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TMI Blog2020 (6) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... essment under section 147 of the Income Tax Act, 1961 (briefly "the Act", hereinafter). 3. Case of the Petitioner is that it is a company registered under the Companies Act, 1956, engaged in the business of financing and investing activities, as a non-banking financial company registered with the Reserve Bank of India. It is an assessee under the Act. 4. For the assessment year 2012-13, Petitioner filed return of income on 20.09.2012 declaring total income of Rs. 90,630.00. Initially, the return of income was processed under section 143(1) of the Act. Petitioner's case was however selected for scrutiny pursuant to which notices under section 143 (2) as well as under section 142(1) were issued alongwith questionnaire. During the course of assessment proceedings, details of income, expenditure, assets and liabilities were called for and examined. Following reply submitted by the Petitioner pursuant to such notices and after examination of the details filed, Assessing Officer computed the total income of the Petitioner at Rs. 90,630.00, vide the assessment order dated 28.03.2015 passed under section 143(3) of the Act. 5. On 31.03.2019 Respondent No. 1, who was in the meanwhile conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of purchase and sale of shares of M/s. Scan Steels Ltd., also known as Clarus Infrastructure Realties Ltd. (earlier known as Mittal Securities Finance Ltd.), were disclosed. While denying that the Petitioner had any dealing with the parties whose names cropped up during the search and seizure action, it was stated that purchase and sale of shares were done by the petitioner through registered broker of Bombay Stock Exchange. Payment for the purchase of shares were made by cheque through the Bombay Stock Exchange, the price being as per prevailing market price. Thus there was no apparent reason to classify the receipt of Rs. 23,98,014.00 as having escaped assessment. Therefore, it was contended that the decision to reopen assessment was nothing but change of opinion, which was not permissible in law. That apart, it was contended that the impugned notice under section 148 of the Act was issued on 31.03.2019 and was received by the Petitioner on 04.04.2019 i.e. beyond 31.03.2019. The notice was posted on 02.04.2019. On that basis it was contended that though the notice was dated 31.03.2019 but the same was posted after closure of financial year and thus was barred by limitation bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Petitioner to be beyond 31.03.2019, it is stated that the notice was handed over to the postal authorities on 31.03.2019. The postal receipts to that effect have been annexed. 13.2 Finally, Respondents have justified issuance of the impugned notice and re-opening of the assessment and in this connection a reference has been made to the report of the Investigation Wing as per which the Petitioner had diluted its income by adopting manufactured and pre-arranged transactions which were never disclosed to the Assessing Officer. Such an action was nothing but a failure on the part of the Petitioner to make a full and true disclosure of all material facts. Petitioner's contention that all primary facts were disclosed by it have been disputed. That apart, it is contended that Principal Commissioner of Income Tax-1 had applied his mind and thereafter, granted approval to the issuance of notice under section 148 of the Act. 14. Petitioner has filed rejoinder affidavit. It is stated that in the return of income filed pursuant to the impugned notice dated 31.03.2019, petitioner could not reduce the amount of refund already received as the online ITBA system did not provide for any sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned notice was handed over to the Petitioner by the Income Tax Department on 31.03.2019 at about 3.34 p.m. but a copy of the same was served upon the Petitioner before end of the day on 31.03.2019. He further submits that the reasons furnished are good grounds to justify re-opening of the assessment of the Petitioner. Writ petition is premature inasmuch as it has assailed the impugned notice; whereas the Act provides for a host of alternative remedies to the Petitioner which are adequate and efficacious. Therefore, the writ petition should be dismissed. 17. Submissions made by learned counsel for the parties have been considered. We have also perused the materials on record. 18. At the outset, we may advert to the reasons furnished by Respondent No.2 for re-opening of the assessment. As already noticed above, reasons were furnished to the Petitioner vide letter dated 31.05.2019. The reasons furnished are extracted hereunder : "The return of income for the year, declaring total income of Rs. 90,630.00 was filed by the assessee on 20.09.2012. The assessment was completed on 28.03.2015 by accepting the returned income. An information has been received from the Investigation Wing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue could not be verified by the A.O. during the course of assessment proceedings. Even otherwise, it is pertinent to mention that Explanation-1 to section 147 provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso to the said section. In view of the above discussion, I have reason to believe that income chargeable to tax amounting to Rs. 23,98,014/- has escaped assessment within the meaning of section 147 of the Act read with the provisos thereto. Notice u/s. 148 of the Income Tax Act, 1961, is therefore, issued to assess such income and also any other income chargeable to tax which has escaped assessment and which may come to notice subsequently in the course of the proceedings under this section." 