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TMI Blog2006 (1) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 1998-99 on the ground that income exigible to tax for the said year has escaped assessment. The facts giving rise to the filing of the petition may be summarized as under: The petitioner-company carries on business as an import agent. For the assessment year 1998-99, it had filed a return under section 139(1) of the Act and declared a loss of Rs. 2,96,44,790. It had, for that year, received interest-free advances/trade deposits from its principals to pay the import bills against letter of credit opened by the petitioner, at its own cost. These interest-free funds could, according to the petitioner, be used for any gainful activity till such time the same were utilised to meet the demand under the import bills. The petitioner claims to have utilised these funds in making short-term advances by way of inter-corporate deposits and had earned interest income on the same which income was, according to the petitioner, incidental to its business. The petitioner's further case is that it had, during the assessment proceedings, furnished details of all the expenses incurred by it including the import expenses comprising interest, foreign exchange fluctuation, rebate and disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of these facts, I have reason to believe that expenses of Rs. 16,55,50,292 require disallowance and the same has escaped the assessment in terms of clause (c) of Explanation 2 to section 147 of the Income-tax Act, the assessee has failed to disclose fully and truly all material facts necessary for assessment." By its letters dated April 25, 2005 and September 15, 2005, the petitioner objected to the initiation of reassessment proceedings, inter alia, on the ground that the reopening of the assessment was bad in law inasmuch as the proposed reassessment was based on a mere change of opinion. Respondent No. 1 rejected the said objection in terms of an order dated October 21, 2005, in which the respondent observed that the reassessment had become necessary as the assessee had failed to disclose fully and truly all the material facts necessary for the assessment which had resulted in escapement of income. Relying upon the decisions of the Supreme Court, the respondent held that a mere production of the evidence by the petitioner before the Income-tax Officer was not enough. The assessee was duty bound to bring to the notice of the assessing authority all material and relevant fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n passed by the Assessing Officer concerned after due and proper application of mind. It was further contended by Mr. Vohra that the proposed reassessment: in relation to the administrative and personal expenditure to the tune of Rs. 7,27,000 claimed by the petitioner was, in any case, impermissible in the light of the proviso to section 14A, which was, according to learned counsel, directly attracted to the case at hand and disabled the Assessing Officer from reassessing or enhancing the assessment or otherwise increasing the liability of the assessee under section 154 in any assessment year beginning on or before the 1st April, 2001. It was submitted that even assuming that expenditure of Rs. 7,27,000 was not allowable under section 14A, the proviso to the said provision would save any deductions allowed on that account for any assessment year prior to April 1, 2001. On behalf of the respondent, it was argued by Mr. Goel that the mere production of account books or other evidence relevant to the making of an assessment was not tantamount to disclosure within the meaning of section 147 of the Act. He urged that although the petitioner had given a reply to the questionnaire and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appealable before the Commissioner of Income-tax (Appeals) and then before the Tribunal in which appeals, the petitioner would be free to urge all contentions including the contention that the Assessing Officer had no reason to believe that any income chargeable to tax had escaped assessment. We have given our anxious consideration to the submissions made at the Bar and perused the record. Chapter XIV of the Act prescribes the procedure for assessment. While sections 139 to 145, inter alia, provide for filing of returns, issue of permanent account numbers, self-assessment, refund, inquiry before assessment, best judgment assessments and method of accounting, etc., section 147 deals with income escaping assessment. A careful reading of section 147 of the Act makes it clear that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, 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 in the course of the proceedings under the said provisions. The Assessing Officer can, while doing so, recompute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been under assessed; 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." The above would show that cases falling in clause (c) of Explanation 2 in which income chargeable to tax has been under assessed or assessed at too low a rate or cases in which income has been made the subject of excessive relief under the Act or where excessive loss or depreciation allowance or any other allowance under the Act has been computed, would constitute cases of income escaping assessment. There is considerable authority for the proposition that the jurisdiction of the Assessing Officer to initiate proceedings would depend upon whether he has reasons to believe that any income chargeable to tax has escaped assessment. A long string of decisions rendered by the Supreme Court have emphasized that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso. The action initiated by the respondent does not in that view suffer from any error of jurisdiction to warrant interference from this court in exercise of its writ jurisdiction. That brings us to the question whether the Assessing Officer had any reason to believe that income exigible to tax had escaped assessment. The contours of the court's review jurisdiction in such cases have been stated in a series of pronouncements to which we may briefly advert at this stage. In Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the apex court held that while it was the duty of the assessee to disclose all facts which had a bearing on the question, what inference should be drawn from the facts so disclosed was a matter to be examined by the Income-tax Officer. The court further held that the Income-tax Officer could issue a notice for reopening the assessment if he had reasons to believe that the income, profits or gains had been underassessed and that such underassessment was due to non-disclosure of material facts by the assessee. The court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to assess income which had escaped assessment." To the same effect is the decision of the Supreme Court in Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466 where the court observed: "It is true that if the Income-tax Officer had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realised by the assessee. It can be said that the Income-tax Officer if he had been diligent could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the Income-tax Officer truly and fully all material facts necessary for the purpose of assessment. The law casts a duty on the assessee to 'disclose fully and truly all material facts necessary for his assessment for that year'." In ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), the court held that grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and if he likes from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the Assessing Officer is not required to base his belief on any final adjudication of the matter." To the same effect is the view expressed by the same court in Gruh Finance Ltd. v. Joint CIT (Assessment) [2000] 243 ITR 482 (Guj) where the court held that if no conscious consideration of the material available on record is made and a mistake has been committed, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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