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TMI Blog2016 (9) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... pt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. Therefore, in our view, the Assessing Officer cannot change his opinion, which he has already accepted in his assessment order. We are of the opinion that the Tribunal has committed an error in reversing the finding of CIT (A). Accordingly, we answer the question posed for our consideration in favour of the assessee and against the revenue and the Tribunal has committed an error in holding that the reopening proceedings are valid, legal and within the jurisdiction of the Respondent. Even otherwise, the method of valuation is in order and since the valuations are made under two different Acts, they cannot be made basis for reopening of valuation. - Decided in favour of assessee. - TAX APPEAL NO. 1071 of 2006 With TAX APPEAL NO. 1072 of 2006 With TAX APPEAL NO. 1073 of 2006 - - - Dated:- 17-6-2016 - MR. KS JHAVERI AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not own any other residential house so as to disqualify its claim u/s. 54 F. Further, it was also contended by it that its share in the Shahpur Property was limited only to the extent of 1/5th of its total area of 77 sq. mtr., and which considering the parameters that would enable it to be considered as a residential house, were not, met, so as to, without prejudice to its averment of the property having been transferred only on 28th March, 1995, disentitle it for its claim u/s. 54 F. 3.1 The same, however, did not find favour with the A.O., who proceeded to reassess the assessee s income u/s. 143(3) r. w. s. 147 of the Act. With reference to the Memorandum of Possession , on the basis of which the transfer of the original asset had taken place, it was found by him that the same stood actually executed and verified on 24th March, 1995, reproducing the actual recital in its respect there from, so that the assessee on that day owned two properties, i.e., the transferred property or the original asset, as well as the Shahpur property. Further, with reference to the assessee s computation of income, which carried a rent from another property located at Shahpur (bearing No.C/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Wealth-tax assessment u/s. 16(3) r. w. s. 17 of the Wealth-tax Act, 1956 on 24-3-1998 in response to the return of income filed on 12-1-1996, accepting the value thereof at the stated amount, i.e., ₹ 34,400,130 that the same was before the A.O. at the time of framing of the original assessment, i.e., 29-3-1996, and that therefore, there had been no failure on the part of the assessee to disclose fully and truly all material facts in relation to his income. Further, it was pointed out by him, on the basis of the arguments as advanced before him, that the relevant reasons, being found in the audit folder, it was an admitted position that the same emanated on the basis of the audit objection raised by the audit party, and which is not permissible in view of the judicial pronouncements, the principal among them being in the case of Indian and Eastern Newspaper Society Vs. CIT [(1979) 119 ITR 996 (SC)]. Further, it was pointed out by the learned CIT(A) that the value of the property(asset) under the Wealth-tax Act is to be computed under the provisions of that Act r.w. relevant Rules, so that it has no bearing on the it has no bearing on the value as adopted for the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order of the Tribunal wherein it is observed that, The observations of the learned CIT (A) with regard to the filing of the Wealth-tax return by the assessee, therefore, become redundant, in the matter; the reopening jurisdiction can be validly assumed even if there has been an omission on the part of the A.O. (as per the amended law), and further, the learned CIT (A) himself observing that the valuation under the Wealth-tax law is subject to a different valuation regime. What needs, therefore, to be seen is whether, the information brought to his notice, through the agency of the audit party, for which purpose the same exists, could lead to an honest, bonafide, and prima facie belief that there has been an over- statement of the Fair Market Value of the transferred property as at 1-4-1981, which the assessee adopts at ₹ 5,10,200. We consider it as so, considering that the same stand valued by the assessee, per the same valuer, as on 1-4-1991 at ₹ 34,400 whether the assessee was, in reassessment proceedings, able to successfully plead the value as adopted by him, or not, is irrelevant, and neither it is open for the Courts to go into the sufficiency of the reasons; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 32,40,212/- and ₹ 45,00,000/- totalling to ₹ 77,40,212/- as a Charitable Trust registered under section 12AA of the Act by the Commissioner of Income Tax. During the course of assessment proceedings the Assessing Officer had issued notice pursuant to which the petitioner had given its reply explaining as to why it was entitled to the said deductions. The Assessing Officer after considering the explanation given by the petitioner had passed a scrutiny assessment order under section 143(3) of the Act specifically allowing the above deductions. From the reasons recorded, it is evident that the Assessing Officer has not recorded any independent opinion regarding income having escaped assessment for the reasons stated therein. The sole ground for reopening the assessment appears to be the observations of the Revenue Audit Party that the assessee is not eligible for exemption to the tune of ₹ 77,40,212/- for the year under reference since, the Assessing Officer has not disallowed the exemption while finalizing the assessment under section 143(3) of the Act. Thus, it appears that the belief that income chargeable to tax escaped assessment is that of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in [2013] 354 ITR 536 (Del):- 13. Having regard to the judicial interpretation placed upon the expression reason to believe , and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words reason to believe have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it 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 words reason to believe vis- -vis Section 143(1) and Section 143(3). 