2014 (12) TMI 438 - AT - Income Tax

Validity of reopening of assessment u/s 147 r.w. section 148 Reason to believe - Whether the information based on which the A.O had reopened the assessment was wholly vague, indefinite, farfetched and remote - Held that - Section 147 empowers the AO to assess or re-assess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment - This section authorizes the AO not only to re-assess but also to assess the Assessee in respect of an income which escaped assessment. For initiating the proceedings under this section, no doubt there must be reason to believe . Reason to believe would mean cause or justification - If the AO has cause or justification to know or suppose that income has escaped assessment, it can be said that assessing officer has reason to believe that the income has escaped assessment. In Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited 2007 (5) TMI 197 - SUPREME Court it has been held that the expression reason to believe means cause or justification and that if the AO had a cause or justification to know that income had escaped assessment it could be said that the AO had reason to believe that the income had escaped assessment - the proceedings u/s 147 cannot be initiated - requirement of fresh material or facts has been interpreted by the court because Sec. 34(1)(b) states that the AO has in consequence of information in his possession reason to believe - Reason to believe should have arisen in consequence of the information and as the information cannot be based without material or facts, therefore, it has been interpreted by the Court that there must be fresh facts or tangible material with the AO - in Sec. 147, as was in existence prior to 1.4.1989, under sub-clause (b) similar language has been used as had been used in Sec. 34(1)(b). The reasons recorded cannot be regarded to be arbitrary, irrational - The reasons refer to the material i.e. the statement of the partner of the firm recorded u/s 132(4) during the course of the search - It clearly states that during the course of search conducted on Polar group of cases which included the Assessee, two laptop computers were found and seized from the possession of the Partner of the firm, Shri Sunil Kumar Agarwal - Shri Sunil Kumar Agarwal is a key person of Polar group. Subsequently, the Department took out printout LP-1 to LP-10 - These printouts contained entries in respect of business transactions and loan transactions of the Assessee group which were not entered in the regular books of accounts maintained by the Assessee - This is also a fact that all these transactions were cash transactions and the transactions appearing at LP-1, LP-2, LP-9 & LP-10 relate to loan transactions relating to the Assessee - The AO clearly mentioned in the reasons that Shri Sunil Kumar Agarwal has stated in his statement before the DDIT that he has taken cash loan from market which were not entered in the books and introduced this money into various businesses belonging to different concerns of Polar group as loan or share capital/capital thus, the order of the CIT(A) is set aside and the AO has reason to believe to initiate the re-assessment proceedings - CIT(A) has not given any finding on the ground of the assessee that initiation of the proceedings are barred by limitations, this issue will automatically get survived before CIT(A) Decided in favour of revenue.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 by the Assessing Officer.
2. Adequacy and specificity of the information used to reopen the assessment.
3. Compliance with procedural requirements, specifically the issuance of notice under Section 143(2).
4. Jurisdiction of the CIT(A) to decide on other grounds not adjudicated by the Tribunal.
5. Validity of the initiation of proceedings under Section 147 beyond the four-year period.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The Tribunal examined whether the Assessing Officer (AO) had "reason to believe" that income had escaped assessment, based on the statement of a key individual from the Polar Group and the data retrieved from seized laptops. The AO recorded that the individual admitted to taking cash loans not disclosed in the books and introducing these as capital in various group concerns. The Tribunal held that the AO had sufficient material to form a prima facie belief that income had escaped assessment, thus validating the notice under Section 148.

2. Adequacy and Specificity of the Information Used to Reopen the Assessment:
The Tribunal emphasized that the AO's belief must be based on relevant material, not merely a suspicion. The information derived from the laptops and the individual's statement provided a rational connection to the belief that income had escaped assessment. The Tribunal rejected the argument that the same information was available during the original assessment, noting that there was no evidence the AO had considered this information at that time.

3. Compliance with Procedural Requirements (Issuance of Notice Under Section 143(2)):
The CIT(A) initially annulled the assessment due to non-issuance of notice under Section 143(2). However, upon remand, the CIT(A) applied Section 292BB, which deems notice to have been served if the assessee did not object during the assessment proceedings. The Tribunal upheld this application, noting that the assessee had not raised the issue during the assessment process, thus validating the reassessment proceedings despite the procedural lapse.

4. Jurisdiction of the CIT(A) to Decide on Other Grounds Not Adjudicated by the Tribunal:
The Tribunal clarified that once the issue of non-service of notice under Section 143(2) was set aside, the CIT(A) was bound to decide all other grounds raised by the assessee. The Tribunal dismissed the Revenue's argument that the CIT(A) lacked jurisdiction to adjudicate these grounds, emphasizing that the CIT(A) must address all issues once the primary ground for annulment is resolved.

5. Validity of the Initiation of Proceedings Under Section 147 Beyond the Four-Year Period:
The Tribunal noted that the CIT(A) did not provide a finding on whether the initiation of proceedings was barred by limitation under the proviso to Section 147. The Tribunal remanded this issue back to the CIT(A) for adjudication, emphasizing the necessity of addressing whether the proceedings were initiated within the permissible time frame.

Conclusion:
The Tribunal set aside the order of the CIT(A) regarding the invalidation of the reassessment proceedings and upheld the AO's "reason to believe" for initiating the reassessment. The Tribunal remanded the issue of the limitation period for initiation of proceedings under Section 147 back to the CIT(A) for further adjudication. All appeals filed by the Revenue were allowed.