TMI Blog2008 (12) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... rkload on account of time barring assessments due to be completed before 31st March, 2006, the papers were inadvertently overlooked and were filed in the records. However, while preparing the appeal to the Tribunal in the subsequent assessment year i.e., asst. yr. 1999-2000 the records for the earlier year were looked into in the month of May, 2006 and thereafter immediate action was taken in the matter to file the appeal on 9th May, 2006. A prayer has been made to condone the delay in filing the present appeal. In the facts and circumstances of the case, we find merit in the plea of the assessee and condone the delay of 22 days in furnishing the present appeal and take the said appeal on record. 3. In the first ground of appeal, the assessee has raised the issue of reopening of assessment under s. 147 of the IT Act. 4. The brief facts of the case are that the return of income for the year under consideration showing a total income of Rs. 61,58,18,530 was filed on 30th Nov., 1998. The original assessment was completed under s. 143(3) of the IT Act vide order dt. 23rd March, 2001 on assessed income of Rs. 83,61,26,097. On verification of records, the learned AO noticed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed Representative for the assessee stated that the original assessment was completed under s. 143(3) of the Act on 23rd March, 2001 and the notice for reassessment under s. 148 of the Act was issued on 15th Sept., 2003 for asst. yr. 1998-99, i.e., clearly beyond the period of 4 years. The learned Authorised Representative pointed out that this was a clear case where the proviso to s. 147 of the Act applies. Our attention was drawn to the reasons recorded for reopening wherein there is no allegation of failure to disclose the material facts, but, it only states that 'on verification of records that the following discrepancy has been detected in the assessment order........' The copy of the reasons recorded for initiating the proceedings under s. 148 of the IT Act are enclosed at pp. 49 to 51 of the paper book. The copy of the original assessment order is enclosed at pp. 14 to 48 of the paper book. The learned Authorised Representative drew our attention to the p. 24 of the paper book where the assessee's claim of depreciation was discussed at length and incorporated as part of the assessment order. Further, our attention was drawn to p. 29 of the paper; book, wherein the AO has dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment. The said letter was filed in the office of the AO on 30th Nov., 2003 as is evident from the seal on the letter filed on p. 8 of the paper book. The plea of the learned Authorised Representative for the assessee is that it had not received any reasons for reopening the assessment and before the CIT(A) this issue was raised that the reasons recorded were not made available to the assessee but the CIT(A) observed that even before the reasons recorded were not made available to the assessee, he filed the details and replies called for by AO in connection with the reopening of the assessment. The CIT(A) had called for a remand report from AO requiring him to furnish the specific reply whether he actually recorded any reasons before reopening case or whether they were provided to the assessee or not. The CIT(A) also directed the AO to send the relevant assessment records along with the confidential folder, if any to verify the above. The CIT(A) at p. 3 of the appellate order records that no specific reply was sent by the AO with regard to the above-mentioned query but the assessment records in two volumes were sent to the CIT(A) for verification. After going through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the orders of CIT(A) in both asst. yrs. 1998-99 and 1999-2000. 8. We have heard the rival contentions and perused the records. The assessment years before us are asst. yrs. 1998-99 and 1999-2000. We shall first take up asst. yr. 1998-99, wherein the original return of income showing total income of Rs. 61,58,18,530 was filed on 30th Nov., 1998. The original assessment was completed under s. 143(3) of the IT Act on 23rd March, 2001. The details of miscellaneous income were enclosed along with the letter dt. 3rd Nov., 2000 furnished before the AO during the course of original assessment proceedings. The perusal of the assessment order filed at pp. 14 to 48 of the paper book reveals that in respect of miscellaneous income and other items of income, the assessee had claimed that none of the amounts falls under the category of 90 per cent, which is to be excluded. The AO rejected the claim of the assessee and held that 90 per cent of the other receipts including the miscellaneous income had to be excluded while computing the profits of business for claiming the deduction under s. 80HHC of the IT Act. The AO at p. 31 of the paper book in the original assessment proceedings had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153, referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1-Production before the AO of account books or other evidence from which material evidence could with due diligen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary for the assessment for the relevant assessment year. The ingredients of s. 147 of the IT Act are a 'reason to believe' by the AO that any income chargeable to tax has escaped assessment or the loss or depreciation allowance or any other allowance has been excessively claimed by the assessee for the relevant assessment year. However, where the assessment has been completed under s. 143(3) of the IT Act and the assessee claims to have disclosed all the material facts during the course of original assessment proceedings, no action can be taken against the assessee beyond the period of 4 years from the end of the relevant assessment year. 13. Their Lordships of Hon'ble Supreme Court in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. have held that in order to invoke the provisions of s. 147 of the Act, if the AO for whatever reason has 'reason to believe' that income has escaped assessment, then jurisdiction is conferred on the AO to reopen the assessment. It has been held as under: "............. Sec. 