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 expression when it is applied to the reopening of an assessment earlier made under Section 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, the ITA No.555/2012 Page 12 of 14 said expression should apply to an intimation in the same manner and subject to the same interpretation as it would have applied to an assessment made under section 143(3). The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be selfdefeating, because if an intimation is not an assessment then it can never be subjected to section 147 proceedings, for, that section covers only an assessment and we wonder if the revenue would be prepared to concede that position. It is nobody ‟ s case that an intimation cannot be subjected to section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression reason to believe cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11]335 ITR 234 (Guj). (vi) Aavkar Infrastructure Company v. Deputy Commissioner of Income-tax, Circle-9 reported in [2016] 67 taxmann.com 39 (Gujarat):- 7. A perusal of the reasons recorded shows that the Assessing Officer, in the assessment proceedings in relation to the assessment year 2011-12, noticed that the cost of construction claimed by the petitioner for the project in question was ₹ 4,662/- per square yard, which appeared to be less in comparison to other similar projects run by other assessees. He, therefore, made a reference to the DVO for determining the cost of construction of the project of the assessee and pursuant thereto, the DVO determined the cost of construction of the entire project of the assessee at ₹ 30,68,87,047/- as against ₹ 27,73,76,009/- as declared by the assessee. On the basis of the aforesaid report of the DVO, the Assessing Officer has noticed that in the return of income filed by the assessee for assessment year 2007-08, no expenses had been debited to the profit and loss account of the assessee and also in the balance sheet part of the return of income, no inventory or stock in process was seen. Accordingly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was that the Valuation Officer had determined the cost of construction at a higher rate than that shown by the assessee in its books of account. The reasons recorded did not reflect that the Assessing Officer had applied his mind to the facts of the case to ascertain as to whether in fact the assessee had expended more amount towards construction as stated in the valuation report. Reverting to the facts of the present case, the Assessing Officer, except for referring to the profit and loss account, which as noted hereinabove, would not reflect any profit as the assessee had not claimed any profit, and to the balance sheet part of the return of income, the Assessing Officer has made no effort to ascertain as to whether, in fact, the assessee has expended more amount than disclosed in the return of income. In the opinion of this court, while the report of the DVO may form the foundation for reopening the assessment, there must still be some reasons which warrant holding the belief that income chargeable to tax has escaped assessment so as to necessitate issuance of a notice under section 148 of the Act. The facts reveal that the entire basis for reopening the assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the decision of this Court, we find that it has been held that there must, nevertheless, be an independent examination of the materials collected by the audit party in its report and it is only thereafter that the AO must come to an independent conclusion that there was an escapement of income. 8. Insofar as the present case is concerned, there is nothing to suggest anything in the reasons or note recorded by the AO that there is an independent examination of the material collected by the audit party nor is there any independent conclusion arrived at by the AO. In fact, as noted above, the reasons itself do not make any reference to the objection of the audit but it is only the note that makes a reference and the note merely states a fact that an objection has been raised. There is nothing to suggest from the language of the note that the AO had applied his mind to the contents of the audit objection before issuing a notice under s. 148 of the Act. On the contrary, the note suggests that the notice was issued mechanically as a result of the audit objection. 