TMI Blog2021 (7) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... income filed by the assessee is the income which escaped assessment in the hands of assessee - AO simply acted upon the information and did not apply his own mind to the information to arrive at a belief independently that on the basis of material before him to come to the conclusion that income has escaped assessment - it is a joint account of assessee with his ex-wife, Ms. Vandana Virwani with HSBC Bank, Geneva and the assessee solely cannot be considered as owner of the account so as to bring the entire transaction in that account in the hands of the assessee. AO has just suspicion in his mind and it is trite law that an assessment cannot be reopened merely on the basis of suspicion and initiation of reassessment proceedings u/s. 148 of the Act on the basis of this aspect was invalid in the eye of law. AO framed assessment on protective basis in AY 2002- 03 which clearly shows that he was not sure as to whether assessee was having income which escaped assessment AO is not sure whether income has to be assessed in the hands of assessee or his ex-wife. Next, he was not sure in which assessment year it has to be taxed, whether AY 2002-03 or 2003-04. In addition, he is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and therefore the re-assessment was not valid. 4. The CIT(A) has erred in not appreciating the fact that Assessing officer had merely relied upon the reasons recorded by predecessor without independently applying mind. 5. The CIT(A) has erred in not appreciating the grounds of the Appellant that Assessment under section 147 is liable to be quashed as the ingredients mentioned in section 147 have not been satisfied before assumption of jurisdiction and even at the time of conclusion of the assessment. 6. The CIT(A) failed to appreciate that the appellant had disclosed fully and truly all material facts necessary for assessment. 7. The CIT(A) erred in ignoring the statement given by the Appellant that he was not owning or operating any Bank Account with HSBC Bank, Geneva. 8. The CIT(A) failed to consider the fact that the document purported to be the evidence or the information forming the basis of the belief that income has escaped assessment, shown to the appellant was an unsigned document giving some bank account number and other personal details of the appellant. 9. The CIT(A) failed to consider the fact that the evidence submitted by the AO is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment, statement was recorded u/s. 131 of the Income-tax Act, 1961 [the Act] wherein the assessee has stated that she was not owner nor operating any bank account with HSBC Bank, Geneva and therefore the transaction did not relate to him. However, addition was made in these assessment years towards the transactions in HSBC Bank, Geneva. Against this, the assessee carried the matter before the CIT(Appeals), who has confirmed the addition. Against this, the assessee is in appeals before us. 5. At the outset, the assessee argued that reopening of assessment in these assessment years is bad in law. He drew our attention to the reasons recorded for reopening of assessments which reads as under:- The assessee is a resident individual assessed to tax. The case has been notified to this Circle by the order of CIT-IV dated 06.12.2012. Based on the information received by the department, the assessee and his ex-wife Smt. Vandana Virwani were beneficiaries and authorised signatories of accounts maintained at HSC Bank, Geneva. The assessee has opened an account with M/s. HSBC Bank, Geneva on 04.10.2001 at HSBC Geneva by depositing an amount of USD 14149, the same h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as under:- 149. (1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year; (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation.-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, 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 perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, ended on 31st March, 1956, under the new Act before its amendment in 1956. This provision was, however, amended by the Finance Act, 1956, and under the amended provision the period of limitation was extended to two years from the end of the assessment year. The amendment was made on 8th September, 1958, but was given effect to from 1st April, 1956. Since the time within which notice could be issued against a person deemed to be an agent of a non-resident was extended to two years from the end of the assessment year, it was contended on behalf of the Income-tax Officer that the notice issued by him was within the terms of the amended provision and was, therefore, a valid notice. Now the notice issued on 27th March, 1957, was clearly within a period of two years from the end of the assessment year 1954-55 and if the amended provision applied, the notice would be a valid notice. It was, however, held by this court that the notice was not a valid notice inasmuch as the right of the Income-tax Officer to reopen the assessment of the assessee under the unamended provision became barred on 31st March, 1956, and the amended provision did not operate against him so as to authorise the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion, therefore, is that sub-section (1) of section 150, as amended with effect from 1-4-1989, does not enable the authorities to reopen assessments, which have become final due to bar of limitation prior to 1-4-1989 and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law. The larger Bench of Supreme Court in S.C. Prashar v. Vasantsen Dwarkadas Hungerford Investment Trust Ltd. (1963) 49 ITR 1 (SC) held as under:- I now take up the second facet of the same question. On this aspect of the case both the learned single judge (Desai J.) and the appellate court (Chagla C.J. and Tendolkar J.) were agreed. The relevant assessment year was 1942-1943 and it ended on March 31, 1943. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bring to tax escaped income is available to him under section 34 provided he avails himself of the remedy within the period of limitation. No distinction can be drawn, so far as section 34 is concerned, between the right of the Income-tax Officer and the remedy available to him. If the remedy is lost, the right is also lost and if the right is lost, much more so is the remedy. Therefore, I am clearly of the view that on April 30,1954, the Income-tax Officer had no jurisdiction to issue the notice which he did on the firm Purshottam Laxmidas under the second proviso to sub-section (3) of section 34, because the time limit fixed by sub-section (1) of section 34 had expired long before the said proviso came into effect and the proviso does not in express terms or by necessary implication revive a remedy which has been lost before April 1, 1952 In all these cases the Privy Council proceeded on the principle that if the right of action had become barred according to the law of limitation in force, subsequent enlargement of the period of time does not revive the remedy to enforce the rights already barred. The same principle, in my opinion, would apply to the periods spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified, . . The ld. AR submitted, therefore, notice u/s 142(1) can be issued only for the purpose of making assessment. When the time-limit to initiate assessment proceedings itself is barred by limitation, it is trite to state that the notice u/s 142(1) issued purportedly for making assessment which is invalid in the eyes of law should also be held to be invalid. 13. It was further submitted that vide letter dated 26.09.2014 the ACIT, Circle-2(1), Bangalore has communicated the recorded reasons. The same has been extracted supra. Section 147 of the Act states that if 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 . , Hence the basic requirement for initiating proceedings u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstances 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 does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. 18. A three-Judge Bench of the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219 held as under:- Again the expression reason to believe in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it different, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e belief has to have its roots in the reasons and obviously has to be genuine and bona fide and not merely a pretence. The subjective satisfaction metamorphing into the belief has to be guided by objectivity based on existing relevant reasons acknowledged and recognized by law. A tangible and bona fide legal necessity to scuttle tax avoidance is the essence of the power and no roving enquiry on vague-hunches or indeterminate and impertinent consideration is envisaged. 21. The entire law as to what would constitute reason to believe was summed up by the Hon ble Supreme Court in ITO v Lakhmani Mewal Das [1976] 103 ITR 437. The following principles were laid down:- (a) The powers of the Assessing Officer to reopen an assessment, though wide, are not plenary. (b) The words of the statute are reason to believe and not reason to suspect . (c) The reopening of an assessment after the lapse of many years is a serious matter. Since the finality of a judicial or quasijudicial proceedings are sought to be disturbed, it is essential that before taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. . 23. In Commissioner of Income-tax v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC), the Hon ble Supreme Court held as under: There should, in our opinion, be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact. 24. A Constitution Bench of the Hon ble Supreme Court in M. Ct. Muthiah v. CIT AIR 1956 SC 269, considered the expressions reason to believe and distinguished the same from reason to suspect comparing the provisions with the un-amended provisions of section 34(1) of the Income-tax Act, 1922 and held that after amendment, the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELHI), the Hon ble Delhi High Court held as under:- We think that the point taken on behalf of the assessee that even an assessment made under Section 143(1) of the Act can be reopened under Section 147 only subject to fulfillment of the conditions precedent, which include the condition that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, is sound. It is true that no assessment order is passed when the return is merely processed under Section 143(1) and an intimation to that effect is sent to the assessee. However, it has been recognised by the Supreme Court itself in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P). Ltd. [2007] 291 ITR 500/ 161 Taxman 316, a decision that was relied upon by the revenue, that even where proceedings under Section 147 are sought to be taken with reference to an intimation framed earlier under Section 143(1), the ingredients of Section 147 have to be fulfilled; the ingredient is that there should exist reason to believe that income chargeable to tax has escaped assessment. This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anguage employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words reason to believe vis-avis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made u/s. 143(3) cannot apply where only an intimation was issued earlier u/s. 143(1). It would in effect place an assessee in whose case the return was processed u/s. 