TMI Blog2021 (10) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... s over the disputed land, but he was only concerned with the development work as a contractor. Accordingly, the assessee was not a party to the litigation. The amount so received of ₹ 2.55 cores is only for carrying out the development work in terms of the agreement between the parties and it was duly shown in the balance sheet filed with the authorities, as such it cannot be considered as commission or brokerage paid to assessee. It was received by the assessee as an agent to carry out the work entrusted to the assessee by Astitva group of companies and it cannot be taxed in the hands of assessee as income. Being so, the CIT(Appeals) was justified in deleting the addition on this count. Validity of Reopening of assessment u/s 147 - whether AO did not have any information, except information received from the Investigation Wing for reopening the assessment? - HELD THAT:- In the present case, the AO simply relied upon the information received by him and stated that income has escaped assessment which has not been disclosed by the assessee and it is the income which escaped assessment in the hands of assessee. It clearly shows that AO simply acted upon the information and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation gathered through DDIT (Inv)Unit 1(2), Bangalore, the assessment of present assessee could be reopened only u/s. 147/148 of the Act and this is subject to our findings in ground No.3 in CO. This ground of objection by the assessee is dismissed. Competent authority to approve the reopening of assessment - Notice u/s. 148 was issued to the assessee after 4 years and no approval was obtained from the CCIT as required u/s. 151 - HELD THAT:- In the instant case, though the assessment was reopened after 4 years, there was no assessment u/s. 143(3) of the Act. As seen from the provisions of section 151(2), Jt. Commissioner is the competent authority to approve the reopening of assessment and there is no necessity of approval of Commissioner of Income Tax to reopen the assessment. The assessee is relying on proviso to section 151(1) of the Act, which is only applicable to assessment to be reopened after four years in case original assessments were completed u/s. 143(3) of the Act. Being so, this argument of the assessee is also dismissed. - ITA No.910/Bang/2019 And CO No.51/Bang/2019 [in ITA No.910/Bang/2019] - - - Dated:- 29-9-2021 - Shri N.V. Vasudevan, Vice President ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Balance sheet and no mention of any land under dispute is made during the assessment proceedings for the AY 2011-12. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 8. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. 3. The assessee has raised the following grounds:- 1. The Appeal of the Revenue is not maintainable in 1. view of the factual defect as regards the date of Communication of the Order appealed against mentioned as 17-03-2016 as against 09-10-2018. 2. The Actual date of Communication has not been mentioned in the Appeal Memorandum as regards the applicability of Limitation of Time since the appeal was filed after 201 days from the date of Appellate Order without filing any application for Condonation of delay if any. 3. The Ground No. 2 of the Revenue's Appeal is liable to be dismissed since the Ld. CIT(A) was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year relevant to AY 2008-09. Receipt of the said amount was admitted by the assessee vide letter dated 19.2.2013 addressed to DDIT(Inv), Unit 1(2), Bangalore and assessee has confirmed the same in a sworn statement recorded u/s. 131(1A) dated 19.2.2013 recorded by DDIT(Inv),Unit 1(2), Bangalore. It was also noted by the AO that assessee has failed to file return of income for the AY 2008-09 and to examine the income chargeable to tax that has escaped assessment, the case was reopened u/s. 147 of the Act after obtaining necessary approval from the JCIT, Range 2, Bangalore. 5. Thereafter notice us/. 148 was issued to assessee on 14.11.2014 and served on assessee on 20.11.2014. In response to the said notice, the assessee has filed return of income on 17.11.2015 declaring income of ₹ 12,01,470. The AO has stated that the assessee has confirmed receipt of ₹ 2.55 crores from K.G. Krishna towards facilitator fee and has claimed expenditure of ₹ 61,86,551 and the assessee was asked to provide documents in support of such expenses claimed by the assessee. 6. However, the assessee while filing the return of income has not shown this receipt of ₹ 2.55 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any conclusive evidence and further in the assessment order the AO has placed reliance on the statement of assessee recorded on 19.12.2013 without any material evidence to show receipt of ₹ 2.55 crores was in the nature of income chargeable to tax. According to the CIT(A), the statement of assessee itself was not sufficient and more so such a statement was recorded against the CBDT Instruction that such team was not entitled to seek any disclosure in the guise of voluntary disclosure without any supporting material evidence. He was of the opinion that the amount of ₹ 2.55 crores was received as advance for execution of development work of land measuring about 180 acres purchased by the buyer, K.G. Krishna. The assessee claimed expenses of ₹ 75,78,255 being the expenses incurred in the execution of development work alone, but the AO had misunderstood such expenses. According to the CIT(A), the said amount of ₹ 2.55 crores was received by the assessee on various dates and it is only an advance