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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 ..... eding for assessment of the Year 2009-10 had made certain queries which were replied by the assessee whereafter the return was finalised under section 143(3). The Assessee had submitted return for the Assessment Year 2010-11. The case was processed under section 143(1) and refund was issued. Subsequently the case for the Assessment Year 2010-11 was selected for scrutiny and notice under section 143(1) was issued for 29.8.2011 along with detailed questionnaire. While conducting the scrutiny for the return of 2010-11, the Assessing Officer after recording reasons issued notice dated 28.2.2013 for re-assessment for the year 2009-10. In response to the notice dated 28.2.2013, the petitioner vide his letter dated 15.3.2013 enclosing e-return earlier filed, requested that the said return be treated to be filed in compliance of the notice dated 28.2.2013. Assessee also requested for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vibhav Bhushan Upadhyay,Senior Advocate assisted by Ms. Anjali Upadhya, learned Counsel for the petitioner and Sri Ashok Kumar on behalf of the Income Tax Department. Sri Upadhya in support of the writ petition submitted that re-assessment notice has been issued only on mere change of opinion and there is no material to have any reason for belief that income has escaped assessment. He submits that all relevant facts including details of unsecured loans were mentioned in the Income-tax return hence, the Income Tax Officer has no jurisdiction to issue notice under section 148. He submits that for the Assessment Year 2009-10 queries were made with regard to issue of fresh share capital, unsecured loan squared up loan amount, which were duly replied by the petitioner in which details of Income Tax return of the Elina Developers Pvt. Ltd. and certain other companies 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s objection to the re-assessment notice having been decided on 4.12.2013, the remedy of the petitioner is to file an appeal under section 246-A of the Act. He submits that due to this reasons also the writ petition be not entertained. Learned Counsel for the parties have placed reliance on various judgements of the apex Court, this Court as well as different High Courts in support of their respective submissions, which shall be referred to hereinafter, while considering the respective submissions. The notices impugned in the writ petitions have been issued under section 148 for re-assessment. Sections 147,148 and 149 which are relevant in the present case are as follows: "Income escaping assessment. 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessment has been made, but-- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, unless the case falls under clause (b) or clause (c) (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced reliance on the celebrated case of Hon'ble Supreme Court reported in AIR 1961 SC 372 Calcutta Discount Company Ltd. V. Income-tax Officer, Companies District I, Calcutta and another. In the Calcutta Discount Company's case, apex Court had occasion to consider section 34 of the Income Tax Act, 1922 which confers jurisdiction on the Income Tax Officer to initiate reassessment proceedings. The apex Court in the said case laid down that to confer jurisdiction on the Income Tax Officer two conditions have to be satisfied. Firstly, the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income- tax have been under-assessed and secondly 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. 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe that there has been under assessment in any year he has jurisdiction to start proceedings under s. 34 by issuing a notice provided 8 years have not elapsed from the end of the year in question, but whether the notices should have been issued within a period of 4 years or not is only a question of limitation which could and should properly be raised in assessment proceedings. It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an under assessment has resulted from non- disclosure he shall have jurisdiction to start proceedings for re. assessment within a period of 8 years; and 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-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion"; is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, 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." 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso paper companies used for providing accommodation entries in the form of share capital and loan in lieu of cash, Formal commission is also being issued to the DDIT(Inv.), Kolkatta for further enquiries." In view of the above, I have reason to believe that the income has escaped assessment within meaning of provisions of Section 147 of the I.T. Act, 1961. In order to assess the income, proceedings u/s 147 of the I.T. Act, 1961 are initiated." The reasons noticed about the unsecured loan amounting to Rs. 1,55,00,000/- in the Assessment Year 2009-10 assessment was finalised under section 143(3). While proceeding with the scrutiny for the Assessment Year 2010-11 unsecured loan and share application money/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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the I.T.O. at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealer's case (Supra) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly. We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original 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 falsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year the Income Tax Officer is entitled to re-open the assessment in accordance with the procedure prescribed by the Act. To be more precise, he can issue the notice under Section 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, 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 failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT & Anr.: 308 ITR 38 wherein this Court held that in situations where the reasons did not even contain and allegations that the escapement of the income had been occasioned by failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the assessing officer would be barred from re-opening of the assessment already done at an earlier stage." "On going through the purported reasons we find that there is no mention of the respondent-assessee not having made a full and true disclosure of the material facts necessary for assessment. On the contrary the purported reasons indicate that the amounts mentioned therein had been 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 leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had furnished to the A.O. all the primary facts on the basis of which a deduction was claimed in respect of the commission that was paid to the two directors for services rendered. The record before the Court indicates that the assessee had specifically placed before the A.O. by its letter dated 4 September 2009, copies of the agreements dated 16 June 2005 between the assessee and its directors in pursuance of which remuneration was paid to them for the relevant year which included the payment of commission. The attention of the A.O. was clearly and specifically drawn to the quantum of the fixed monthly remuneration and in addition to the payment of commission 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 previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be considered. Section 149(1) provides that no notice shall be issued if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c). The submission of Sri Upadhya is covered by Section 149(b) since there is no allegation that income chargeable to tax which has escaped assessment amount is one lac rupees or more. A perusal of the reasons for the Assessment Year 2007-08 indicates that following was recorded: "The same trend is seen for the Assessment Year 2007-08 as well with the amount of unsecured loans from share holders companies and other raising from Rs. 2,14,17,560 to Rs. 5,66,68,496/-." 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 materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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