TMI Blog2022 (4) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... no new material has been brought on record where the AO has a reason to believe that the income has escaped assessment when all the relevant materials have already been made available at the time of original assessment. The decision relied on by the revenue of Ess There is no new material has been brought on record where the AO has a reason to believe that the income has escaped assessment when all the relevant materials have already been made available at the time of original assessment. The decision relied on by the revenue of Ess Ess Kay Engineering Co. P. Ltd [ 1997 (7) TMI 114 - SC ORDER ] is distinguishable as the Hon ble Supreme Court in that case held that the AO may reopen the assessment of an earlier year on the basis of his findings of fact made on the basis of fresh materials in the course of assessment of the next assessment year. In the case under consideration no fresh materials are found and the reopening is done basis of the materials which were already with AO during the course of regular assessment u/s.143(3). Co. P. Ltd (supra) is distinguishable as the Hon ble Supreme Court in that case held that the AO may reopen the assessment of an earlier year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the impugned assessment order g. The learned Commissioner appeals has not considered the valid explanation given by your appellant in this regard 3. The assessee is an individual and has filed the return of income on 30.09.2013. The case was selected for scrutiny and notice u/s. 143(2) dated 05.09.2014 was duly issued and served. The notice u/s. 142(1) r.w.s. 129 dated 30.06.2015 was also served calling for various details from the assessee. The assessee had sold the plot at shop enclave on 30.05.2012 resulting in capital gain of ₹ 1,99,15,242. The assessee has claimed deduction u/s. 54F as the assessee has invested the entire consideration received from the sale of asset in a residential house property in JP Nagar 3rd phase. In the course of assessment the assessing officer (AO) accepted the return of income filed by the assessee and concluded the assessment by order dated 19.10.2015. During the regular scrutiny assessment for assessment year 2015-16 the AO noticed that the residential property which the assessee owned along with the 3 others was bought by the assessee on 01.09.2004. The AO reopened the assessment of the year under consideration u/s.148 by n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty details, rental agreements etc. which the assessee has been sharing on from time to time. These details that have been called for are for assessment years 2012-13 and 2011-12 also besides the year under consideration. The AO has raised queries after perusal of materials for which the assessee had provided the required clarifications. The details called for includes those relating to the properties owned by the assessee like rental agreements, Katha etc. The balance sheet of the assessee as at 31.03.2013 clearly shows that the assessee is owning a 1/4th share in property at JP Nagar Bangalore besides the new assets (under construction) and one more property Flat at Brigade Gateway. The AO in fact had called for the rental agreement of one of the properties at Brigade Gateway. This proves the fact that the AO has indeed applied his mind while reviewing the balance sheet of the assessee and called for relevant documents before concluding the assessment allowing the deduction u/s.54F. The contention of the learned AR that no new materials is found by the AO and that the reopening is done based on a mere change of opinion merits consideration. 8. It is relevant here to look a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) 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 ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required u/s. 92E; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be conditions precedent for invoking jurisdiction of the Assessing Officer to re-open the assessment u/s. 147 of the said Act. It is trite that both the conditions afore-mentioned are cumulative. It is also a well settled principle of law that, in the event, it is found that any of the said two conditions is not fulfillled the notice issued by the Assessing Officer would be wholly without jurisdiction. the expression reason to believe finds place both in Clause (a) and (b) of Section 147 of the Act. Sub-section (2) of Section 148 of the Act mandates that before jurisdiction u/s. 147 of the Act is invoked by the Assessing Officer he is to record his reasons for doing so or before issuing any notice u/s. 147 of the said Act. Therefore, formation of reason to believe and recording of reasons were imperative before the assessment officer could re-open a completed assessment. Since assessment has been re-opened on 20th April 1990, Section 147 as amended w.e.f. 1st April 1989 would apply. 19. What would constitute 'reason to believe' is no longer res integra. 20. In Calcutta Discount Co. Ltd. (supra) the Apex Court clearly held that once the primary fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal assessment, the discovery of the mistake would be information within the meaning of Section 147(b). The submission appears to us inconsistent with the terms of Section 147(b). Plainly, the statutory provision envisages that the ITO must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realization that income has escaped assessment is covered by the words reason to believe , and it follows from the information received by the ITO. The information is not the realization, the information gives birth to the realization. 23. This has been the settled position in law althrough. However, the question which requires consideration is whether any change in law has been brought about on account of amendment of Section 147 with effect from 1st April 1989. 