for executing the development work of and as per mutual agreement between the parties, therefore it cannot be assessed in the hands of assessee. Further it was obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round Bangalore and received ₹ 2.55 crores as brokerage/commission which was not disclosed to the department. This information came to the knowledge of the department in the course of search action on K.G. Krishna on 5.11.2012 on information from DDIT(Inv), Unit 1(2), Bangalore. This information was passed to the AO of assessee and consequent assessment order was passed on the approval of Jt.CIT, Range 2, Bangalore. The assessee filed letter dated 19.2.2013 about the receipt of the amount addressed to DDIT(Inv), Unit 1(2), Bangalore and confirmed the same by sworn statement recorded u/s. 131(1A) on 19.2.2013 and he drew our attention to the contents of the same. According to the ld. DR, even when the there is such a substantial evidence, the CIT(Appeals) could not have deleted the addition observing that the same was disclosed to the department in the balance sheet. He submitted that it was not disclosed in the original balance sheet and it was only reflected in the revised balance sheet attached to the revised return of income. As such, addition has to be sustained. 12. On the other hand, the ld. AR relied on the order of the CIT(Appeals). 13. We have heard both the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was clarified at the time of hearing that the actual date of communication of the order appealed against was served to the concerned revenue authorities only on 9.10.2018. As such, this ground of the CO is dismissed. 15. Ground No.2 of the CO is as regards delay in filing the revenue s appeal. Since the date of communication of the order appealed against was on 9.10.2018, there was no delay in filing the revenue s appeal. Hence, this ground is also dismissed. 16. Ground No.3 of the CO is that the AO did not have any information, except information received from the Investigation Wing for reopening the assessment. 17. We have heard both the parties on the issue. At the time of reopening the assessment, there is no necessity of having conclusive evidence regarding the escapement of income and if the AO is having only prima facie material to suggest escapement of income, he can reopen and conclude the assessment by issue of notice u/s. 148. In this case, there was information available with the AO which was forwarded by the search team on conducting the search in the case of K.G. Krishna. That information suggested that K.G. Krishna has paid a sum of ₹ 2.55 crores as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Sheo Nath Singh v. Appellate Asstt. CIT [1971] 82 ITR 147 (SC) observed as under:- There can be no manner of doubt that 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. 23. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same has to have a rational and logical link with the belief that there has been an escapement of taxable income. The 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. 26. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not 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. . 28. 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. 29. 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 Officer to disturb the finality of the intimation under Section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the Section. ..There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show reason to believe . The fact that the intimation issued under Section 143(1) cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression reason to believe in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 valid exercise of power. In the present case, having regard to the law laid down by the Supreme Court it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment. The reasons which have been recorded could never have led a prudent person to form an opinion that income had escaped assessment within the meaning of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n good faith, it cannot merely be pretence. In addition, suspicion, gossip or rumour would not form the basis for such belief. 37. 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 38. The Third Member in M/s. Telco Dadajee Dhackjee Ltd. Vs. The DCIT, Circle 2(3) 2012-TIOL-532-ITAT-MUM-TM held as under:- section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that the reassessment notice issued under section 148 in a case where the original assessment was made under section 143(1) cannot be challenged on the ground of a mere change of opinion, still it is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 chargeable to tax had escaped assessment or that the materials before the Assessing Officer had no live link or nexus with the formation of such belief or that the reasons are based on gossip or rumour or were a mere pretence. This is made clear by the observations of the Court at page 512 of the report where it was held that so long as the ingredients of section 147 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ].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 non-satisfaction 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 believe that any income chargeable to tax has escaped assessment. Such belief must be the belief of jurisdictional AO and not any other AO or authority of the department. Therefore, it is well settled that the AO's jurisdiction to reopen an assessment u/s. 147 depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded 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. 44. 