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TMI Blog2021 (7) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... .2014 was beyond the time limit prescribed under the Act and amendment to section 147 would not be applicable to the Appellant's case and therefore the re-assessment was not valid. 4. The CIT(A) has erred in not appreciating the fact that Assessing officer had merely relied upon the reasons recorded by predecessor without independently applying mind. 5. The CIT(A) has erred in not appreciating the grounds of the Appellant that Assessment under section 147 is liable to be quashed as the ingredients mentioned in section 147 have not been satisfied before assumption of jurisdiction and even at the time of conclusion of the assessment. 6. The CIT(A) failed to appreciate that the appellant had disclosed fully and truly all material facts necessary for assessment. 7. The CIT(A) erred in ignoring the statement given by the Appellant that he was not owning or operating any Bank Account with HSBC Bank, Geneva. 8. The CIT(A) failed to consider the fact that the document purported to be the evidence or the information forming the basis of the belief that income has escaped assessment, shown to the appellant was an unsigned document giving some bank account number and other personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1961 [the Act] wherein the assessee has stated that she was not owner nor operating any bank account with HSBC Bank, Geneva and therefore the transaction did not relate to him. However, addition was made in these assessment years towards the transactions in HSBC Bank, Geneva. Against this, the assessee carried the matter before the CIT(Appeals), who has confirmed the addition. Against this, the assessee is in appeals before us. 5. At the outset, the assessee argued that reopening of assessment in these assessment years is bad in law. He drew our attention to the reasons recorded for reopening of assessments which reads as under:- ""The assessee is a resident individual assessed to tax. The case has been notified to this Circle by the order of CIT-IV dated 06.12.2012. Based on the information received by the department, the assessee and his ex-wife Smt. Vandana Virwani were beneficiaries and authorised signatories of accounts maintained at HSC Bank, Geneva. The assessee has opened an account with M/s. HSBC Bank, Geneva on 04.10.2001 at HSBC Geneva by depositing an amount of USD 14149, the same has not been admitted as income in the return of income filed before the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year; (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation.-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision the period of limitation was extended to two years from the end of the assessment year. The amendment was made on 8th September, 1958, but was given effect to from 1st April, 1956. Since the time within which notice could be issued against a person deemed to be an agent of a non-resident was extended to two years from the end of the assessment year, it was contended on behalf of the Income-tax Officer that the notice issued by him was within the terms of the amended provision and was, therefore, a valid notice. Now the notice issued on 27th March, 1957, was clearly within a period of two years from the end of the assessment year 1954-55 and if the amended provision applied, the notice would be a valid notice. It was, however, held by this court that the notice was not a valid notice inasmuch as the right of the Income-tax Officer to reopen the assessment of the assessee under the unamended provision became barred on 31st March, 1956, and the amended provision did not operate against him so as to authorise the Income-tax Officer to commence proceedings for reopening the assessment of the assessee in a case where, before the amended provision came into force, the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion, therefore, is that sub-section (1) of section 150, as amended with effect from 1-4-1989, does not enable the authorities to reopen assessments, which have become final due to bar of limitation prior to 1-4-1989 and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law." * The larger Bench of Supreme Court in S.C. Prashar v. Vasantsen Dwarkadas Hungerford Investment Trust Ltd. (1963) 49 ITR 1 (SC) held as under:- "I now take up the second facet of the same question. On this aspect of the case both the learned single judge (Desai J.) and the appellate court (Chagla C.J. and Tendolkar J.) were agreed. The relevant assessment year was 1942-1943 and it ended on March 31, 1943. The period of four years therefrom would end on March 31, 1947, and the period of eight years would end on March 31, 1951. Now the second proviso to sub-section (3) came into effect, as I have state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, between the right of the Income-tax Officer and the remedy available to him. If the remedy is lost, the right is also lost and if the right is lost, much more so is the remedy. Therefore, I am clearly of the view that on April 30,1954, the Income-tax Officer had no jurisdiction to issue the notice which he did on the firm Purshottam Laxmidas under the second proviso to sub-section (3) of section 34, because the time limit fixed by sub-section (1) of section 34 had expired long before the said proviso came into effect and the proviso does not in express terms or by necessary implication revive a remedy which has been lost before April 1, 1952............ In all these cases the Privy Council proceeded on the principle that if the right of action had become barred according to the law of limitation in force, subsequent enlargement of the period of time does not revive the remedy to enforce the rights already barred. The same principle, in my opinion, would apply to the periods specified in section 34 of the Act and if the period prescribed for taking action had already expired, subsequent change in the law does not make it so retrospective in its effect as to revive the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,.......". The ld. AR submitted, therefore, notice u/s 142(1) can be issued only 'for the purpose of making assessment.' When the time-limit to initiate assessment proceedings itself is barred by limitation, it is trite to state that the notice u/s 142(1) issued purportedly for making assessment which is invalid in the eyes of law should also be held to be invalid. 13. It was further submitted that vide letter dated 26.09.2014 the ACIT, Circle-2(1), Bangalore has communicated the recorded reasons. The same has been extracted supra. Section 147 of the Act states that "if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income...." , Hence the basic requirement for initiating proceedings u/s. 147 is that the AO should have "reason to believe that nay income chargeable to tax has escaped assessment". 14. The ld. AR submitted that a perusal of the reasons recorded do not state what is the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court." 18. A three-Judge Bench of the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219 held as under:- "Again the expression "reason to believe" in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it different, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law (see Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged and recognized by law. A tangible and bona fide legal necessity to scuttle tax avoidance is the essence of the power and no roving enquiry on vague-hunches or indeterminate and impertinent consideration is envisaged." 21. The entire law as to what would constitute "reason to believe" was summed up by the Hon'ble Supreme Court in ITO v Lakhmani Mewal Das [1976] 103 ITR 437. The following principles were laid down:- (a) The powers of the Assessing Officer to reopen an assessment, though wide, are not plenary. (b) The words of the statute are "reason to believe" and not "reason to suspect". (c) The reopening of an assessment after the lapse of many years is a serious matter. Since the finality of a judicial or quasijudicial proceedings are sought to be disturbed, it is essential that before taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence. 22. The ld. AR submitted that the reasons to believe must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC), the Hon'ble Supreme Court held as under: "There should, in our opinion, be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact." 24. A Constitution Bench of the Hon'ble Supreme Court in M. Ct. Muthiah v. CIT AIR 1956 SC 269, considered the expressions "reason to believe" and distinguished the same from "reason to suspect" comparing the provisions with the un-amended provisions of section 34(1) of the Income-tax Act, 1922 and held that after amendment, the expressions "reason to believe" had to be based as a consequence of "definite information" which came into possession of the Revenue. However, there must be some material in possession of the Revenue on the basis of which an objective opinion can be formed that the person concerned has undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer must have "reason to believe" that income chargeable to tax has escaped assessment, is sound. It is true that no assessment order is passed when the return is merely processed under Section 143(1) and an intimation to that effect is sent to the assessee. However, it has been recognised by the Supreme Court itself in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P). Ltd. [2007] 291 ITR 500/ 161 Taxman 316, a decision that was relied upon by the revenue, that even where proceedings under Section 147 are sought to be taken with reference to an intimation framed earlier under Section 143(1), the ingredients of Section 147 have to be fulfilled; the ingredient is that there should exist "reason to believe" that income chargeable to tax has escaped assessment. This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under Section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the Section. ..............There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show "reason to believe". The fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 u/s. 143(3) cannot apply where only an intimation was issued earlier u/s. 143(1). It would in effect place an assessee in whose case the return was processed u/s. 