24. In Jindal Photo Films Ltd. (supra) R.C. Lahoti, J. (as his Lordship then was) observed: The power to reopen as assessment was conferred by the Legislature not with the intention to enable the Income-tax Officer to reopen the final decision made against the Revenue in respect of questions that direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... newly substituted Section 147, with effect from 1st April 1989, an assessment could not be re-opened on a mere change of opinion. Yet again in Foramer's cases (supra) a Division Bench of the Allahabad High Court has held that if a notice u/s. 147/148 was issued after the coming into force of the amended Act, the latter shall be attracted. However it is observed that: Although we are of the opinion that the law existing on the date of the impugned notice u/s. 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new Section 147 will apply even then it will make no difference since even under the original Section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessed-company had considered the Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and hence the notice u/s. 147/148 would be illegal 26. We may also notice that a Division Bench of the Gujrat High Court in Garden Sil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect thereof. If looking back it appears to the Assessing Officer (albeit within four years of the end of the relevant assessment year) that a particular item even though reflected on the record was not subjected to assessment and was left out while working out the taxable income and the tax payable thereon, i.e., while making the final assessment order, that would enable him to initiate the proceedings irrespective of the question of nondisclosure of material facts by the assessed. 28. We are, with respect, unable to subscribe to the aforementioned view. If the contention of the Revenue is accepted the same, in our opinion, would confer an arbitrary power upon the Assessing Officer. The Assessing Officer who had passed the order of assessment or even his successor officer only on slightest pretext or otherwise would be entitled to re-open the proceeding. Assessment proceedings may be furthermore re-opened more than once. It is now trite that where two interpretations are possible, that which fulfills the purpose and object of the Act should be preferred. 29. It is well settled principle of interpretation of statute that entire statute should be read as a who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion reason to believe in Section 147 does not mean purely a subjective satisfaction on the part of the Assessing Officer, the belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing Officer in initiating proceedings u/s. 147 can be challenged in a court of law. It was further observed: Up to March 31, 1989 two conditions were required to be fulfillled to confer jurisdiction on the Assessing Officer to act u/s. 147. They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under assessed or assessed at too low a rate or has been made the subject of excessive relief. After April v, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34. Another aspect of the matter cannot be also lost sight of. The Board has power to issue Circulars under. Section 119 of the said Act. It is trite that the Circulars which are issued by the CBDT are legally binding on the Revenue (see UCO Bank v. C.I.T. (1999) 237 ITR 889). Recently in C.I.T. Mumbai v. Anjum M.H. Ghaswala and Ors. Reported in , the Apex Court following the said decision observed: It is true that by this press release the board had interpreted the provisions of the Act in a particular manner. Be that as it may, we would like to make it clear that every clarificatory note or press release issued by the board does not have the statutory force like the circulars issued by the board u/s. 119 of the Act. It is only those circulars issued by the board under the provisions of Section 119 of the Act, will have the statutory force and will be binding on every income-tax authorities. Therefore, the press release relied upon by Shri Ramamurti not being a circular issued u/s. 119 of the Act will not be of any assistance to the respondents in support of their contentions. It further observed that: Learned Solicitor General has pointed out that by virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of opinion. 37. It is, therefore, evident that even according to the CBDT a mere change of opinion cannot form the basis for re-opening a completed assessment. 38. The submission of Mr. Jolly to the effect that the said Circular cannot be construed in such a manner whereby the jurisdiction of the statutory authority would be taken away is not apposite for the purpose of this case. In Union of India and Others (supra), whereupon Mr. Jolly had placed strong reliance, the Apex Court was dealing with an administrative instructions whereby no right was conferred upon the respondents to have the house rent amount included in their emoluments for the purpose of computing overtime allowance. The Apex Court held that otherwise also the Governement's instruction have to be read in conformity with the provisions of the Act. Therein the Apex Court was not concerned with the statutory powers of a statutory authority to issue binding circulars. 39. Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra vires Article 14 of the Constitution of India. If two interpretations are possible, the interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons afore-mentioned we are of the opinion that answer to the question raised before this Bench must be rendered in the affirmative, i.e. in favor of the assessed and against the Revenue. No order as to costs. On appeal by the department to the Supreme Court, HELD dismissing the appeal [2010] 320 ITR 561 (SC) 10. In assessee s case the AO in the impugned order passed u/s. 143(3) r.w.s 147, has mentioned that the AO who completed the regular assessment u/s. 143(3) has done it without due diligence and that the fact of assessee owning more than one house property other than new property would have surfaced thereby denying the deduction u/s. 54F. In the decision of Kelvinator of India Ltd (Supra) the ratio laid down is that When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. If it is to be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial funct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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