TMI Blog2013 (4) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 of the Act, the Assessing Officer issued a notice on 19th February 2010 informing the appellant that its income for the assessment year in question had escaped the assessment and he proposed to reopen the assessment, on following the due procedure. 2.2 It appears that due to change of the incumbent, fresh notice under Section 143 (2) of the Act was issued on 14th June 2010. A further notice under Section 142 (1) of the Act was also issued on 19th July 2010. 2.3 In response to such notices, a duly authorized Chartered Accountant of the assessee attended and furnished requisite details which were called for. The Assessing Officer computed the income of the assessee at ₹ 91,70,111/- and the copy of such assessment order dated 30th November 2010 was served upon the appellant. 3. Being aggrieved by such order of the Assessing Officer, an appeal was preferred before the CIT [A] challenging the validity of initiation of the reopening proceedings. The Assessing Officer, had made addition of ₹ 20,11,251/-,being the expenditure towards freight charges and ₹ 7,57,852/- on account of non-deduction of TDS on clearing and forwarding charges. The g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue a notice and for which, no other conditions are required to be satisfied. It was further held that the freight charges and forwarding clearing charges need to be deducted at sources under Section 194C of the Act and unless evidence is adduced to indicate that the tax had been deducted at source in accordance with law, the expenditure incurred on account of such charges are liable to be disallowed under Section 40[A](ia) of the Act. If such aspect had escaped attention of the Assessing Officer and later on, when he gets satisfied, his belief cannot be said to be not bona fide. At the stage of reopening the assessment, he is not to say whether the material available with him would conclusively prove the escapement of the income. There has to be sufficient material available with him to form requisite belief, once he is subjectively satisfied at the time of initiation of the proceedings under Section 147 of the Act, all the requirement under the law are duly fulfilled. The Tribunal also relied on the judgment of the Supreme Court rendered in case of ACIT v. Rajesh Jhaveri Stock Brokers P. Limited, reported in 291 ITR 500 (SC) to hold that the Assessing Officer was justified in is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Section 147 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Company Limited 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 estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, held that the reassessment proceedings can be validly initiated in case the return of income is processed under section 143 (1) of the Act and no scrutiny assessment is undertaken and in such a case, there would be no change of opinion. However, such reassessment proceedings would be invalid in case the assessment order itself records that the issue was raised and decided in favour of the assessee. Even if the query or issue is raised and answered by the assessee in original assessment proceedings, but, the Assessing Officer does not make any addition nor explicitly make rejection in the assessment order, in such a situation, it is held by the Delhi High Court that the issue should be held to have been examined by the Assessing Officer and thereby he can be said to have formed an opinion. In other words, even if the Assessing Officer on having raised the query and despite the receipt of answer when chooses not to give finding of acceptance or rejection in scrutiny assessment, the reopening would be invalid, if based on the very material facts which were available with Assessing Officer. The Court held that, ....the expression change of opinion postulates formation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs in the said cases will be hit by the principle of change of opinion . (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations, it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had no recorded his reasons. 8. It would be profitable to reproduce the principles deducted by the Andhra Pradesh High Court in case of GVK Gautami Power Limited v. Assistant Commissioner of Income-Tax [OSD] Anr., reported in [(2011) 336 ITR 451] on the question of principles governing exercise of jurisdiction to reopen the assessment and the scope of Sections 147 148 of the Act. (i) In section 147 of the Act, with effect from April 1, 1989, the twin conditions of the pre-amended section 147 were given a go-by, and only one co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of specific, reliable and relevant information coming to his possession subsequently, he has reason, which he must record, to believe that any part of the assessee s income has escaped assessment. (x) The words has reason to believe in section 147 are stronger than the words is satisfied [Ganga Saran Sons P. Limited [(1981) 130 ITR 1 (SC)]. (xi) These words suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. The Income-tax officer may act on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief, that the conditions are satisfied, do not exist or is not material or relevant to the belief required by the section [Sheo Nath Singh [1971] 182 ITR 147 (SC); [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)]. (xii) The belief entertained by the Income-tax Officer must not be arbitrary or irrational [Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)]. (xiii) The expression reason to