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TMI Blog2013 (1) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... to verification of accounts which is the case set up by the appellant now. The request was only that not to again tax the income in the hands of the partners and that the same should not result in complication in sales tax cases. Thereafter, a letter was issued by the appellant stating that the offer of additional income during the survey was mistaken and the correct investment would not exceed Rs.35 lakhs. It is also stated that the income has escaped assessment, in that, the disclosure made was neither considered by the new incumbent assessing officer, nor disclosed by the assessee in the return filed and there was failure to declare the true and full facts. The matter relates to the assessment year 2006-2007 where the assessment was completed on 22.12.2008. Ext.P6 impugned notice(reopening assessment) is dated 09.12.2011, i.e. issued after the expiry of four years from the end of the assessment year. As held in Sowdagar Ahmed Khan v. Income-Tax Officer, Nellore (1967 (11) TMI 10 - SUPREME COURT) the duty is not discharged by production of the books of account or other evidence and the assessee has a duty to bring to the notice of the officer the particular items in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2008. However, the appellant was served with Ext.P6 notice dated 09.12.2011 wherein it was stated that the officer had reasons to believe that the appellant's income chargeable to tax for the assessment year 2006-2007 had escaped assessment within the meaning of Section 147 of the Income Tax Act. A return was directed to be filed within thirty days. The appellant vide Ext.P7, relying on the Judgment of the Apex Court in GKN Driveshafts (India) Ltd. v. Income-Tax Officer And Others ((2003) 259 ITR 19), requested the officer to give in writing the recorded reasons for reopening the assessment. It was thereupon that Ext.P8 was issued, wherein, reference was made to the survey and the statement made by the Managing Partner. It is also indicated that the assessee had confirmed the statements by letter filed on 03.02.2009. Ext.P8 is dated 25.4.2012. The Writ Petition was filed challenging Ext.P6 notice. The learned Single Judge has found that the proceedings are only at the notice stage and it is for the appellant to submit objections and it was for the officer to take the proceedings to the logical conclusions by passing appropriate orders in accordance with law, after considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd discrepancies in the books of account, in that, there was excess payment of cash over what was available as per the cash book and also unaccounted investment in properties and suppression of receipt and inflation of expenses. The Managing Partner offered an amount of Rs.43 lakhs as additional income for the three years, i.e. Rs.13 lakhs for 1998-1999, Rs.10 lakhs for 1999- 2000 and Rs.20 lakhs for 2000-2011. The assessing officer determined the business income on the basis of reckoning net profit at 8%. The Commissioner of Income Tax, however, felt that it was erroneous and prejudicial to the interest of the Revenue on the basis that the additional income disclosed for each each year should have been taken into account separately while making the assessment. Acting under Section 263 of the Act, he set aside the assessment and directed the Assessing Officer to re-frame the assessment afresh. It was in the context of Section 263 of the Act that the Division Bench held, inter alia, as follows: "The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nor could it be said to be erroneous. The order of revision was not valid." In Pala Marketing Co-operative Society Ltd. v. State of Kerala And Another ((1999) 236 ITR 604), a learned Single Judge was dealing with a case under Section 147 of the Act. A return of income was filed, wherein the assessee had deducted a sum towards depreciation allowance. On a certain basis, the assessment was completed under Section 143(3). An order was passed seeking to rectify the mistaken assessment as perceived. The appellate authority invalidated the proceedings for want of notice and opportunity. Fresh proceedings were taken under Section 154 and it was thereafter that a notice was issued under Section 148 to reassess the income. The assessee objected on the score that it was bad for limitation. The learned Single Judge held, inter alia, as follows: "The primary facts regarding t4he claim of written down value had been furnished. However, while working the depreciation rate, instead of 331/3 per cent, for all items the assessee made a claim of 50 per cent, with reference to 12 items. This claim on the rate of depreciation could not be held to be failure to disclose fully and truly material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer." In GKN Driveshafts (India) Ltd. v. Income-Tax Officer And Others ((2003) 259 ITR 19), the Court, inter alia, held as follows: "When a notice under Section 148 of the Income-tax Act, 1961 is issued, the proper course of action for the noticee is to file the return and, if he so desires, to seek reasons for issuing the notices. The Assessing Officer is bound to furnish reasons within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to a lesser sum. Thereafter, the assessing officer initiated re-assessment proceedings for the two assessment years, on the score that the appellate authority had restricted the addition, as the restricted amount was alone advanced to the appellant during the year 2001- 2002. Therefore, the assessing officer reasoned that as the addition on the issue of deemed dividend for advance was confirmed for the year 2001-2002, he had reason to believe that the income shown in the notice as received during 1999-2000 and 2000-2001 and escaped assessment. The Bench found that Explanation 1 to Section 147 does not help the Revenue. It was found that all material facts were available on the record and no material fact has to be inferred or discovered by the assessing officer. The assessing officer in spite of being aware of the facts, failed to apply or at best failed to consider whether Section 2(22)(e) of the Act was attracted. It was found that the failure to apply the law or a section to the admitted facts on record is not covered by Explanation 1 and the Explanation applies when the Officer fails to discover or infer material facts which, with due diligence, could have been discovered. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it may be assumed that, from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. At page 643 of the report Shah J., speaking for the court, observed as follows: "The Income-tax Officer had, therefore, prima facie, reason to believe that information material to the assessment had been withheld, and that on account of withholding of that information income liable to tax had escaped assessment. From the mere production of the books of account it cannot be inferred that there had been full disclosure of the material facts necessary for the purpose of assessment. The terms of the explanation are too plain to permit an argument being reasonably advanced, that the duty of the assessee to disclose fully and truly all material facts is discharged when he produces the books of account or other evidence which has a material bearing on the assessment. It is clearly implicit in the terms of Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO (1991) 191 ITR 662, for initiation of action under Section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation I.- Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." 8. We must here, at this stage, before we consider the contentions, notice the stand of the Revenue as disclosed in the statement filed before the learned Single Judge. Therein, it is, inter alia, stated as follows: The assessment was completed under Section 143(3) on 22.12.2008 for the assessment year 2006-2007, accepting the taxable income of Rs.1,14,28,850/=. There was a change of incumbent in the office of the Assistant Commissioner twice. The Assistant Commissioner of Income Tax who conducted the survey, got transferred and the notice under Section 143(2) was issued by another Assistant Commissioner. He also got transferred out. The assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that Ext.P6 notice is without jurisdiction. We make this observation because the learned Single Judge has permitted the appellant to file objections to Ext.P6 notice and it is for the assessing officer to take a decision after considering the objections. We are only of the view that it is not open for us to veto further action pursuant to Ext.P6 on the basis of the Writ Petition filed by the appellant. 10. It is then contended by the appellant that the learned Single Judge ought to have followed the decision of the Apex Court in GKN Driveshafts (India) Ltd. v. Income-Tax Officer And Others ((2003) 259 ITR 19). He points out that the Apex Court in the said case had directed the objections to be disposed of by a speaking order before proceeding with the assessments. He pointed out that the learned Single Judge has instead directed that the proceedings are to be finalised in accordance with law after giving time to the appellant to submit objections. 11. Learned senior counsel for the Revenue would point out that the decision of the Apex Court was rendered in the context where the assessee had availed of the opportunity to raise objections. Learned counsel for the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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