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is evident that there was absolutely no basis for the first respondent to form a belief that any income chargeable to tax has escaped assessment within the meaning of the substantive provisions of section 147. Explanation (2) to section 147 creates a deeming fiction of cases where income chargeable to tax has escaped assessment. Clause (b) deals with a situation where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. For the purpose of clause (b) to Explanation (2), the Assessing Officer must notice that the assessee has understated his income or has claimed excessive loss, deduction, allowance or relief in the return. The taking of such notice must be consistent with the provisions of the applicable law. The act of taking notice cannot be at the arbitrary whim or caprice of the Assessing Officer and must be based on a reasonable foundation. The sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua non for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine whether the reasons are relevant and have a bearing on the matter, in regard to which, the Assessing Officer is required to entertain the belief, before he issues notice under section 147. Besides, the expression reason to believe does not mean a purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith, it cannot merely be pretence. In addition, suspicion, gossip or rumour would not form the basis for such belief. 32. In Rambagh Palace Hotels Pvt Ltd Vs DCIT 2013-TIOL-45-HC-DELIT, the Hon ble Delhi High Court held as under:- Even so, it is necessary that the assessing officer must have reasons to believe that income chargeable to tax had escaped assessment. There must be tangible material before him on the basis of which he could form the belief, bona fide and in good faith, that there was escapement of income. The material must have a live link or nexus with the formation of the belief. The belief cannot be a mere pretence. These are the most basic and indispensable requirements for the validity of the notice under Section 148 33. The Third Member in M/s. Telco Dadajee Dhackjee Ltd. Vs. The DCIT, Circle 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which case the proviso will have no application. If it is correct that an intimation under section 143(1) as well as an assessment order under section 143(3) are both amenable to section 147, it should also be conceded that even in a case where the original return was merely processed under section 143(1) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment. He also has to record reasons under section 148(2) for reopening the earlier assessment made under section 143(1). All that has been excluded is that the assessee, in whose case the return was first processed under section 143(1), cannot challenge the notice of reopening on the ground that it is prompted by a mere change of opinion. Only to this limited extent there is a disability on the part of the assessee to challenge the notice of reopening in a case where his return was earlier processed under section 143(1) of the Act. ..the notice of reopening issued in a case where the return was first processed under section 143(1) is open to challenge on all grounds available to the assessee, including the ground that there was no reason to believe that income chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not valid. 36. The Tribunal in Assistant Commissioner of Income-tax, Vapi Circle v. Resham Petrotech Ltd. [2012] 136 ITD 185 (AHD.) held as under: The ITO himself should form the reasonable belief that income has escaped assessment and then only he can reopen an assessment. Reassessment proceedings initiated on the directions given by the CIT would be invalid [CIT v. T. R. Rajkumari [1973] 96 ITR 78 (Mad.): TC 51R 430].The requisite belief u/s. 147 must be that of the ITO concerned and not of any other officer. If the ITO does not form, his own belief but merely act at the behest of any superior authority, it must be held that the assumption of jurisdiction under section 148 was bad for nonsatisfaction of the conditions precedent [Sheo Narain Jaswal Ors. v. ITO Ors. [1989] 176 ITR 352 (Pat.); TC 51R 432.. See also Vishal Swamp Agrawilla v. ITO [1976] CTR (Cal.) 296: TC 51R 432A and Chunnilal Onkarmal (Pvt) Ltd., (1983) 349 ITR 380 (MP): TC 51R 435]' .. The reasons for reopening must be recorded by jurisdictional AO because he is keeping all relevant and primary record. The basic requirement of section 147 of the Act is that the AO has reason to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be independent and not borrowed or dictated satisfaction. Law in this regard is now sell-settled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352/ 45 Taxman 213 (Pat.), it was held: Where the Assessing Officer does not himself exercise his jurisdiction under Section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent. 39. 9. The Apex Court in the case of AnirudhSinhji KaranSinhji Jadeja v. State of Gujarat [1995] 5 SCC 302 has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, has rightly been found by the learned Tribunal that it was a borrowed satisfaction under the opinion of the Assessing Officer at Mumbai and has rightly been found to be not sufficient to confer power on the Assessing Officer to initiate reassessment proceedings. 