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TMI Blog2018 (10) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the first holder, namely, the appellant, we find that the A.O., in view of these observations of the ITAT, clearly had reason to believe that the income of the appellant with reference to these three investments had escaped assessment. - INCOME TAX APPEAL (IT) NO. 2517 OF 2018 - - - Dated:- 25-10-2018 - S. C. DHARMADHIKARI B.P. COLABAWALLA, JJ. Mr. S. Ganesh, Sr. Advocate a/w Mr Nishant Thakkar, Ms Jasmin Amalsadvala I/b PDS Legal for the appellant. Mr. Suresh Kumar for the Respondent. JUDGMENT [ PER B. P. COLABAWALLA J. ]: 1. This appeal is filed under Section 260A of the Income Tax Act, 1961 (for short the I.T.Act, 1961 ) taking exception to the Judgment and Order dated 27th March, 2018 passed by the D Bench of the Income Tax Appellate Tribunal, Mumbai (for short the ITAT ), whereby the ITAT dismissed the appeal of the appellant and upheld the exercise of power by the Assessing Officer (for short A.O. ) under Section 147 of the I.T.Act, 1961 for the Assessment Year (for short A.Y. ) 2007-08. According to the appellant, though the reasons recorded by the respondent revenue, for invoking Section 147 of the I.T. Act, 1961 did not contain any ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, if any addition is to be made in respect to the same, they should be made in the hands of his mother (the appelllant herein) and not in his hands. This argument of Shri S. Ganesh was accepted by the ITAT in the appeal filed by him. In paragraph 14 of the ITAT order dated 16th November, 2012, the ITAT categorically recorded that considering the facts of the case as discussed therein, the ITAT was of the considered view that there was force in the submission of Mr S. Ganesh that the investments in respect of which he was the second holder and his mother was the first holder, the addition, if any, should have been made on account of unexplained investment in the hands of his mother (the appellant herein) and not in the hands of Mr S. Ganesh. Accordingly, the ITAT held that there was no justification for making the addition of ₹ 29,50,000/- in Birla Mutual Fund, and ₹ 64 Lacs and ₹ 50 Lacs respectively in Standard Chartered Mutual Fund in the hands of Mr S. Ganesh as he was the second holder along with his mother who was the first holder. 3. Considering the above facts and the observations of the ITAT in the case of Mr S. Ganesh, the assessment was re-opene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments amounting to ₹ 93 Lacs for the financial year 2006-07 (A.Y. 2007-08). This fact, by itself, cannot possibly give the A.O. reason to believe that the income had escaped assessment in view of the fact that the appellant had a large amount of tax free income through dividends from Mutual Funds. 6. The A.O., after considering these submissions, observed that the appellant had not declared her income in the return as required under Section 139(1) of the I.T.Act, 1961. The exempted income was not disclosed in the said return. He, therefore, concluded that reopening of the assessment was on a sound basis and he confirmed that income had escaped assessment. The A.O. further observed that the finding in the order of the ITAT dated 16th November, 2012 (which was passed in the case of Mr. S. Ganesh, the son of the appellant) was clearly in the nature of the material required for formation of reasonable belief that income had escaped assessment. The A.O. was, therefore, of the opinion that he had reason to believe that income of the appellant had escaped assessment as the appellant had never filed the return of income disclosing her income from the mutual funds for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment. The reasoning given by the ITAT can be found in paragraph 9 of this order which reads thus: 9 We have heard both the parties and perused the material available on record. The AO reopened the assessment u/s 147 on the basis of information received in the form of observation of ITAT, in the proceedings of assessee's son, Shri S Ganesh wherein on the basis of assessee's son's submission it was observed that if at all any addition towards investment in mutual funds of Birla Mutual Funds and Standard Chartered Mutual Funds amounting to ₹ 93.53 Lakhs can be made in the hands of assessee's mother, but not in the hands of assessee as the said investments in mutual funds has been made in the joint name of Shri S. Ganesh, son of the assessee and assessee being the first holder of units of mutual funds. The AO on the basis of observations of the ITAT, opined that income chargeable to tax had been escaped assessment within the meaning of section 147 of the Act, as the assessee has not filed her return of income u/s 139 to explain source of investment. The AO has formed reasonable belief of escapement of income which is based on observations of ITAT, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's mother (the appellant herein) was the first holder, the addition, if any, should have been made on account of the unexplained investments in her hands and not in the hands of Mr S. Ganesh. He submitted that it is in view of this observation that the A.O. came to the conclusion that he had reason to believe that the income amounting to ₹ 1,43,50,000/- had escaped assessment within the meaning of clause (b) of explanation (2) to Section 147 of the I.T.Act, 1961. Learned Senior Counsel submitted that in fact, the ITAT had not made any such observation and in any event hadn t given any such finding as recorded by the A.O. in his reasons for reopening the assessment. He therefore submitted that the so called reason to believe was completely misconstrued. He submitted that the basis on which the assessment was reopened itself was not present, and therefore, there was no justification for issuing the notice under Section 148 of the I.T.Act, 1961. As a consequence, learned Senior Counsel submitted that, therefore, the authorities below had clearly gone wrong in allowing the notice to stand and thereafter making the addition on merits. Learned Senior Counsel submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umar also submitted that the Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) has correctly held that the word reason in the phrase reason to believe would mean cause or justification. If the A.O. has cause or justification to know or suppose that income had escaped assessment, it can be said that he had reason to believe that income had escaped assessment. This expression cannot be read to mean that the A.O. should have finally ascertained the fact of escapement by legal evidence or conclusion. He submitted that the function of the A.O. is to administer the statute with solicitude for the public exchequer with an in-built idea of fairness to taxpayers. He submitted that for initiation of action under Section 147 of the I.T.Act, 1961, the A.O. had to only satisfy himself that there was reason to believe that the income had escaped assessment. At that stage the final outcome of the proceedings was not relevant. In other words, Mr Suresh Kumar submitted that at the initial stage what was required is to reason to believe but not the established fact of escapement of income. He submitted that in the facts of the present case, and in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck Brokers P.Ltd. (supra), we do not think that the findings given by the authorities below on this issue suffer from any perversity or error apparent on the face of the record that would require our interference under Section 260A of the I.T.Act, 1961. As held by the Supreme Court in the aforesaid decision, there is reason to believe would mean cause or justification. If the A.O. had cause or justification to know or suppose that the income had escaped assessment, it can be said that he had reason to believe that the income had escaped assessment. It is the subjective satisfaction of the A.O. that has to seen and whether that satisfaction suffers from any perversity. In the facts of the present case and especially considering the argument canvassed by the appellant s own son in his own proceedings, we are clearly of the view that the A.O. had cause or justification, and hence reason to believe that the income of the appellant had escaped assessment. 13. We find that the reliance placed by the learned Senior Counsel on a decision of this Court in the case of Maniben Valji Shah (supra) is wholly misconceived. In the facts of that case, this Court inter alia held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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