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2005 (9) TMI 244 - AT - Income TaxIncome Escaping Assessment - Assessment order framed u/s 143/147 - reason to believe - Validity of the notice issued u/s 148 - Whether merely because, no notice u/s 143(2) was issued by the Assessing Officer after issuing intimation u/s 143(1)(a), the Assessing Officer is not competent to initiate reassessment proceedings. If so, whether the scope of inquiry in such reassessment proceedings will be limited? - HELD THAT - There is nexus between the material/information, which was before the Assessing Officer and the formation of belief on the basis of such material. It is a settled law that adequacy of material is not relevant for having reasons to believe. Thus, on the basis of the facts as conveyed through the letter referred to above, the Assessing Officer was justified in having reasons to believe that the income of the assessee chargeable to has escaped assessment. It may be pointed out that during course of assessment proceedings also, the Assessing Officer raised several queries, which are related to huge deposits in the accounts of the assessee in the financial year relevant to assessment year under consideration. In this regard reference may be made to the notices issued by the Assessing Officer under sections 142(1) and 143(2) of Income-tax Act and detailed replies of the assessee for explaining these deposits. These letters of the assessee are available in Paper Book at Page. Thus, the notice issued by the Assessing Officer is found to be fully valid. Issue No. 1 is, therefore, decided in affirmative and accordingly. According to the Hon'ble Court in the case of Damodar H. Shah v. Asstt. CIT 2000 (6) TMI 27 - GUJARAT HIGH COURT , distinction between u/s 143(1)(a) and 143(3) is well brought out by the statutory provisions as stood at different points. The Hon'ble Court has also considered the effect of change brought by the amendment with effect from1st April 1979in the scope of u/s 147. Thus, it is clear that reassessment proceeding can be initiated after intimation u/s 143(1)(a) is issued and such proceedings will not be barred merely because, notice u/s 143(2) of Income-tax Act was not issued after the intimation u/s 143(1)(a) within the prescribed period. On the basis of our discussion and findings recorded while adjudicating various issues formulated in this matter, the following preposition may be culled out (1) The proceedings u/s 148/147 can be initiated if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment. The only requirement is that at the stage of initiation of such proceedings there must exist some grounds or material for formation of the belief and there should be nexus between such grounds and reason to form belief that any income has escaped the assessment. (2) The reopening cannot be held to be invalid merely because in the ultimate analysis no escapement of income is found in relation to any ground on the basis of which proceedings for reopening were initiated. In other words if there was requisite material for assumption of jurisdiction at that stage but the same could not substantiated during reassessment proceedings, then proceedings u/s 147 cannot be held to be invalid. (3) The reassessment proceedings may be initiated on one ground but the reassessment may be done on any other ground, if such ground comes to the notice of Assessing Officer during the course of assessment proceedings. It is, therefore, open to the Assessing Officer to consider other items even though they were not included u/s 148. (4) The intimation u/s 143(1)(a) cannot be treated to be an order of assessment and so long as ingredients of section 147 of the Income-tax Act are fulfilled, the Assessing Officer shall be free to initiate proceedings u/s 147 and failure to take steps u/s 143(2) will not deprive the Assessing Officer in exercising jurisdiction u/s 147 of the Income-tax Act. (5) In reassessment proceedings, the whole of the original assessment is not set aside and the reassessment is to be made only in respect of escaped income which is under assessed. (6) During the proceedings of reassessment u/s 147/148, the Assessing Officer is not empowered to make robbing and fishing inquiries and to make general inquiry or to seek general information in relation to the return filed by the assessee. (7) The item of income on which reassessment is made must bear the characteristics of escaped income. The touchstone, therefore, is that reassessment can be made only of income which has escaped assessment and which is under assessed. (8) The Assessing Officer can exercise power u/s 147 in relation to other items of income which were not the basis for formation of belief or reasons to believe for issuing notice u/s 148 but for assessing such income he should indicate that any material or information has come to his notice during reassessment proceedings through external or internal source but he cannot reassess any item of income only after gathering general information or on conducting general probe from the assessee during the course of reassessment proceedings. Thus, it is clear that the term 'any income' has been used intentionally in this provision and it cannot be taken into 'entire income' or total income. The word 'such income' also qualifies 'any income'. Similar interpretation can be made of the various clauses of Explanation 2 to section 147. The deemed escaped assessment can be inferred where income chargeable to tax has been under assessed. In view of the above observations, Issue No. 3 is decided accordingly. In the result, the appeal stands allowed.
Issues Involved:
1. Validity of the notice issued under section 148 of the Income-tax Act. 2. Scope of reassessment under section 147 regarding items of income not mentioned in the reasons for reopening. 3. Competence of the Assessing Officer to initiate reassessment proceedings after processing the return under section 143(1)(a) without issuing notice under section 143(2). 4. Legality of the assessment order passed under section 147/143. 5. Justification of additions made by the Assessing Officer. Issue-wise Detailed Analysis: Issue No. 1: Validity of the Notice Issued under Section 148 The Tribunal held that the Assessing Officer was justified in issuing the notice under section 148 based on the information received from the Enforcement Directorate about the foreign deposits. The Assessing Officer had solid and sufficient material to form a belief that the income had escaped assessment. The Tribunal emphasized that the adequacy of the material is not relevant at this stage, citing the Supreme Court's decision in Raymond Woollen Mills Ltd. v. ITO. Issue No. 2: Scope of Reassessment under Section 147 The Tribunal clarified that under section 147, the Assessing Officer can assess or reassess any income that comes to his notice during the reassessment proceedings, not just the items mentioned in the reasons for reopening. This interpretation aligns with the decisions of various High Courts, including the Gujarat High Court in CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. and the Delhi High Court in Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT. Issue No. 3: Competence to Initiate Reassessment after Processing under Section 143(1)(a) The Tribunal noted that an intimation under section 143(1)(a) is not an assessment order and does not preclude the Assessing Officer from initiating reassessment proceedings under section 147. The Tribunal cited the Delhi High Court's decision in Mahanagar Telephone Nigam Ltd., which held that failure to issue a notice under section 143(2) does not bar the Assessing Officer from initiating reassessment proceedings. Issue No. 4: Legality of the Assessment Order under Section 147/143 The Tribunal found that the Assessing Officer undertook a general and roving inquiry, which is not permissible in reassessment proceedings. The Assessing Officer should have confined his inquiry to specific items of income that had escaped assessment. The Tribunal concluded that the additions made as a result of such general inquiries could not be sustained, although the initiation of jurisdiction under section 148 was justified. Justification of Additions: Ground No. 1: Addition on Account of Loan from Digvijay Singh The Tribunal deleted the addition of Rs. 1,26,000, noting that the assessee had provided full particulars and sources for the loan, including details of drafts and the balance sheet of Digvijay Singh. Ground No. 2: Addition on Account of Loan from Late Shri I.B. Singh The Tribunal deleted the addition of Rs. 4,67,600, accepting the confirmation provided by the son of the deceased creditor and noting that the amount was received through an account payee demand draft. Ground No. 3: Addition on Account of Low Withdrawals The Tribunal deleted the addition of Rs. 50,000, stating that the Assessing Officer's inference about the maintenance of a farmhouse was not justified. The Tribunal emphasized that the assessee's husband also made withdrawals for household expenses. Conclusion: The Tribunal allowed the appeal, deleting all the additions challenged by the assessee on both legal and factual grounds. The reassessment proceedings were found to be legally initiated, but the additions made as a result of general inquiries were not sustainable.
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