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TMI Blog2016 (5) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced the income from the property by setting off loss accruing to the firm. Apart from this the P . The other objections of the Assessee to the reopening are left open to be urged before the AO in the assessment proceedings in accordance with law. By the order dated 26th November 2002 the Court had directed that the assessment proceedings would go on before the AO but no final order would be passed. The Court now vacates the said interim order and directs that the AO will now pass a final order within eight weeks from today, after affording the Petitioner one opportunity of being heard. X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 (2), New Delhi. In the said order/intimation, the loss declared by the Petitioner in the return along with its statement of accounts, computation sheet, audit report etc. was accepted and the amount as claimed by the Petitioner was refunded to the Petitioner. A copy of the said order under Section 143 (1) of the Act issued by the AO on 29th May 2001 has been enclosed with the petition as Annexure P-7. 8. It must be noticed this was a time when the centralized computer system was not in vogue. The AO had the discretion whether to pick up a return for scrutiny. As far as the firm's return was concerned, it was processed by the Deputy Commissioner of Income Tax (DCIT), Circle 16 (2). An order/intimation dated 29th May 2001 was sent accepting the return. The Petitioner states that since she had a half share in the profits and losses of the said firm, the Petitioner's share of loss worked out to ₹ 3,12,885. 9. On 26th June 2001, the DCIT, Circle 16 (2) issued the impugned notice to the Petitioner under Section 148 of the Act stating that he had reasons to believe that the Petitioner's income chargeable to tax for the AY in question has escaped assessment and that he proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of these concerns, it was found that up to 30th November 1998 it was a partnership concern and thereafter it was taken over by the Assessee as proprietor for the rest of the period. While going through and comparing the profit and loss account of the two periods, the following situation emerges:- Period Sales (Rs.) G.P. (Rs.) G.P. Rate Net Profit/ loss 1.4.97 to 31.3.98 1,34,43,289 18,75,770 13.95% 31.574 (Profit) 1.4.97 to 31.11.98 38,12,440 5,33,440 13.99% 5,42,970 (loss) 1.12.97 to 31.3.99 7,86,195 32,962 4.19% 12,94,055 (loss) From the above data it would be seen that for the period 1st April 1998, the Assessee has wrongly claimed share of loss of ₹ 3,12,885 from the firm M/s. Rangwala Enterprises which cannot be claimed in view of the provisions of Section 10 (2A) of the Income Tax Act, 1961. The Assessee has thus artificially and with an ulterior motive reduced the income from the property by setting off loss accruing to the firm. Apart from this the P&L account of the Assessee reveals that she has claimed a loss of ₹ 12,94,055.85 from the income property includes a bad debt if ₹ 9,63,598.70 as against sales of ₹ 7,86,195. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e escapement of taxable income. Submissions of counsel for the Petitioner 15. It is submitted by Mr. Prem Nath Monga, learned counsel appearing for the Petitioner that Section 148 was not a substitute for Section 143 (2) of the Act in terms of which a return had to be scrutinized and a decision given thereon by the AO within one year from the end of the month in which the return was filed under Section 139 or pursuant to the notice under Section 142 (1) of the Act. It is further submitted that no reasons were recorded before issue of notice on 26th June 2001. The reasons were recorded on 6th July 2001. According to the Petitioner, this is a mandatory requirement of Section 148 (2) of the Act and failure to do so rendered the entire proceedings invalid and void ab initio. 16. Mr. Monga submitted that the intimation under Section 143 (1) of the Act was as much an assessment as regular assessment of a return that has been picked up for scrutiny under Section 143 (3) of the Act. It is further submitted by Mr Monga that there was no tangible material that the AO came across to justify forming 'reasons to believe' that income had escaped assessment. The only material referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the conditionality attached to reopening of an assessment which was originally made under Section 143 (3) of the Act would not apply to reopening of the assessment where initially it was only an intimation under Section 143 (1) of the Act. Legislative background of Section 143 20. At the outset it requires to be noticed that Section 143 of the Act has frequently undergone changes. Though the said provision has been amended several times, what is relevant as far as the present case is concerned, is Section 143 (1) (a) as it stood immediately prior to the amendment with effect from 1st June 1999 by the Finance Act, 1999. It read thus: "143 (1) (a) Where a return has been made under Section 139, or in response to a notice under sub-Section (1) of Section 142 - (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-Section (2), an intimation shall be sent to the Assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143 (1) (a) of the Act. In other words, a distinction was made between making of an assessment by the AO after affording the Assessee an opportunity to explain the queries that arose from the returns whereas for the purpose of intimation under Section 143 (1) of the Act there was no question of any hearing to be given to the Assessee. 22. With effect from 1st June 1999 the changed Section 143 reads as under: "143. Assessment - (1) Where a return has been made under Section 139, or in response to a notice under sub-Section (1) of Section 142 - (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-Section (2), an intimation shall be sent to the Assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Section 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the Assessee and an intimation to this effect shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 143 (1) of the Act. It is above in the background that the Supreme Court discussed the entire legislative history of Section 143 (1) of the Act. The Supreme Court explained the difference in the two expressions „intimation‟ and „assessment order‟ as under: "It is to be noted that the expressions „intimation‟ and „assessment order‟ have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes „the computation of income‟, sometimes „the determination of the amount of tax payable‟ and sometimes „the whole procedure laid down in the Act for imposing liability upon the tax payer‟. In the scheme of things, as noted above, the intimation under Section 143 (1) (a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under Section 143 (1) (a) as it stood prior to 1st April 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee to disclose fully or truly all material facts necessary for his assessment of that year. 24.5 It was concluded by the Supreme Court in Assistant Commissioner v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) that even where no steps were taken under Section 143 (3) of the Act in relation to the assessment, the AO was not powerless to initiate reassessment proceedings even when an intimation