TMI Blog2022 (5) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... . - Writ Tax No. - 518 of 2022 - - - Dated:- 25-4-2022 - Hon'ble Surya Prakash Kesarwani And Hon'ble Jayant Banerji JJ. For the Petitioner : Vedika Nath,Nishant Mishra For the Respondent : A.S.G.I.,Gaurav Mahajan ORDER 1. Heard Shri Nishant Mishra, learned counsel for the petitioner and Shri Manu Ghildyal, learned Standing Counsel for the respondent-Income Tax Department. 2. By order dated 11.04.2022, this Court specifically directed the respondent no.2, vide paragraph 10 of the order, as under :- 10. In view of the aforesaid, we direct the respondent no.2 to file a short counter affidavit by means of his personal affidavit stating as to how the notice under Section 148 of the Act, 1961 issued by him to the petitioner was a valid notice and how the respondent no.2 could get jurisdiction to issue notice under Section 148 of the Act, 1961 when the very basis of issuing notice, ie., 'reason to believe', recorded by him was totally unfounded, non-existent and wholly baseless. 3. Today, a counter affidavit dated 22.04.2022 on behalf of the respondent no.2 has been filed by Kumari Sukanya Kirti, Assistant Commissioner of Income Tax, Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court has held as under: 28. This Court has consistently held that such material on which the assessing Authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the assessing Authority in pursuance of such belief. In case of absence of such material, this Court in clear terms has held the action taken by assessing Authority on such reason to believe as arbitrary and bad in law. In case of the same material being present before the assessing Authority during both, the assessment proceedings and the issuance of notice for re-assessment proceedings, it cannot be said by the assessing Authority that reason to believe for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See: Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71). 29. The standard of reason exercised by the assessing Authority is laid down as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. The necessary sequitur is that a mere change of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity can proceed in the manner laid down in the section. To put it differently, if there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of the turnover of a dealer has escaped assessment, it can take action under the section. Reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment. If the grounds are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or not is not a matter which would be gone into by the High Court or this Court, for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. What can be challenged is the existence of the belief but not the sufficiency of reasons for the belief. At the same time, it is necessary to observe that the belief must be held in good faith and should not be a mere pretence. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready in its possession as well as fresh material procured as a result of the enquiry which may be considered necessary. 9. In the case of Sheo Nath Singh vs. Appellate Assistant CIT, (1972) 3 SCC 234 (Para-10), Hon ble Supreme Court while considering the similar provisions of Section 34 (1-A) of the Indian Income Tax Act, 1922, held 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 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 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. 10. In the case of Union Of India And Others vs M/S. Rai Singh Dev Singh Bist others, AIR 1974 SC 478 : (1973) 3 SCC 581 (para-5), Hon ble Supreme Court held as under:- .. b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 makes it clear that the assessing officer certainly has the power to re-assess any income which escaped assessment for any assessment year subject to the provisions of Sections 148 to 153. However, the use of this power is conditional upon the fact that the assessing officer has some reason to believe that the income has escaped assessment. The use of the words reason to believe in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order. 15. Section 147 of the IT Act doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the reassessment proceedings. 14. In the case of Radha Krishna Industries vs. State of H.P., (2021) 6 SCC 771, Hon ble Supreme Court reiterated the law laid down in its earlier judgments in the case of Kelvinator of India Limited (supra) and TechSpan India (P.) Ltd. (supra) and held that the power to reopen an assessment must be conditioned on the existence of tangible material and that reasons must have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular assessment year. In other words, such material on which the assessing Authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. If the grounds for formation of reason to believe are of an extraneous character, the same would not warrant initiation of proceedings under Section 147 of the Act, 1961. (d) If, there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of income of the assessee has escaped assessment, it can take action under Section 147 of the Act, 1961. If the grounds taken for initiating reassessment proceedings under Section 147 of the Act, 1961 are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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