2006 (5) TMI 129 - AT - Income Tax

Initiation of proceedings u/s 147 - Notice issued u/s 148 - Validity Of Income Escaping Assessment - found receipt of gift from NRE - genuineness of the gift - change of opinion - distinction between the processing or accepting a return u/s 143(1)(a) and making an assessment u/s 143(3) - existence of reason to believe - the reopening of assessment was not valid and as such the reassessment made was void ab initio and bad in the eye of law? - Difference Of opinion between learned members - Third Member Order - income from house property salaries short-term capital gains and from other sources - Learned JM - HELD THAT - The learned JM was of the view that in this respect - that is that the assessment cannot be reopened on the basis of a mere change of opinion. He noted that in the present case there was no such material or information and the only ground for reopening the assessment was that the assessee did not file any details in support of the gifts. According to the learned JM the assessee was not required to do so. He held that the Assessing Officer by reopening the assessment wanted to make a roving enquiry into the gifts which was not permissible. In this view of the matter he dismissed the appeal of the Department. Learned AM - According to the learned AM the assessee ought to have disclosed the capacity of the donor to make the gifts the need for making the gift the identity of the donor and the source of his income in the return. There was also nothing to show whether the essentials of a gift were satisfied. According to the learned AM the very statement of the assessee that he received a gift of Rs. 28, 90, 000 which was included in his capital account could constitute the material for the formation of the belief that income chargeable to tax had escaped assessment. The learned AM further held that when a return is merely processed u/s 143(1)(a) the Assessing Officer does not form any opinion on the facts disclosed since he cannot conduct any enquiry and all he can do is to make the statutory adjustments to the income returned and nothing else and further the presence of the assessee is not required nor any document or evidence in support of the return is required to be produced. Thus according to the learned AM if no opinion can be said to have been formed by the Assessing Officer while processing the return without any application of mind that would itself confer jurisdiction upon the Assessing Officer to reopen the proceedings. In this connection the learned AM observed that substantial changes have been made to section 143(1) with effect from 1-6-1989 and that an intimation u/s 143(1)(a) cannot be treated as an order of assessment except to the limited extent of enforcing the demand notice u/s 156. Therefore an intimation passed u/s 143(1)(a) is not an assessment and therefore the question of any change of opinion does not arise. Third Member Order - I agree with the learned CIT(DR) as well as the learned AM to the extent they say that the reassessment cannot be invalidated on the ground of a mere change of opinion since the return was never brought to assessment u/s 143(3) but was merely processed under section 143(1)(a) without any enquiry and without hearing the assessee and at that stage there was no question of the Assessing Officer forming any opinion about the taxability of the NRI gifts. The distinction between the processing or accepting a return under section 143(1)(a) and making an assessment u/s 143(3) has been brought out by the Hon ble Delhi High Court in Mahanagar Telephone Nigam Ltd. s case 2000 (8) TMI 53 - DELHI HIGH COURT . In the light of the binding judgment and with respect I hold that the reassessment cannot be said to have been prompted by a mere change of opinion. I may add that in Kelvinator of India Ltd. s case 2002 (4) TMI 37 - DELHI HIGH COURT the Full Bench was not concerned with an intimation u/s 143(1)(a) but was concerned with a regular assessment order passed u/s 143(3). It was therefore held that a presumption can be raised that such an order has been passed on application of mind . I therefore hold that the notice u/s 148 cannot be held invalid on the ground of a mere change of opinion. I accordingly answer question No. 2 referred to me in the negative. A change of opinion on the same facts and legal position is only one instance of what is not reason to believe . Therefore merely because the present case for whatever reason is not covered by the yardstick of a mere change of opinion it does not automatically follow that it fulfils all the requirements of the expression reason to believe . I am inclined to hold that the reasons recorded in the present case by the Assessing Officer for reopening the assessment are a mere pretence an excuse to enquire into the gifts received by the assessee without any material or evidence coming into his possession after he processed the return u/s 143(1)(a). The learned AM with respect in paragraph 2 of his dissent seems to have referred to facts which were gathered by the Assessing Officer post-notice u/s 148. These facts were not present before) the Assessing Officer before the issue of the notice. The case thus also does not satisfy the legal requirement laid down by the Supreme Court in M.P. Industries Ltd v. ITO 1965 (4) TMI 23 - SUPREME COURT that a notice u/s 148 cannot be issued merely to make fishing inquiries into the return. Thus I answer the first point of difference referred to me in the negative that is to say that the Assessing Officer did not have reason to believe that income of the assessee chargeable to tax has escaped assessment. Consequently the third point of difference is answered in the affirmative that is to say that the CIT(A) was justified in holding that the reopening of the assessment was not valid and therefore the reassessment made was void ab initio and bad in the eyes of law. The second question is answered in the negative that is to say that the reopening was not based on a mere change of opinion. Therefore in view of the majority of opinion the appeal preferred by the revenue is liable to be dismissed - In the result revenue s appeal is dismissed.