believe cannot be read to mean that the Assessing Officer should have finally ascertained the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial on the basis of which the Department could reopen the case [Raymond Wollen Mills Limited [1999] 236 ITR 34 (SC)]. (xxxii) Since the belief is that of the Income-tax Officer the adequacy or sufficiency of reasons for forming the belief is not for the court to investigate or judge [Phool Chand Bajrang Lal [1993] 203 ITR 456 (SC) and Ganga Saran and Sons P. Limited [1981] 130 ITR 1 (SC)]. (xxxiii) Even if the reasons furnished by the Income-tax Officer to the assessee does not, ex facie, disclose his satisfaction of the basic facts essential for the exercise of jurisdiction under section 147 of the Act, the court can look into the records, produced before it, to ascertain whether there was relevant material which led the Income-tax Officer to arrive at his satisfaction that income has escaped assessment [Biju Patnaik (1991) 188 ITR 247 (SC)]. (xxxiv) Even if nothing relevant is disclosed an opportunity may be given to the Revenue to produce the records to find out whether the Income-tax Officer had any reason to believe that income had escaped assessment [Calcutta Discount Co. Limited [1961] 41 ITR 1291 (SC); Sheo Nath Singh [1971] 82 ITR 147 (SC); [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2010) 320 ITR 56 (SC)] had an occasion to deal with such issue of reopening within a period of four years from the end of relevant assessment year, wherein, the Supreme Court had laid down following principles :- On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Law (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditons alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (w.e.f April 1, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words, reasons to believe failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e favourably to the aspect of escapement of income is not the question to be addressed to by the Court. 12. From the discussion on the legal aspects, it would be material to examine the subjective satisfaction of reopening of assessment in the instant case where the Assessing Officer on issuance of notice under Section 148 of the Act dated 19th July 2010 has sought reopening of assessment for the A.Y 2005-06. 13. The Assessing Officer in the reasons recorded prior to issuance of the notice gave following reasons, while arising at reasonable belief that the income chargeable to tax has escaped assessment in case of the petitioner assessee :- As per section 40(a)(ia) of the IT Act 1961 [effective from A.Y 2005-06) any interest, commission or brokerage, fees or any amount payable to resident contractor or sub-contractor for carrying out any work (including labour supply) on which tax is deductible at source under chaper XVII B and such tax has not been deducted or after deduction has not paid into central Government s account during the previous year or in subsequent year before expiry of the time prescribed under Section 200 (1), will not be allowed for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearing and forwarding charges. The assessee had also submitted these details of TDS vide its letter dated 30th November 2007 and also furnished copy of accounts of expenses like freight and clearing forwarding expenses. It therefore, urged that the assessment on verification had been completed, and therefore, it needs to be held that the Assessing Officer had applied his mind, when everything was already available on the record, such order cannot be reopened. 13.2 As noted hereinabove, such objections were disposed of by the Assessing Officer vide letter dated 27th July 2010. It is held in terms that with regard to freight expenses and clearing forwarding expenses during the course of scrutiny assessment, no details were called for in respect of TDS deductions on these expenditure but only month-wise summary of these two expenditures were on record. And hence, the Assessing Officer rejected the objections raised in respect of initiation of proceedings. During the course of re-assessment, it called for the details of documentary evidence in respect of TDS deducted on freight charges and on clearing forwarding charges and on holding that the assessee had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be added back to the income of the assessee and this omission of disallowances, since has resulted into under estimation, it had issued notice under Section 148 of the Act. We are of the firm opinion that both the Assessing Officer and the Tribunal were justified in not sustaining the objections of the assessee against the proceedings of the re-assessment. 18. As could be noted from the record, what had been called for during the course of original assessment by the Assessing Officer was the monthly details of freight and clearing forwarding charges. No details were furnished on the record with regard to TDS deducted and paid to the Government. Therefore, after the original assessment was concluded, when it was brought to the notice of the Assessing Officer; even by the audit party, it formed a reasonable belief on the basis of material available that non revelation on the part of the assessee in respect of TDS had led to escapement of the income. 19. In such circumstances, it cannot be held that the assessment proceedings initiated within a period of four years from the end of the relevant assessment year by the Assessing Officer are on the basis of chang ..... X X X X Extracts X X X X X X X X Extracts X X X X
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