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TMI Blog2021 (2) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... t Agreement with M/s. Sri Ram Properties Limited resulting in-complete inaction much less any commercial activity on the said property warranting assumption of income in the manner assessed in the impugned order. 3. The Learned Respondent equally overlooked all the glaring facts and submissions made by the appellant before the survey authorities and therefore the impugned orders are liable to be quashed on this ground alone. 4. The learned respondent further grossly erred in assuming income during the impugned period although the appellant had never accrued any income in view of complete inaction on the project. 5. The learned respondent further grossly erred in assuming the selling price absolutely without any basis and had arrived at an imaginary figure without any basis and therefore the impugned orders is liable to be set aside on this ground also. 6. The learned respondent also seriously erred in not considering the various statutory documents like granting of Khata on the property, releasing the original Joint Development Agreement by the Registering Authority, continuation of the litigation over the properties which are the subject matter of Joint Development Agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other survey u/s. 133A of the Income Tax Act, 1961 ('the Act') was conducted on 2.3.2015. During the course of survey, it was found that the assessee has entered into a Joint Development Agreement (JDA) on 14.5.2007 with M/s. Shriram Properties Limited, Chennai for construction of residential flats on the lands owned by the assessee measuring 12 Acres 32 Guntas situated at Singapura, Jalahalli East, Bengaluru. Vide the JDA the assessee transferred 10 Acres 27 Guntas to the developer. Subsequently, on 7.5.2009, the assessee transferred the balance 2 Acres 5 Guntas to the developer. As it was seen that the capital gains accruing from the sale/transfer of land was not offered to tax for both A.Ys 2008-09 and 2010-11. The assessments were reopened u/s. 147 of the Act by the issue of Notice u/s. 148 of the Act on 9.3.2015. The reasons recorded for reopening the case for Assessment Year 2008-09 are reproduced from the assessment order as under : " The assessee Sri K.V Naidu (PAN: ABMPN6059K) has filed his return of income for the A.Y. 2008-09 on 29.09.2008 declaring total income Rs. 1,85,85,160/- As per the records the returns has been processed u/s 143(1) and no scrutiny asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, the assessee is in appeal before us. 4. At the time of hearing, at the outset the learned Authorised Representative pressed upon the grounds relating to reopening of assessment by arguing the relevant Ground Nos.7, 8, 9 & 10. 4.1 The Ld. AR submitted that the assessee is challenging the reopening and consequential assessment order passed by the learned A.O. on the ground that the mandatory requirements for re-opening the assessment have not been complied with by the AO. It was submitted that there was no reason to believe that income has escaped assessment on the basis of the reasons recorded and that ; (a) There was only a reason to suspect that income has escaped assessment and there was no reason to believe that income has escaped assessment; (b) The re-opening of the assessment after 4 years was opposed to law since there was an earlier assessment u/s. 143[3] ; (c) No sanction u/s. 151 of the Act, has been obtained by the learned AO for issue of notice u is. 148 for re -opening the assessment; and 4.2 The Ld. AR submitted that in terms of section 147 of the Act, the assessment can be re-opened if the AO has the reason to believe that income escaped assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AO shows only a belief in the existence of reasons and nothing more. Therefore, it was submitted that there is absolutely no live-link between the reasons stated by the A.O. and the belief held by him that the income of the assessee had escaped assessment and hence, it was submitted that the reopening of the assessment is bad in law. 4.5 The Ld. AR placed reliance on the judgment of the Karnataka High court in the case of CIT Vs Thippa Shetty 322 ITR 525 and the unreported decision of the Karnataka High court in the case of CIT Vs Nagappa in Writ Appeal Number 928 of 1991. It was submitted that the single bench judgment of the Karnataka High Court in the case of A. Nagappa V. ACIT, wherein the reasons of the Assessing Officer, were elaborate, were reproduced, yet the High Court proceeded to quash the notice issued to the assessee under section 148 of the Act. According to the Ld. AR this Order was the subject matter of challenge at the instance of Revenue in W.A. No. 928/ 1991 before the Division Bench of the Karnataka High Court which held as under : "More than the AO's report which the learned judge characterized as evasive and speculative, it is the statement of rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that in terms of the proviso to section 147 of the Act, it has been laid down that no action shall be taken under this Section after the expiry of 4 years from the end of the relevant assessment year the income chargeable to tax has escaped assessment for the failure of the assessee to file returns of income or to disclose fully and truly all material facts necessary for his assessment for that assessment year. It was submitted that the period of 4 years from the end of the assessment year under appeal expired on 31/03/ 2014 and the AO issued a notice u/s. 148 of the Act, on 09/03/2015, which is after the period specified under the proviso to section 147 of the Act. 4.8 With the aforesaid background, the Ld. AR submitted that there is no allegation in the reasons recorded that the assessee has failed to disclose fully and trully all material facts necessary for the assessment year. Thus, according to the AO, the proviso to section 147 of the Act, bars re-opening of the assessment since the conditions permitting the reopening do not exist and the same is not the basis on which the assessment stands reopened. The Ld. AR placed reliance for this proposition on the ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l material particulars for making the assessment and hence, the re-opening of the assessment requires to be cancelled. 4.10 The Ld. AR submitted that for testing the validity of reopening of the assessment, the reasons recorded alone has to be looked into. The Ld. AR submitted that the reasons recorded have to be viewed as they are and they cannot be supported by reference to any extraneous materials. The reason recorded must either stand or fall on the reasons as recorded alone and nothing else. Reliance is placed on the decisions of Jamanalal Kabra reported in 69 ITR 461 (All.), Equitable investment Vs. CIT reported in 174 ITR 714 (Cal) and N.D. Bhat VS. IBM reported in 216 ITR 811 (Bom). In the case of Hindustan Lever Limited V.R.B. Wadkar vs. Assistant Commissioner of Income Tax, 268 ITR 332, the Bombay High Court in its decision at page 338 it has been held that: "It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be mode to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing 0fficer to disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income - tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, final its about orders made in judicial and quasi-judicial proceedings. lt is, therefore, essential that before such action is token the requirements of law should be satisfied". 