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income-tax Act.
2. Whether the assessment order dated 30-3-2000 was bad in law and ab initio null and void.
3. Whether the reopening of the assessment was based on a mere change of opinion.
4. Whether the Assessing Officer had "reason to believe" that income had escaped assessment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The assessee challenged the validity of the notice issued under section 148, arguing that the assessment order framed under section 147/148/143(2) was illegal and without jurisdiction. The CIT(A) accepted the assessee's contention, holding that the Assessing Officer had no "reason to believe" that income had escaped assessment, but only a "reason to suspect." The CIT(A) noted that the notice under section 148 could not be issued for making roving enquiries on the basis of vague suspicions.

2. Assessment Order Dated 30-3-2000:
The CIT(A) annulled the assessment order dated 30-3-2000, declaring it bad in law and ab initio null and void. The CIT(A) emphasized that the Assessing Officer acted illegally and in an unwarranted manner by issuing the notice under section 148 without having a valid reason to believe that income had escaped assessment. The CIT(A) observed that the requirements of law, especially when taking action under section 147/148, must be met in letter and spirit.

3. Reopening Based on Mere Change of Opinion:
The learned Judicial Member (JM) held that the reopening of the assessment was based on a mere change of opinion, which is not permissible. The JM cited the judgments in Jindal Photo Films Ltd. and Kelvinator of India Ltd., asserting that the law remains the same both before and after the amendment of section 147 on 1-4-1989. The JM distinguished the case from Mahanagar Telephone Nigam Ltd., noting that in the latter, there was prima facie material to show escapement of income, unlike in the present case.

4. Reason to Believe:
The learned Accountant Member (AM) dissented, arguing that the Assessing Officer had "reason to believe" that income had escaped assessment based on the absence of details regarding the gifts in the return. The AM pointed out that the return was processed under section 143(1)(a) without any enquiry, and thus, no opinion was formed by the Assessing Officer. The AM relied on the judgment in Mahanagar Telephone Nigam Ltd., asserting that an intimation under section 143(1)(a) is not an "assessment," and therefore, the question of change of opinion does not arise.

Third Member's Opinion:
The Third Member agreed with the CIT(A) and the JM, holding that the Assessing Officer did not have "reason to believe" that income had escaped assessment. The Third Member emphasized that the reasons recorded by the Assessing Officer were a mere pretence to enquire into the gifts without any material or evidence coming into his possession after processing the return under section 143(1)(a). The Third Member highlighted that the reopening of the assessment was not based on fresh facts or material but was an arbitrary exercise of power.

Final Order:
In view of the majority opinion, the appeal preferred by the revenue was dismissed. The reopening of the assessment was held to be invalid, and the reassessment made was declared void ab initio and bad in the eyes of law. The notice under section 148 was not justified, and the assessment order dated 30-3-2000 was annulled.