/- as against opening balance of Rs. 1,57,43409/-. Therefore, a reason to believe has been recorded that the income had escaped assessment to the extent of business expenditure has been allowed by way of interest paid to Canara Bank on the business loan (to the extent of amounts of Rs. 1,45,00,000/- and Rs. 55,42,976/-). The petitioner had raised an objection to the aforesaid 'reasons to believe'. Those have also been rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruly disclosed by the petitioner in those proceedings, but the assessing officer had also applied his mind to the same. He first questioned the allowability of both investments i.e. Rs. 1.45 crores in share capital as also the investment made in the construction of the building. The petitioner had given full and complete reply wherein, amongst others, it had also stated that the investment - be it in share capital or in the construction was made only though one/same bank account held with the Canara Bank bearing account number 1673261010373. The petitioner had also shown it had sufficient business surplus available with it. In this background it has been submitted that no new or other material has come on record before the assessing officer after completion of the regular assessment proceedings that may lead to formation of a reason to believe that any part of the non-business investment has been made by the petitioner from its interest-bearing loans advanced by the Canara Bank. The assessing officer has merely looked into the self-same assessment record to reach a different belief occasioned solely by the audit objection raised by the internal audit party of the income tax depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon by the petitioner is quoted below: "It was also sought to be contended that since the Assessing Officer had not expressed any opinion regarding this matter in his original assessment order, it could not be said that there was any change of opinion in this case. In our view, once all the material was before the Assessing Officer and he chose not to deal with the several contentions raised by the petitioner in his final assessment order, it cannot be said that he had not applied his mind when all material was placed by the petitioner before him." (emphasis supplied) Responding to the above submissions, Shri Praveen Kumar, learned counsel for the department submits that the bar of the proviso of Section 147 would not apply because the petitioner had not made full and true disclosure during the assessment proceedings. In this regard, he has taken us through the reply as furnished by the petitioner in the regular assessment proceedings to submit that at no stage in the regular assessment proceedings did the petitioner submit that the investment in the construction of the building was made from the surplus available with him. However, he does not deny that in it's reply t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,63,293/- and 90,00,897/- for the assessment year 2008-09 which is indirectly credited in credit account, as the assessee has no other Bank account." Thus, we find the petitioner had given details of the surplus available being in excess of Rs. 3 crores. It had also disclosed the source of that surplus being business profit for the previous years relevant to the Assessment Years 2009-10, 2008-09 and 2007-08. Reading the reply thus furnished by the petitioner in it's entirety, it is unambiguously clear that the primary and material facts disclosed by the petitioner at the stage of regular assessment proceedings were to the effect that it had surplus far in excess of the amount invested either by way of share capital or by way of investment in construction of a building. While recording the 'reason to believe' the petitioner's assessing authority did not doubt the correctness of those facts or disclosures as either untrue or incomplete. Thus, merely, because the petitioner did not specifically state that it had made an investment in the property from such surplus, though at the same time it had stated that it had only one bank account and that it made all investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in (2001) 247 ITR 436 (AII) has upheld as follows:- "In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso." (emphasis supplied) The aforesaid judgment was affirmed by the Supreme Court in CIT Vs. Foramer France reported in (2003) 264 ITR 566. To the same effect is the latter decision of this Court in the case of M/S Aci Oils Pvt. Ltd. Vs. Dy. C.I.T. and Another referred to above. In that view of admitted fact and law as laid down by this Court noted above, we conclude the reassessment proceedings initiated against the petitioner for Assessment Year 2009-10 vide notice dated 23.03.2016 is wholly barred under the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under Section 147 (a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under Section 147 (a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. The Court, of course, cannot investigate the adequacy or sufficiency of the reasons which have weighed with the Income Tax Officer in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening 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, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings also, wherein it had specifically stated that the petitioner had operated only one bank account and that it had sufficient profits available to it to justify the investments made by it. Had that part of the reply been also taken note of, the petitioner's assessing authority could not have formed a 'reason' in support of the 'belief' that income had escaped assessment at the hands of the petitioner because there is no 'tangible material' existing to doubt or disprove the petitioner's reply that it made the investments from its profits and not from loan taken by it from Canara Bank. In absence of such 'tangible material' no 'reason to believe' could arise of escapement on that count. Then, apparently, an audit objection was raised as to the procedure followed in the assessment proceedings. The nature of the audit objection itself has not been spelled out by the revenue either in the 'reason to believe' or in the counter affidavit filed in this petition. Nevertheless, assuming the same to be an objection with respect to the matter on which the 'reason to believe' had eventually been recorded, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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