43. The Department s special leave petition against the judgment of the Rajasthan High Court reported in 313 ITR 231 (supra) whereby the High Court held that initiation of reassessment proceedings based upon the opinion of the Assessing Officer of the lessor at Mumbai was borrowed satisfaction and was not sufficient reason to believe that income had escaped assessment proceedings under section 147 has been dismissed. [CIT v. Shree Rajasthan Syntex Ltd. [2009] 313 ITR (Statutes) 27] 44. The Hon ble Mumbai High Court in ICICI Home Finance Co Ltd Vs ACIT, Mumbai 2012-TIOL-590-HC-MUM-IT held as under:- The belief u/s 147 that income has escaped assessment has to be the reasonable belief of the AO himself and cannot be an opinion and/or belief of some other authority. The AO cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief that income has escaped assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 36(1)(viii) of the said Act. The reasons only provide a conclusion and give no material particulars of information obtained during the course of assessment proceedings for the assessment year 1998-99 Therefore the reasons recorded do not indicate any tangible material which has led to a reasonable belief that income has escaped assessment. As held by this court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar 268 ITR 332 = (2004- TIOL-72-HC-MUM-IT), the reasons for reopening as recorded must be clear and not suffer from any vagueness so to keep the assessee guessing for the reasons. It is the reasons which provide the link between the evidence and the conclusion. In this case the reasons as recorded do suffer from the vice of vagueness. 49. As regards, the transaction of USD $ 14149 based on which the reassessment proceedings are initiated, it was submitted that the same has already been assessed in AY 2003-04 reassessment proceedings and the same cannot be considered in the relevant AY of 2002-03. 50. On the basis of the above submissions, the ld. AR submitted that that the reassessment proceedings may be quashed. 51. On the other hand, the ld. DR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that income to that extent escaped assessment because there may be so many sources for making such investment and it is not necessary that only on the basis of investment it can be presumed that income to that extent escaped assessment. There should be concrete finding before coming to the conclusion that any income escaped assessment and merely on the basis of information provided by any other wing of the department, the AO cannot believe that there was income which has escaped assessment. 56. In the present case, the AO simply relied upon the information received by him and stated that the investment in assessee s joint account with his ex-wife, Ms. Vandana Virwani with HSBC Bank which has not been disclosed in the return of income filed by the assessee is the income which escaped assessment in the hands of assessee. It clearly shows that AO simply acted upon the information and did not apply his own mind to the information to arrive at a belief independently that on the basis of material before him to come to the conclusion that income has escaped assessment. Further, it is to be noted that it is a joint account of assessee with his ex-wife, Ms. Vandana Virwani with HSBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Once it had been held that such investment belonged to 'G', then there was no further material to come to the conclusion that such escaped income belonged to the assessee. [Para 2.5]. In the instant case, the revenue held that such undisclosed income belonged to 'G' and the assessment was made in the hands of 'G' on substantive basis. The case of the assessee was not reopened during the pendency of proceedings in the case of 'G'. Had the revenue made protective assessment in the case of 'G', then it could have taken action against the assessee. Thus, the basic requirement for reopening the assessment that the Assessing Officer should have reason to believe that income has escaped assessment, was not satisfied in this case. Hence, the Commissioner (Appeals) was justified in holding that the assessment could not be reopened for making protective addition. [Para 2.6] In view of the above discussion, it was to be held that the Commissioner (Appeals) was justified in cancelling the assessment in the hands of the assessee. [Para 2.8] In the result, the appeal filed by the revenue was to be dismissed. 59. In the present case also, fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 17. ... It is not necessary for our present purpose to examine what the word owner means in different contexts. The meaning that we give to the word owner in s. 9 must not be such as to make that provision capable of being made an instrument of oppression, must be in consonance with the principles underlying the Act. 61. Therefore, considering the facts and circumstances of the case and also by following the precedents discussed above, we are of the considered opinion that the AO reopened the assessment merely on suspicion and surmise, without there being any positive material in his possession to prove that the assessee is the owner of the bank account or having beneficial interest in this bank account. Therefore, we are of the opinion that the reopening of assessments are bad in law, which cannot be sustained. Accordingly, we quash the reassessments. 62. The assessee also argued on the limitation of issue of notice u/s. 148 of the Act as well as on merits of the case. As we have quashed the assessments itself, we are not going into the same and the other grounds raised by the assessee in these appeals. 63. In the result, both the appeals by the assessee ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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