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under s. 148 r/w s. 147(a). But under the substituted s. 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to s. 147............." 14. Their Lordships of Hon'ble Bombay High Court in Hindustan Lever Ltd. vs. R.B. Wadkar, Asstt. CIT Ors. on the interpretation of proviso to s. 147 of the IT Act had held as under: "Where an assessment under sub-s. (3) of s. 143 of the IT Act, 1961, has been made for an assessment year, no action can be taken under s. 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. The reasons recorded for issuing notice provide the link between ..... 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 AO to reopen the assessment under s. 147 of the said Act. It is trite that both the conditions aforementioned 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 fulfilled the notice issued by the AO would be wholly without jurisdiction. The expression 'reason to believe' finds place both in cls. (a) and (b) of s. 147 of the Act. Sub-s. (2) of s. 148 of the Act mandates that before jurisdiction under s. 147 of the Act is invoked by the AO he is to record his reasons for doing so or before issuing any notice under s. 147 of the said Act. Therefore, formation of reason to believe and recording of reasons were imperative before the AO could reopen a completed assessment." 17. Their Lordships of Hon'ble Delhi High Court in CIT vs. Kalvinator of India Ltd. found support from the decision of apex Court in Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC), wherein it was held as under: ".......... The scheme of the law clearly is that where the ITO has reason to believe that an underassessment has resulted from non-disclosure he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expression 'reason to believe' from the amended s. 147 would not give arbitrary powers to the AO to reopen past assessment on mere change of opinion. It was thus concluded that the only condition for action is that the AO should have reason to believe that income has escaped assessment for failure on the part of the assessee to disclose material facts. 21. It was further held by the Full Bench of Hon'ble Delhi High Court that in cases where the reason to believe of the AO is founded on an information which might have been received after the completion of the assessment, may be a sound foundation for exercising the power under s. 147 r/w s. 148 of the Act. In the facts of the case before the Hon'ble Delhi High Court, the assessment was completed under s. 143(3) of the Act wherein the information was disclosed in the tax audit report, which was submitted along with the return of income. In the reason to believe the AO had referred to the information derived from the tax audit report and sought reopening of the assessment within the 4 years from the end of the relevant assessment year. Such exercise of power was held to be outside the purview of s. 147 of the Act as the section do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed under s. 143(3) of the IT Act. 25. Similar view has been taken by the Hon'ble Bombay High Court in Siemens Information System Ltd. vs. Asstt. CIT Ors., wherein it has been held as under: "In order to issue a notice of reassessment the AO must have reason to believe that income chargeable to tax has escaped assessment. When a challenge is made to a notice under s. 148 of the IT Act, 1961. what the Court is required to examine is whether material exists on record for the AO to form the requisite belief. A mere change of opinion on an interpretation of a provision by itself without anything more, cannot give rise to 'reason to believe'." 26. The Hon'ble Bombay High Court in Siemens Information System Ltd. vs. Asstt. CIT Ors. also noted that 'the Board has power to issue circulars under s. 119, of the Act and these circulars which are issued are legally binding on the Revenue. Quoting the circular, the Court held that even according to the CBDT, a mere change of opinion cannot form the basis for reopening a completed assessment'. 27. From the above, it is established that the powers conferred under s. 147 of the Act for reopening concluded assessment cannot be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and reassessment proceedings and no reasons recorded for reopening of the assessment have been discovered on the file. In the absence of any reasons recorded being available on record relevant to asst. yr. 1999-2000, there is no merit in the proceedings initiated under s. 147 of the IT Act and are to be quashed and consequently the assessment framed thereafter needs to be quashed. 30. In any event, in case the reasons recorded for reassessment relating to asst. yr. 1999-2000 finding a mention in the order of CIT(A) have been recorded in the case, the assessment is being reopened on mere change of opinion though within the period of 4 years from the end of the relevant assessment year. The conditions, requisite under the provisions of s. 147 of the Act, the AO having 'reason to believe' that income had escaped assessment on the failure of the assessee to disclose material facts necessary for completing the assessment, have to be satisfied simultaneous with the material on record to form their requisite belief. In case, the assessee has furnished the information and there is no failure on the part of the assessee to disclose the material facts necessary for the completion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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