4.12 In view of the above submissions, it was submitted that the impugned assessment order, after re-opening of assessment order is bad in law and since the AO has not passed a separate speaking order disposing of the objections taken by the assessee, the assessment order is to be cancelled. 5. The ld. DR submitted that the impugned assessment had been reopened on account of the survey findings that the assessee had entered into the two JDAs dt.14.5.2007 and 7.5.2009 and the income accruing to the assessee out of these JDAs had not been offered to tax and the assessee had not provided any documentary evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer of Attorney to the developer for this purpose. The ld. DR submitted that in such circumstances, it is apparent that possession was granted to the developer and accordingly the operation of section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act comes into play. She supported the orders of lower authorities. 6. We have heard both the parties and perused the material on record. In this case the original assessment was completed u/s. 143(3) of the Act on 26.03.2010 for the Assessment Year 2008-09. The reassessment notice was issued to the assessee on 9.3.2015. However it was mentioned in the reasons for reopening of assessment that the original assessment was completed u/s. 143(1) of the Act which is incorrect. At this stage, it is appropriate to mention the principles of law governing reassessment as below : (i) The Court should be guided by the reasons recorded for the reassessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of reassessment. To put it in other words, having regard to the entire scheme and the purpose of the Act, the validity of the assumption of jurisdiction under Section 147 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant assessment year, yet it would not be necessary for the Assessing Officer to show that there was any failure to disclose fully or truly all the material facts necessary for the assessment. (ix) The Assessing Officer, being a quasi judicial authority, is expected to arrive at a subjective satisfaction independently on an objective criteria. (x) While the report of the Investigation Wing might constitute the material, on the basis of which, the Assessing Officer forms the reasons to believe, the process of arriving at such satisfaction should not be a mere repetition of the report of the investigation. The reasons to believe must demonstrate some link between the tangible material and the formation of the belief or the reason to believe that the income has escaped assessment. (xi) Merely because certain materials which is otherwise tangible and enables the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment, formed part of the original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression "tangible material" does not mean the material alien to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to make the necessary inquiries. (xviii) The word "information" in Section 147 means instruction or knowledge derived from the external source concerning the facts or particulars or as to the law relating to a matter bearing on the assessment. An information anonymous is information from unknown authorship but nonetheless in a given case, it may constitute information and not less an information though anonymous. This is now a recognized and accepted source for detection of large scale tax evasion. The non-disclosure of the source of the information, by itself, may not reduce the credibility of the information. There may be good and substantial reasons for such anonymous disclosure, but the real thing to be looked into is the nature of the information disclosed, whether it is a mere gossip, suspicion or rumour. If it is none of these, but a discovery of fresh facts or of new and important matters not present at the time of the assessment, which appears to be credible to an honest and rational mind leading to a scrutiny of facts indicating incorrect allowance of the expense, such disclosure would constitute information as contemplated in clause (b) of Section 147. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments 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-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment. In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two conditions are required to be satisfied. The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; Such escapement occurred by reason of failure on the part of the assessee either to make a return of income under section 139 or in response to the notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all the material facts necessary for his assessment for that purpose. The power to assess or reassess income under section 147 of the I.T. Act cannot invoked routinely unless the following conditions are satisfied : (i) There should be `reasons to believe' that income has escaped assessment - "reason to believe cannot be change of opinion"; and (ii) AO is barred from taking any action under this section after the expiry of four years from the end of the relevant Assessment Year in the following cases: (a) Where an assessment under section 143(3) or 147 has already been concluded for the relevant assessment year; and (b) There is no failure fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High Court is as under:- "The Assessing Officer ought to have examined the question as to whether there were reasons for him to believe that the escapement was due to the failure on the part of the petitioner to make true and full disclosure of the income or not. In the event of arriving at such a belief that it was because of the petitioner's failure, he should have recorded the same in the order. That is the legal requirement. Only if the twin conditions, as laid down by the Supreme Court, are satisfied by way of recording reasons for both the conditions in the order, the Assessing Officer will get jurisdiction to issue notice under section 148 after the expiry of four years from the end of the relevant assessment year. Since the same had not been done the impugned notices were wholly without jurisdiction." In the light of the aforesaid reasoning and judicial pronouncements cited supra, we hold that the reassessment proceedings is bad in law and we quash the same. It is ordered accordingly. Since we have annulled the assessment, we are refrained to go into other grounds of appeal which are of only academic nature. The appeal of the assessee is allowed. 8. In the result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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