under Section 143 (1) of the Act had been issued. The Supreme Court concluded that the High Court had wrongly applied Adani's case (supra) which had no application in view of the conceptual difference between Section 143 (1) and Section 143 (3) of the Act. 24.6 The ratio of the decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) is that the sending of an intimation by the AO to an Assessee in terms of Section 143 (1) of the Act is not treated to be an "assessment" made by the AO. After 1st April 1989 there was no need for AO to pass an assessment order if he had decided to accept the return and this was in line with the legislative intent of minimizing the departmental work of scrutinizing each and every return and instead concentrate on selective scrutiny of returns. Importantly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (1971) 82 ITR 147 (SC), ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC). The Court has also discussed the decision of the Supreme Court in CIT v. Kelvinator of India Limited (supra). It must be noted at this stage that the Kelvinator of India Limited (supra) was a case one where the initial return was picked up for scrutiny and an assessment order passed under Section 143 (3) of the Act. 26.4 The conclusion in Orient Craft Ltd. (supra) was that the requirement of the AO having "reasons to believe" that income has escaped assessment equally applied to an intimation under Section 143 (1) of the Act. In that context, the Court proceeded to hold that: "Section 147 makes no distinction between an order passed under Section 143 (3) and the intimation issued under Section 143 (1). Therefore, it is not permissible to adopt different standards while interpreting the word "reason to believe" vis-a-vis Section 143 (1) and Section 143 (3)." 26.5 The Court in Orient Craft Ltd. (supra) proceeded to hold as under: "We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was earlier issued under Section 143 (1). It follows that it is open to the Assessee to contend that notwithstanding that the argument of „change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the Assessee to challenge the reasons recorded under Section 148 (2) on the ground that they do not meet the standards set in the various judicial pronouncements." 26.7 The above lengthy discussion of the decision in Orient Craft Limited (supra) becomes necessary since it was a case where reopening of the assessment was stated to be done pursuant to the initial return being processed under Section 143 (1) of the Act and an intimation sent to the Assessee in acceptance of such return. Secondly, this was a decision where the earlier decision in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) was discussed at length and it was concluded that even for the purpose of reopening the assessment where the initial return h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form the "reason to believe" that income of the Assessee had escaped assessment for the AY in question. The AO had not stated that "he examined the returns filed by the Assessee for the said AY and detected that the said cash deposits were not reflected in the returns." Again the Court proceeded on the basis that there had to be some tangible material on the basis of which the AO could form a prima facie reason to believe that the income had escaped assessment. 29. The same approach was adopted in the decision in Commissioner of Income Tax v. Atul Kumar Swami (2014) 52 taxmann.com 47 (Del) where again the initial return was accepted by sending to the Assessee an intimation under Section 143 (1) of the Act. This was for the AY 1999-2000. On 9th January 2002 the return was sought to be reopened under Section 147 of the Act but the reasons for so doing did not refer to any tangible material which the AO had come across subsequent to the filing of the return. The Court this time relied on the decision in Commissioner of Income Tax v. Kelvinator of India (supra) and held that a valid reopening of the assessment has to be based only on tangible material to justify the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 32.3 The transaction could not be completed even after 30th September 1993. The Assessee's accounts for the AY 1991 had disclosed the amount of ₹ 84,47,112 received from the Bank by the Assessee way back on 20th June 1984 as a "current liability" under the heading "Advance against deferred sale of building". During the course of the assessment for AY 1994-95, the AO posed a query as to why the capital gains arising out of the sale of the premises should not be taxed in the AY 1991-92. On this basis notice was issued on 4th December 1996 under Section 143 read with Section 147 of the Act seeking to reopen the assessment for AY 1991-92. 32.4 The Bombay High Court allowed the writ petition challenging the reopening of the assessment and held that there was no transfer of any property in terms of Section 2 (47) of the Act. It was further held that "there was no material for the Assessing Officer to have reason to believe that the agreement to sell had been entered into in the assessment year 1990-91". 32.5 In the appeal by the Revenue, the Supreme Court reversed the decision of the Bombay High Court by relying on the decision in ACIT v. Rajesh Jhaveri S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. Thus, even in cases where no assessment order is passed and assessment is completed by Intimation under Section 143 (1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. In the above view, it is open for the Petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by intimation under Section 143 (1) of the Act." 34. Recently in Olwin Tiles (India) (P.) Ltd. v. Deputy Commissioner of Income Tax (2016) 66 taxman.com 8 (Guj), the Gujarat High Court dealt with the case where the initial return was processed under Section 143 (1) of the Act, and later notice was issued under Section 148 of the Act seeking to reopen the assessment of the Assessee for the said AY 2011-12. The Court took note of the decision Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and negatived the plea of the Assessee that "the Assessing Officer, when recording his reason to believe that income chargeable to tax has escaped assessment, could not have relied on the original assessment records and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Investment Co. Ltd. (supra) an intimation under Section 143 (1) (a) cannot be treated to be an order of assessment. There being no assessment under Section 143 (1) (a), the question of change of opinion does not arise. 35.6 Whereas in a case where the initial assessment order is under Section 143 (3), and it is sought to be reopened within four years from the expiry of the relevant assessment year, the AO has to base his 'reasons to believe' that income has escaped assessment on some fresh tangible material that provides the nexus or link to the formation of such belief. In a case where the initial return is processed under Section 143 (1) of the Act and an intimation is sent to the Assessee, the reopening of such assessment no doubt requires the AO to form reasons to believe that income has escaped assessment, but such reasons do not require any fresh tangible material. 35.7 In other words, where reopening is sought of an assessment in a situation where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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