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TMI Blog2013 (4) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer issued a notice on 19th February 2010 informing the appellant that its income for the assessment year in question had escaped the assessment and he proposed to reopen the assessment, on following the due procedure. 2.2 It appears that due to change of the incumbent, fresh notice under Section 143 (2) of the Act was issued on 14th June 2010. A further notice under Section 142 (1) of the Act was also issued on 19th July 2010. 2.3 In response to such notices, a duly authorized Chartered Accountant of the assessee attended and furnished requisite details which were called for. The Assessing Officer computed the income of the assessee at ₹ 91,70,111/- and the copy of such assessment order dated 30th November 2010 was served upon the appellant. 3. Being aggrieved by such order of the Assessing Officer, an appeal was preferred before the CIT [A] challenging the validity of initiation of the reopening proceedings. The Assessing Officer, had made addition of ₹ 20,11,251/-,being the expenditure towards freight charges and ₹ 7,57,852/- on account of non-deduction of TDS on clearing and forwarding charges. The grounds raised before the CIT [A] was that the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further held that the freight charges and forwarding & clearing charges need to be deducted at sources under Section 194C of the Act and unless evidence is adduced to indicate that the tax had been deducted at source in accordance with law, the expenditure incurred on account of such charges are liable to be disallowed under Section 40[A](ia) of the Act. If such aspect had escaped attention of the Assessing Officer and later on, when he gets satisfied, his belief cannot be said to be not bona fide. At the stage of reopening the assessment, he is not to say whether the material available with him would conclusively prove the escapement of the income. There has to be sufficient material available with him to form requisite belief, once he is subjectively satisfied at the time of initiation of the proceedings under Section 147 of the Act, all the requirement under the law are duly fulfilled. The Tribunal also relied on the judgment of the Supreme Court rendered in case of ACIT v. Rajesh Jhaveri Stock Brokers P. Limited, reported in 291 ITR 500 (SC) to hold that the Assessing Officer was justified in issuing the notice impugned. 4.2 The Tribunal also noted that the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Company Limited v. ITO [(1991) 191 ITR 662], for initiation of action under Section 147 (a) [as the provision stood at the relevant time] fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and no scrutiny assessment is undertaken and in such a case, there would be no change of opinion. However, such reassessment proceedings would be invalid in case the assessment order itself records that the issue was raised and decided in favour of the assessee. Even if the query or issue is raised and answered by the assessee in original assessment proceedings, but, the Assessing Officer does not make any addition nor explicitly make rejection in the assessment order, in such a situation, it is held by the Delhi High Court that the issue should be held to have been examined by the Assessing Officer and thereby he can be said to have formed an opinion. In other words, even if the Assessing Officer on having raised the query and despite the receipt of answer when chooses not to give finding of acceptance or rejection in scrutiny assessment, the reopening would be invalid, if based on the very material facts which were available with Assessing Officer. "The Court held that, ....the expression change of opinion postulates formation of opinion and then a change thereof. In the context of assessment proceedings, it means formation of belief by an Assessing Officer result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations, it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had no recorded his reasons." 8. It would be profitable to reproduce the principles deducted by the Andhra Pradesh High Court in case of GVK Gautami Power Limited v. Assistant Commissioner of Income-Tax [OSD] & Anr., reported in [(2011) 336 ITR 451] on the question of principles governing exercise of jurisdiction to reopen the assessment and the scope of Sections 147 & 148 of the Act. (i) In section 147 of the Act, with effect from April 1, 1989, the twin conditions of the pre-amended section 147 were given a go-by, and only one condition remained viz., where the Assessing Officer had reason to believe that income has escaped assessment (Kelvinator of India Limited [2010] 320 ITR 561 (SC). (ii) Post April 1, 1989, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 147 are stronger than the words is satisfied [Ganga Saran & Sons P. Limited [(1981) 130 ITR 1 (SC)]. (xi) These words suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. The Income-tax officer may act on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief, that the conditions are satisfied, do not exist or is not material or relevant to the belief required by the section [Sheo Nath Singh [1971] 182 ITR 147 (SC); [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)]. (xii) The belief entertained by the Income-tax Officer must not be arbitrary or irrational [Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)]. (xiii) The expression reason to believe cannot be read to mean that the Assessing Officer should have finally ascertained the fact of escapement of income by legal evidence or conclusion [Central Provinces