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TMI Blog2014 (3) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer is entitled to re-open the assessment in accordance with the procedure prescribed by the Act - he can issue the notice u/s 148 proposing to re-open the assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to file the return or on account of the omission of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. In Assistant Commissioner of Income-tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. [2007 (5) TMI 197 - SUPREME Court] it has been held that if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment - both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147 - So long as the ingredients of section 147 are fulfilled, the AO is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the AO powerless to initiate reassessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or certified copy of the reasons recorded. The Assessing Officer vide letter dated 9.7.2013 issued copy of the reasons. The Assessee vide his letter dated 19.8.2013 submitted objections to the notice under section 148 of the Act after acknowledging the receipt of the certified copy of the reasons. The assessee in the objection stated that there is no material in favour of belief of escapement of income for assessment and notice has been issued to make only roving and fishing enquires. The Assessing Officer vide his letter dated 4.10.2013 disposed of the objections. The writ petition has been filed by the petitioner praying for quashing the notice dated 28.2.2013. writ petition No. 79 of 2014 (Re-assessment notice dated 28.2.2013 for the Assessment Year 2007-08) Assessee had filed his return electronically for the Assessment Year 2007-08 on 29.10.2007. There was refund of Rs. 2,13,940/- for income tax and Rs. 20,131/- for fringe benefit tax The assessment was completed under section 143(1) of the Income Tax Act. While proceeding with scrutiny for the Assessment Year 2010-11, the Assessing Officer issued notice for reassessment for the year 2007-08 dated 28.2.2013. The petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies were shown and after scrutiny, the return for the Assessment Year 2009-10 was finalised under section 143(3). He submits that the copy of the reasons as communicated to the petitioner does not indicate that there is any material with the Income Tax Officer to proceed with re-assessment. The reasons itself disclose that the Income Tax Officer is proceeding with further inquires which means that there was no sufficient material to form a belief that income has escaped assessment. He submits that Income Tax Officer has no jurisdiction to review the assessment already completed. With regard to re-assessment notice dated 28.2.2013 for the Assessment Year 2007-08, Sri Upadhya submits that assessment notice having been issued beyond four years from the last date of the order of of assessment in question, the notice is beyond jurisdiction. An additional submission with regard to Assessment Year 2011-12 raised by Sri Upadhya is that the assessment proceedings for the Assessment Year 2011-12 has yet not been completed.Hence there is no jurisdiction in initiating the re-assessment proceedings. Sri Ashok Kumar, learned Counsel appearing for the Department, refuting the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, subject to the provisions of sections 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 recompute 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 sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 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 section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons recorded under sub-section (2) of section 148. Issue of notice where income has escaped assessment. 148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve31 on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 : Provided that in a case-- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year. Explanation.- In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of Section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Following was laid down in paragraph 6: (6) To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such under assessment has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d where he has reason to believe that an under assessment has resulted from other causes he shall have jurisdiction to start proceedings for re-assessment within 4 years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under assessment and (ii) his having reason to believe that such under assessment has resulted from nondisclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. The argument that the Court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that under assessment has resulted from non-disclosure of material facts cannot therefore be accepted. The apex Court in the said case held that conditions precedent to exercise jurisdiction under section 34 were not existing. The said conclusions were recorded in paragraph 25, which is to the following effect: (25) We are therefore bound to hold that the conditions precedent to the exercise of jurisdiction under s. 34 of the Income- tax Act did not exist and the Income-tax Officer had therefore no jurisdiction to issue the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... live link with the formation of the belief. From the proposition of law as laid down by the apex Court in the above two cases, it is well settled that conditions precedent for initiating the proceeding for re-assessment notice under section 148 should be present lest the Assessing Officer will have no jurisdiction to proceed with the re-assessment proceedings and this Court in exercise of its jurisdiction under Article 226 of the Constitution of India shall not hesitate in interfering with a proceeding which has been initiated without existence of jurisdictional facts. Now we have to examine whether the reasons supplied by the Assessing Officer to the assessee were tangible materials to proceed with the re-assessment proceedings or re-assessment proceedings have been initiated only on mere change of opinion. First of all we come to the Assessment Year 2009-10. Following reasons have been communicated by the Income Tax Officer to the assessee for the Assessment Year 2009-10. It is useful to quote the reasons which were to the following effect: page 49-50 The case of the assessee company is undergoing scrutiny assessment for A.Y. 2010-11. During the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney/share premium money of Rs. 3.5 crores were noted and field inquiries were made and a report was received that no such companies exist at