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 in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether. 45. The Hon ble Delhi High Court in Mrs.Vinita Jain v. ITO 158 Taxman Magazine 167 held that where Assessing Officer reopened assessee s assessment merely because DDIT (Inv.) believed that transaction of capital gains shown by assessee was bogus and no separate reason disclosing satisfaction of assessing Officer for formatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment 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] 49. 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 assessment. On facts, the recorded reasons are identical to the objection of the audit authority. The reasons do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the AO before he issued the s. 148 notice (India Eastern Newspaper Society 119 ITR 996 (SC) followed). 50. The Bangalore Tribunal in M/s GMR Holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kar 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. 54. As per reasons recorded, the assessee has received commission from K.G. Krishna and it was not disclosed to the department. However, it it is not sure that it was income which escaped assessment. The AO also has not mentioned in the aforesaid reasons that he was satisfied that the above income escaped assessment. He simply relied on the information received in his possession to come to the conclusion that this income has escaped assessment. 55. From the provisions of section 147, it is clear that the AO must have reason to believe that any income chargeable to tax has escaped assessment. However, it cannot be said that if there is any receipt which is sufficient to believe that income to that extent escaped assessment because there may be so many reasons for receiving such amount and it is not necessary that only on receipt, it can be pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason that assessment was reopened consequent to search action in the case of K.G. Krishna K.G. Krishna u/s. 148, it should be reopened u/s. 153C of the Act. It was submitted by the ld. AR that assessment was reopened on the basis of information obtained from DDIT (Inv)Unit 1(2), Bangalore. The AO did not have any material to form a reason to believe that income chargeable to tax escaped assessment, except the information admittedly received by him from the Investigation team. Since the information with regard to payment of ₹ 2.55 crores to the assessee came to the knowledge of the present AO in the course of search action in the case of K.G. Krishna, the assessment should have been framed u/s. 153C r.w.s. 153A of the Act. Though information was gathered during the course of search action, the assessment framed u/s. 148 is bad in law. The provisions of section 148/147 cannot be invoked in case of search related assessments. Therefore, issue of notice u/s. 148 of the Act was invalid and bad in law. 63. On the other hand, the ld. DR submitted that the assessment u/s. 153C r.w.s. 153A can be invoked only when documents found during the course of search action u/s. 132 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore, about the assessee upon a search conducted u/s. 132 of the Act in the case of K.G. Krishna. The information received was said to be that the purchaser of lands K.G. Krishna has apart from the sale consideration paid to the land owner, a sum of ₹ 2.55 crores was paid to the assessee in FY 2007-08 relevant to AY 2008-09. Since the assessee was said to be facilitator of the land transaction, the assessee also confirmed the same vide letter dated 19.2.2013 addressed to the DDIT (Inv)Unit 1(2), Bangalore. Further in the sworn statement said to have been recorded u/s. 131(1A) of the Act on 19.2.2013. Since the assessee has filed return of income for the AY 2008-09, therefore to examine the escapement of income chargeable to tax, the case of assessee was reopened u/s. 147 and accordingly notice u/s. 148 was issued to assessee on 14.11.2014 and served on 20.11.2014. 65. Now the question before us is whether the AO was justified in reopening the assessment on the basis of the above information. According to the assessee, assessment should have been reopened u/s. 153C of the Act instead of 148. In our opinion, the first and foremost condition for initiating of the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit 1(2), Bangalore, the assessment of present assessee could be reopened only u/s. 147/148 of the Act and this is subject to our findings in ground No.3 in CO. This ground of objection by the assessee is dismissed. 67. The next argument of the ld. AR of the assessee is that notice u/s. 148 was issued to the assessee after 4 years and no approval was obtained from the CCIT as required u/s. 151 of the Act, instead approval for reopening of assessment was obtained from JCIT, Range 2, Bangalore which is bad in law. For this purpose, he relied on the judgment of Delhi High Court in the case of CIT v. Motor Industries Co. Ltd., ITA No.1410 of 2006 dated 5.4.2013, Ashok Kumar Gard v. ITO, ITA No.1151/Bang/2019 and ACIT v. Srinivas Rao Hoskote, ITA No.1154 1155/Bang/2015. 68. The ld. DR supported the order of the CIT(Appeals) on this issue and relied on the following judgments:- i) CIT v. Late Shri Rajpal Bhatia Others in ITA No.276/2009 dated 29.11.2010 (Delhi High Court). ii) Shailesh S. Patel in ITA No.3063/AHD/2016 dated 31.8.2018. 69. We have carefully gone through the above argument of the ld. AR. The argument of the ld. AR is totally misconceived. For underst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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