19. From the above, it is seen that according to Respondent No. 2 information was received from the Investigation Wing about search and seizure action carried out in the premises of Shri Naresh Jain on 19.03.2019 which concluded on 21.03.2019. The search action revealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment as per the reasons furnished to the Petitioner on 31.05.2019 viz., that petitioner had traded in the shares of M/s. Scan Steels Ltd. and was in receipt of Rs. 23,98,014.00 which Respondent No. 2 stated that he had reasons to believe had escaped assessment. Thus, this contention of the Respondents is beyond the reasons furnished for reopening of the assessment. 22. In para 3.4 of the affidavit in reply it is stated that though the Petitioner had furnished details relating to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.,), but that did not amount to full and true disclosure of all material facts unless true and real facts are disclosed before the Assessing Officer. Assessing Officer had not discussed in the assessment order about the genuineness or camouflage nature of the transactions of purchase and sale of shares of Mittal Securities Ltd. by the Petitioner. 23. From the above, it is seen that what Respondent No. 2 contends is that though Petitioner had disclosed details of the transactions pertaining to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.), Petitioner did not disclose the real colour / true character o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djusted after dividends in terms of section 94(7) of the Act. In his response, Petitioner informed the Assessing Officer on 19.03.2015 itself that there was no increase in the security premium reserve during the said assessment year. No capital gains were earned during the said year by the Petitioner. It had not received any dividend income during the said year too. Hence, question of applicability of section 94(7) did not arise. Petitioner did not make any investment nor was there any inventory of shares; no dividend was earned during the year. Alongwith the said letter relevant documentary evidence in respect of the concerned transactions were enclosed. 26. Thereafter, assessment order was passed on 28.03.2015, wherein Assessing Officer had noted that during the course of scrutiny details of income, expenditure, assets and liabilities were called for, examined and placed on record. After perusing all details and after examination of those and upon discussion, total income was computed in terms of the return filed by the Petitioner. As already noted above, the assessment order was passed under section 143(3) of the Act. It was mentioned therein that representative of the Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er expiry of four years but before expiry of six years. 29.1 Of course the limitation point though pleaded in the writ petition, has been given up by the Petitioner following filing of affidavit by the Respondents which clearly shows that the re-opening notice was issued within the limitation period of six years. 30. In such a case, the first condition for invoking section 147 is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for the relevant assessment year. The second condition is that the Assessing Officer must arrive at the satisfaction that income chargeable to tax has escaped assessment for the said assessment year by reason of the failure on the part of the assessee to make a return under section 139 or to respond to a notice under section 142(1) or section 148 or due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. 31. The key or crucial expressions appearing in section 147 are "reason to believe" and "failure to disclose fully and truly all material facts necessary for assessment". 31.1 Before dilating on these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason of the omission or failure on the part of the assessee to make a return under section 139 for the asessment year under consideration or to disclose fully and truly all material facts necessary for his assessment for that year. 32.1 Both the two conditions must co-exist in order to confer jurisdiction on the Income Tax Officer. Supreme Court observed that duty is cast upon the assessee to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income Tax Officer the books of accounts or other evidence from which material evidence with due diligence could have been discovered by the Income Tax Officer will not necessarily amount to disclosure contemplated by law but the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts. If the Income Tax Officer draws an inference, which appears subsequently to be erroneous, it would amount to change of opinion and mere change of opinion with regard to that inference would not justify initiation of action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich underlines section 147 is formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. In other words, the Assessing Officer must have reason to believe that income chargeable to tax for a particular assessment year has escaped assessment for the relevant assessment year before he proceeds to issue notice under section 148. The reasons which are recorded by the Assessing Officer for re-opening an assessment are the only reasons which can be considered when the formation of the belief is impugned. Recording of reasons distinguishes an objective from a subjective exercise of power and is a check against arbitrary exercise of power. The reasons which are recorded cannot be supplemented subsequently by affidavits. The question as to whether there was reason to believe within the meaning of section 147 that income has escaped assessment must be determined with reference to the reasons recorded by the Assessing Officer. Even in a case where only an intimation is issued under section 143(1), the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment. 35. Having disc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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