those addresses. The Assessing Officer further received reports that the above noted companies were mere entry provider having no identity, genuineness and creditworthiness. In the above context, the returns of the earlier years were looked into and same trend was noticed. The Assessing Officer referred to discrete enquiry, which revealed that the companies from whom unsecured loan amounting to Rs. 1,55,00,000/- for the Assessment Year 2009-10 were received were also paper companies. The Assessing Officer has further recorded that formal commission is being issued to the DDIT (Investigation) Kolkatta for further enquiries. The reasons which were recorded and noticed above, cannot be termed to be mere change of opinion. The Assessing Officer has referred to discrete enquiries. In the reasons recorded, it cannot be said that there was no reason to come to the belief that income has escaped assessment from the Assessment Year 2009-10. The judgment relied by Sri Ashok Kumar, learned Counsel for the Department in 2003 ITR 456 Phool Chand Bajrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific. Lastly at page 477 of the judgment following was laid down: From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income Tax 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say you accepted my lie, now your hands are tied and you can do nothing . It would be travesty of justice to allow the assessee that latitude. Further the apex Court in 221 ITR 538 Sri Krishna Pvt. Ltd. Etc. V. Income-tax Officer and others had again considered Sections 147 and 148. In the above case, in the return filed for the Assessment Year 1959-60, the assessee had shown certain hundi loans totalling Rs. 8,53,298 from number of persons. Income Tax Officer accepted the averments and made the assessment. During the assessment proceedings for the year 1960-61, the assessee again showed hundi loans in a sum of more than rupees seventeen lakhs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that year, income has escaped assessment. The existence of the reason(s) to believe is supposed to be check, a limitation, upon his power to re-open the assessment. [See the leading decision on this subject in Barium Chemicals v. Company Law Board (1966 Suppl. S.C.R.311 at 361 = A.I.R.1967 S.C.295 at 324)] Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reason for such re-opening by the Income Tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the Income Tax Officer, that it is a fit case for issuance of such notice. The power conferred upon the Income Tax Officer, by Sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the assessing officers. The idea was to save the assessees from harassment resulting from mechanical re-opening of assessment but this protection avails only those assessees who disclose all material facts truly and fully. The apex Court in 291 ITR 500 (SC) Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer 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 section 147. The ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en shown in the books of accounts as receipts from the companies mentioned therein. We also note that at serial No.5 of the list of companies from which amounts have been allegedly received, the name of the assessee has been shown. This means that the assessee received the received money from itself, which can hardly be an allegation in this case. Gujrat High Court has also relied the same proposition and laid down following at page 449: Examining the facts of the present case in the light of the aforesaid legal position, a perusal of the reasons recorded shows that there is not even a whisper to the effect that income has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Even in the affidavit-in-reply filed by the respondent, there is no allegation of any such failure on the part of the petitioner. In the circumstances, it is apparent that the requirements of the proviso to section 147 of the Act are not satisfied. Consequently, in the absence of any satisfaction having been recorded by the Assessing Officer that income has escaped assessment by reason of failure on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which is computed at a stipulated proportion of the net profits. The assessee explained the basis on which a decision was taken to make the payment of commission at a fixed monthly remuneration and the rest at a proportion of the net profits. According to the assessee, this decision was based on the volatility of the stock market and having regard to the fact that the income of the assessee from share business had reduced and in fact, it was Rs. 35.51 crores in comparison to the income of Rs. 57.07 crores for the previous year. This is, therefore, a case where the nature of the payment, the basis of the computation and the rationale for computing the remuneration to the two directors with reference to a fixed remuneration in part and a proportion of the net profits in balance was brought in focus before the A.O. Hence, all the primary facts for the purpose of a deduction under Section 36(1)(ii) were placed before the A.O. That the order of assessment under Section 143(3) accepted the claim on this issue is what matters. Before this Court it is not in dispute at the hearing that the two directors have been assessed under section 143(3) on the amounts paid by the assessee to them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. Further there is no specific mention that escaped amount is Rs. One lac or more. The said allegation is implicit one. It is mentioned that the amount of unsecured loan ranges from Rs. 2,14,17,560/- to Rs. 5,66,68,496/-. Thus, on this ground we are not persuaded to accept the submission that since the notice does not mention that the escaped income is Rs. one lac or more, the notice is beyond jurisdiction. Sufficient materials have also been referred for initiating the re-assessment proceedings. Thus, sufficient material has been referred to for forming the belief that the income has escaped assessment for the Assessment Year 2007-08 and we are not persuaded to accept the argument that notice is without jurisdiction. Now comes the submission of the petitioner pertaining to Assessment Year 2010-11. Additional submission raised with regard to Assessment Year 2010-11 is that assessment proceedings having not been completed, no re-assessment notice can be issued. Sri Upadhya has also relied on the judgment of the apex Court in 242 ITR Trustees of H.E.H. The Nizam's Supplemental Family Trust Vs. Commissioner of Income-tax, in which it was laid down by the apex Court that u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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