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TMI Blog2010 (5) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... On appeal, the first appellate authority held hat reopening was bad in law, as, as per him, he did not see any case for escapement of income. Aggrieved, the Revenue had filed this appeal HELD THAT:- In any event, the reopening, if taken to its logical conclusion, would not be revenue-neutral in the hands of this assessee. At the stage of reopening, the AO cannot be expected to verify all the files of the recipients of remuneration and then estimate the escapement of income. This is not contemplated under the Act. Hence in our considered opinion, the order of the CIT(Appeals) is erroneous, on all three counts, on which he held that the reopening is bad in law. In our considered opinion, the decision in the case of Rajesh Jhaveri Stock Brokers P. Ltd. [ 2007 (5) TMI 197 - SUPREME COURT] applies on all fours to the facts of this case. Respectfully following the same, we uphold the validity of reopening of assessment u/s 147 and set aside the order of the CIT(Appeals) on this aspect. In the result, this ground of the Revenue is allowed. As the first appellate authority had not adjudicated the issue on merits, we set aside the matter to the file of the CIT(A) for fresh adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is not a fit case for initiating proceedings u/s 147 of the Income Tax Act. 3. The learned DR, Mr. Manvendra Goyal, submitted that the only issue raised by the Revenue in this appeal is the validity of reopening. The other aspects were not adjudicated by the CIT(Appeals) and hence are not before the Tribunal. He drew the attention of the Bench to para 5.2 of the CIT(Appeals) order and submitted that the CIT(Appeals) had taken into account irrelevant consideration, such as, inconsistency in the stand taken by the AO and also wrongly holding that the manner in which interest is calculated by the assessee and the manner in which it is proposed by the AO would be revenue-neutral. He submitted that the term reason to believe , refers to a prima facie opinion of the AO that income has escaped assessment and it should be a reason which a rational man would take. He pointed out that the assessee declared a total income of ₹ 2,37,29,792/- and out of which an amount of ₹ 1,19,91,812/- is received as interest on FDRs and the AO was of a prima facie view that such interest income is assessable only under the head Income from other sources and also was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners to whom remuneration is paid, are taxable or not. He pointed out that each partner would be eligible for a basic exemption and it would be unrealistic to assume that the tax payable by the partners is the same as the tax payable by the assessee firm. 6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows. 7. The reasons for reopening are at pages 2 and 3 of the assessee s paper book and have been given as an Annexure to notice u/s 148 of the Act dated 02-05-2006. This is extracted below for ready reference : The assessee is a firm of Solicitor and Advocates. Return of income for the Assessment Year 2002-03 was filed on 25.10.2002 declaring total income of ₹ 2,37,29,760/-. The said return was processed u/s 143(1) of the I.T. Act, 1961 on 24.02.2003. On perusal of details filed alongwith the return, it is noticed that an amount of ₹ 1,27,48,000/- is shown as remuneration actually paid to partners. The remuneration payable to partners as per section 40b(v) of the Act are shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,19,91,812/-being interest from bank. Remuneration to partners is to be paid on the book profit as per ceiling prescribed under section 40b(v) of the Act. Book profit means the net profit as per profit and loss account computed under section 28 to 141 of the Act. Hence, the interest from bank being income from other sources, should not have been considered for arriving at book profit. Therefore, the book profit, after excluding the interest from bank, works out to as under: Net profit as per P L A/c. ₹ 1,58,89,252/- Less: Interest from Bank ₹ 1,19,91,812/- ₹ 38,97,440/- Add: Disallowance (as per statement) ₹ 4,22,19,510/- Less: Depreciation etc. (as per statement) ₹ 2,15,61,181/- ₹ 2,06,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal circumstances come to such prima facie opinion cannot be faulted or held as on impossible view. 9. The first appellate authority at para 5.2 held as follows : I have considered the rival submissions and the materials on record. It appears that there is inconsistency in the stand taken by the A.O. In the immediately succeeding and previous years, no action has been taken under this head even though scrutiny assessments have taken place. Secondly, even though the principle of resjudi cata does not apply in Income-tax cases, the principle of reasonable case for resorting to section 147 to bring under tax net interest arising out of FDRs, the same could have been the case for other years also. Therefore, there is inconsistency in the stand taken by the A.O. Thirdly, the way interest is calculated by the appellant and the way it is proposed by the A.O. it would be revenue-neutral in the end. I, therefore, do not see any case for escapement of income and hence in my opinion it was not a fit case for initiating proceeding u/s 147. The reasons given by the first appellate authority, in our humble opinion, are not correct. Just because no action has been taken, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the claim for bad debts has explained was not acceptable. In that case also there was no fresh material except the claims of the assessee made in the return of income which was earlier processed u/s 143(1). Tangible material, in our humble opinion, cannot be held as that which is collected by the AO from sources other than, what is present in the return of income itself. When return was processed u/s 143(1), as held by the Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra), it cannot be said that the AO has looked into all the aspects contained in the return of income. When he has not looked into the return of income, the question of relooking and coming to a new conclusion does not arise. In cases where, the returns are processed u/s 143(1), and where at a later date, the AO notices certain wrong claims etc. in the return of income, and forms a prima facie opinion that income has escaped assessment, he is authorised to record reasons and reopening of the assessment u/s 147. 11. Sub clause (b) to Explanation 2 to Section 147 reads as follows : ( b ) where a return of income has been furnished by the assessee but no assessment h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f issue of notice, the only question 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 AO is within the realm of subjective satisfaction [see ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)]. 17. The scope and effect of s. 147 as substituted with effect from 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of s. 147, separate cls. (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 s. 147(a) two conditions were required to be satisfied firstly the AO 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 ..... 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