Manganese Ore Company Limited [(1991) 191 ITR 622 (SC) and Rajesh Jhaveri [2007] 291 ITR 500 (SC)]. x x x x (xxvi) It is for the assessee to establish that there existed no belief or that the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993] 203 ITR 456 (SC) and Ganga Saran and Sons P. Limited [1981] 130 ITR 1 (SC)]. (xxxiii) Even if the reasons furnished by the Income-tax Officer to the assessee does not, ex facie, disclose his satisfaction of the basic facts essential for the exercise of jurisdiction under section 147 of the Act, the court can look into the records, produced before it, to ascertain whether there was relevant material which led the Income-tax Officer to arrive at his satisfaction that income has escaped assessment [Biju Patnaik (1991) 188 ITR 247 (SC)]. (xxxiv) Even if nothing relevant is disclosed an opportunity may be given to the Revenue to produce the records to find out whether the Income-tax Officer had any reason to believe that income had escaped assessment [Calcutta Discount Co. Limited [1961] 41 ITR 1291 (SC); Sheo Nath Singh [1971] 82 ITR 147 (SC); [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)]. 9. The Apex Court in case of Kalyan Mavji & Company v. CIT, West Bengal-II [Supra] was examining the question of reopening of assessment which was based on subsequent facts as also on the materials of the original assessment revealed by careful and closure investigation. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions and fulfillment of the said conditons alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (w.e.f April 1, 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 reopen the assessment. Therefore, post April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words, reasons to believe failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilmentof certain pre conditions and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The Assessing Officer in the reasons recorded prior to issuance of the notice gave following reasons, while arising at reasonable belief that the income chargeable to tax has escaped assessment in case of the petitioner assessee :- "As per section 40(a)(ia) of the IT Act 1961 [effective from A.Y 2005-06) any interest, commission or brokerage, fees or any amount payable to resident contractor or sub-contractor for carrying out any work (including labour supply) on which tax is deductible at source under chaper XVII B and such tax has not been deducted or after deduction has not paid into central Government s account during the previous year or in subsequent year before expiry of the time prescribed under Section 200 (1), will not be allowed for computing the income chargeable under the head profits and gains of the business or profession . A company engaged in the business of manufacturing of artificial leather and PVC cloth filed, its return for A.Y 2005-06 on 25/10/2005 declaring total income of ₹ 6352120/-, assessment of which was completed after scrutiny in December 2007 determining income of ₹ 6401008/-. Scrutiny of assessment records revealed that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections raised in respect of initiation of proceedings. During the course of re-assessment, it called for the details of documentary evidence in respect of TDS deducted on freight charges and on clearing & forwarding charges and on holding that the assessee had failed to fulfill its liability on TDS deduction; as required under Section 40 A[ia] of the Act, it added back a sum of ₹ 27,69,103/- to the total income of the assessee. 14. CIT [A], as noted hereinabove, held in favour of the assessee respondent by holding that the primary condition of re-opening was not satisfied by the Assessing Officer and therefore, he did not acquire the jurisdiction to reopen. It held that the Assessing Officer had no knowledge of the quantum of such default when he wrote the reasons to reopen. It was on the basis of probably a default in making TDS in the payment of freight and clearing & forwarding charges, he had formed a belief and such extremely small probability, according to the CIT [A], cannot form a reason to form any belief that the income had escaped assessment. It also noted that the audit objection was one of the grounds on which the Assessing Officer had proceeded the reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income. 19. In such circumstances, it cannot be held that the assessment proceedings initiated within a period of four years from the end of the relevant assessment year by the Assessing Officer are on the basis of change of opinion. The tangible material or the material facts having proximate connection to the issue of reopening either could be available from the record of the original assessment or from an investigation of the material on record, or the facts disclosed thereby, or from other inquiry or research into the facts. The Assessing Officer formed its opinion being satisfied from the details available on record and while applying the legal provisions when it found absence of material leading to escapement of income, it was well within its right to reopen the proceedings. 19.1 As on neither of these expenses, the Assessing Officer had formed any opinion in absence of any details available in respect of deduction of TDS, it cannot be said that the Assessing Officer could be presumed to have formed his opinion without even his reflection of such aspect in the final assessment made by him. 19.2 Moreover, at the stage of notice, when the relevant material brought on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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