TMI Blog2000 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... er 30, 1993, for the assessment year 1993-94 declaring an income of Rs. 49,429. For the assessment year 1994-95, he filed the return on October 18, 1994, showing an income of Rs. 55,222. For the assessment year 1995-96, he filed the return dated January 31, 1996, declaring an income of Rs. 75,580. All these returns were processed under section 143(1)(a) of the Act. The return of income on behalf of the petitioner was filed for the first time on August 31, 1995, for the assessment year 1995-96 (for the period from October 24, 1994, to March 31, 1995). The same was also processed by the competent authority under section 143(1)(a) of the Act. In the meanwhile, the Assistant Director of Income-tax, Investigation (respondent No. 2) issued letters/notices dated December 2, 1993, October 24, 1994, and February 2, 1995, to Dr. B. D. Grover asking the details and sources of investment on the building of a nursing home. Dr. Grover filed replies dated December 26, 1993, November 30, 1994, and February 9, 1995, and furnished the details of the constructed area of the plot, the break-up of construction made in different years and the various outstanding loans. He also got done valuation from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner from the Haryana Financial Corporation, respondent No. 2 confronted it with the said information and called upon it to furnish details and source of investment on assets pledged with the Corporation. In reply the petitioner submitted some information regarding the covered area and the total cost of construction. The matter regarding cost of construction was then referred by respondent No. 2 to the Departmental Valuation Officer. On receipt of his comments, notices dated March 27, 1998, under section 148 of the Act were issued to Dr. B. D. Grover in his capacity as proprietor of Grover Maternity and Nursing Home, Sirsa, for the assessment years 1993-94, 1994-95 and 1995-96. In response to the notices, Dr. B. D. Grover filed the returns for the relevant assessment years and also submitted that he had not made any construction whatsoever. According to him, the construction had been raised by the petitioner-firm in which he was a partner. In view of these assertions, notices issued to Dr. Grover were dropped and proceedings were initiated against the petitioner under section 147 of the Act as no return of income had been filed for the assessment years 1993-94 and 1994-95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 995, before estimating the cost of construction. At no point of time, Dr. B. D. Grover objected that no valuation was possible as the property referred to was different from that to be valued. Moreover, the objection of the petitioner firm is not valid because the slight change in the mentioning of name is simply a technical mistake and mere mentioning of name as Grover Hospital Maternity and Nursing Home against Grover Nursing Home does not change the character of the building. The valuation has been specifically made in respect of the building situated at Dabwali Road, Sirsa, belonging to Grover Nursing Home which is constituted by two doctors, namely, S/Shri B. D. Grover and Ramesh Grover. This fact also gets support from the very initiation of the proceedings by respondent No. 2 vide his letter dated December 2, 1993, on the basis of information gathered by him from the office of the Haryana Financial Corporation from where the petitioner-firm had raised loan for construction of building. Further, in view of the specific provisions contained in section 292B of the Income-tax Act, which for the sake of convenience is reproduced below, the proceedings shall not be invalid or de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or infirmity in referring the matter regarding the valuation of property to the Departmental Valuation Officer by respondent No. 2 which he was authorised to do, notwithstanding that no proceedings with respect to the above person were pending before him or any other income-tax authority. It is further wrong to allege that the petitioner had disclosed all the facts. The case in hand is not a case of change of opinion. Concealment of income is clearly established in the present case when the fact of unexplained investment in building is found. Notices under section 148 of the Income-tax Act have been issued in the present case after recording reasons. It is wrong to allege that the action is in any way unjurisdictional or mala fide. As already stated above, the processing of return for the assessment year 1995-96 was made under section 143(1)(a) of the Income-tax Act on December 21, 1995, which cannot be termed as an assessment. The same can be reopened legally when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. However, proviso to section 147 of the Income-tax Act is applicable only where an assessment has been made under su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore for that year. Explanation.---In determining income chargeable to tax which has escaped assessment for the purposes of this subsection, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year." A perusal of the provisions quoted above shows that under section 147, the Assessing Officer can assess or reassess any income chargeable to tax if he has "reason to believe" that such income has escaped assessment for any assessment year. The Assessing Officer can also assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record-from which the requisite belief could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion about the loan obtained by the petitioner from the Haryana Financial Corporation, respondent No. 2 confronted Dr. B. D. Grover with the said information and called upon him to furnish details and the source of investment on assets pledged with the an and a building of the Nursing Home. He then issued notices to Dr. B.D. Grover under section 147 of the Act, who responded to the same by asserting that the building did not belong to him. Respondent No. 2 accepted his version and filed the notice. Simultaneously, he issued the impugned notices to the petitioner. While doing so, respondent No. 2 took into consideration the report of the Departmental Valuation Officer and the fact that the assessee has not offered any explanation about the difference in the valuation projected by it and the report of the Departmental Valuation Officer and further that the income-tax returns had not been filed for the years 1993-94 and 1994-95. On the basis of this material, he formed the belief that it was a case of escaped assessment. In our opinion, even though the report of the Departmental Valuation Officer cannot be made the sole basis for initiating action under section 147 read with section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court quashed the notice by making the following observations : "The valuation report could, at best, be considered as a mere reason, but could not be a reason to be believed by the assessing authority, unless and otherwise there was a believable reason by the assessing authority that the petitioner had failed to file a return or failed to disclose, fully and truly all material facts. In the instant case, admittedly, the petitioner had fully and truly disclosed all the material facts by producing the vouchers and other contractor's bills, etc., at the appropriate time for assessing the property supported by the valuation certificate under rule 1BB of the Wealth-tax Rules for assessing the same both under the Income-tax Act as well as under the Wealth-tax Act. The notice of reassessment was not valid." In Desai Brothers' case [1999] 240 ITR 121, a Division Bench of the Gujarat High Court held that the requirement of recording the reasons as a condition precedent to the initiation of proceedings under section 147 was mandatory and the court can examine the nexus between the material on record and the belief formed by the competent authority that the income had escaped asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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