9. Learned counsel for the assessee points out that all the facts were before the AO at the time when the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 7. What thus emerges from the above discussion is that the reasons on which the notice for reopening is issued lacks validity. Section 54E of the Act was neither applicable nor sought to be applied by the assessee. The question of denying any such claim under the said provision for breach of condition therein therefore simply did not arise. It is well settled that notice for reopening has to be sustained and supported only on the basis of reasons recorded by the assessing officer and not with the help of extraneous ground, material or possible improvement. Reference in this respect can be made to the decision of this Court in the case of Aayojan Developers vs. Income-tax Officer reported in [2011]335 ITR 234 (Guj) . 8. Under the circumstances, notice dated 25.3.2014 is quashed. Petition is allowed. Rule is made absolute. 5.2 In view of above, he contended that the order impugned is contrary to law and the same is required to be set aside. 6. On the other hand, Mr.Mehta, learned counsel for the revenue has taken us through the material on record and contended that in the present case on the basis of the audit report, case of the assessee is tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 foregoing proviso . In the present case, even from the account books and other evidence which the assessee had produced, even after due diligence, it was not possible for the Assessing Officer to discover these three vital facts. 35. In the case of Sri Krishna Pvt. Ltd. (supra), the Apex Court observed that obligation of the assessee is to disclose all material facts necessary for his assessment for that year fully and truly. It was further observed that the idea is to save the assessee from harassment resulting from mechanical reopening of reassessment. This protection avails only to those assessees who disclose all material facts truly and fully. 36. In the case of Phool Chand Bajrang Lal (supra), the Apex Court held as under: Where the transaction itself, on the basis of subsequent information was found to be a bogus transaction, mere disclosure of that transaction at the time of original proceedings could not be said to be a disclosure of true and full facts and officer would have jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two conditions must be satisfied [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] same occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year. (ii) Both the above conditions are conditionprecedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year. (iii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, re-opening notice must fail. (iv) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, it was a colourable exercise of jurisdiction and cannot be sustained in law. 11. In the result, the impugned notice dated 12th May,2004 issued under Section 148 of the Act (Annexure-A) is quashed and set aside. The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs. (iv) Assistant Commissioner of Income-Tax V. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 (SC):- Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe 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 fairne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation require reexamination since the question whether the asset for which the depreciation was claimed was put to use before 30th September of the year under consideration, and therefore, whether full depreciation at the specified rate during the year under consideration was allowable. (vi) V. Jagmohan Rao and Others v. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh reported in [1970] 75 ITR 373:- 5. The first question arising in this case is whether the proceeding under Section 34 is legally valid. It was contended by Mr. Narasaraju that the decision of the Privy Council could not be said to be definite information within the meaning of the section. It was said that the Income-tax Officer was fully aware of the circumstances of the case and the assessee had placed all the relevant facts before him, namely, that under the High Court's judgment the vendor was only entitled to one-third share of the income pending the decision of the appeal before the Privy Council. In our opinion there is no justification for this argument. It is not true to say that the assessee brought all the relevant facts before the Income-tax Officer. On the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income which was due to the assessee according to the judgment of the Madras High Court and there was escape only to the extent of two-thirds share of the income. This argument is not of much avail to the appellant because once proceedings under Section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Subsection (2) of Section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove 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. Merely an audit report, in our opinion, would not authorize the Assessing Officer to reopen the assessment even within the period of 4 years from the end of the relevant assessment year, when the said material was already before him when the original assessment was made. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. Therefore, in our view, the Assessing Officer cannot change his opinion, which he has already accepted in his assessment order. We are of the opinion that the Tribunal has committed an error in reversing the finding of CIT (A). Accordingly, we answer the question posed for our consideration in favour of the assessee and against the revenue and the Tribunal has committed an erro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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