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax has escaped assessment. Clause (b) deals with a situation "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return." For the purpose of clause (b) to Explanation (2), the Assessing Officer must notice that the assessee has understated his income or has claimed excessive loss, deduction, allowance or relief in the return. The taking of such notice must be consistent with the provisions of the applicable law. The act of taking notice cannot be at the arbitrary whim or caprice of the Assessing Officer and must be based on a reasonable foundation. The sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua non for a valid exercise of power. In the present case, having regard to the law laid down by the Supreme Court it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment. The reasons which have been recorded could never have led a prudent person to form an opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. The belief must be held in good faith, it cannot merely be pretence. In addition, suspicion, gossip or rumour would not form the basis for such belief." 32. In Rambagh Palace Hotels Pvt Ltd Vs DCIT 2013-TIOL-45-HC-DELIT, the Hon'ble Delhi High Court held as under:- "Even so, it is necessary that the assessing officer must have "reasons to believe" that income chargeable to tax had escaped assessment. There must be tangible material before him on the basis of which he could form the belief, bona fide and in good faith, that there was escapement of income. The material must have a live link or nexus with the formation of the belief. The belief cannot be a mere pretence. These are the most basic and indispensable requirements for the validity of the notice under Section 148" 33. The Third Member in M/s. Telco Dadajee Dhackjee Ltd. Vs. The DCIT, Circle 2(3) 2012-TIOL-532-ITAT-MUM-TM held as under:- "section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that the reassessment notice issued under section 148 in a case where the original assessment was made under section 143(1) cannot be challenged on the ground of a mere ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer must have reason to believe that income chargeable to tax has escaped assessment. He also has to record reasons under section 148(2) for reopening the earlier assessment made under section 143(1). All that has been excluded is that the assessee, in whose case the return was first processed under section 143(1), cannot challenge the notice of reopening on the ground that it is prompted by a mere change of opinion. Only to this limited extent there is a disability on the part of the assessee to challenge the notice of reopening in a case where his return was earlier processed under section 143(1) of the Act. .................the notice of reopening issued in a case where the return was first processed under section 143(1) is open to challenge on all grounds available to the assessee, including the ground that there was no reason to believe that income chargeable to tax had escaped assessment or that the materials before the Assessing Officer had no live link or nexus with the formation of such belief or that the reasons are based on gossip or rumour or were a mere pretence. This is made clear by the observations of the Court at page 512 of the report where it was held that "so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the CIT would be invalid [CIT v. T. R. Rajkumari [1973] 96 ITR 78 (Mad.): TC 51R 430].The requisite belief u/s. 147 must be that of the ITO concerned and not of any other officer. If the ITO does not form, his own belief but merely act at the behest of any superior authority, it must be held that the assumption of jurisdiction under section 148 was bad for nonsatisfaction of the conditions precedent [Sheo Narain Jaswal & Ors. v. ITO & Ors. [1989] 176 ITR 352 (Pat.); TC 51R 432.. See also Vishal Swamp Agrawilla v. ITO [1976] CTR (Cal.) 296: TC 51R 432A and Chunnilal Onkarmal (Pvt) Ltd., (1983) 349 ITR 380 (MP): TC 51R 435]'.......................... The reasons for reopening must be recorded by jurisdictional AO because he is keeping all relevant and primary record. The basic requirement of section 147 of the Act is that the AO has reason to believe that any income chargeable to tax has escaped assessment. Such belief must be the belief of jurisdictional AO and not any other AO or authority of the department. Therefore, it is well settled that the AO's jurisdiction to reopen an assessment u/s. 147 depends upon the issuance of a valid notice. If the notice issued by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now sell-settled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352/ 45 Taxman 213 (Pat.), it was held: "Where the Assessing Officer does not himself exercise his jurisdiction under Section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent." 39. 9. The Apex Court in the case of AnirudhSinhji KaranSinhji Jadeja v. State of Gujarat [1995] 5 SCC 302 has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether. 40. The Hon'ble High Court in Mrs.Vinita Jain v. ITO 158 Taxman Magazine 167 held that where Assessing Officer reopened assessee's assessment merely because DDIT (Inv.) believed that transaction of capital gains shown by assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported in 313 ITR 231 (supra) whereby the High Court held that initiation of reassessment proceedings based upon the opinion of the Assessing Officer of the lessor at Mumbai was "borrowed satisfaction" and was not sufficient reason to believe that income had escaped assessment proceedings under section 147 has been dismissed. [CIT v. Shree Rajasthan Syntex Ltd. [2009] 313 ITR (Statutes) 27] 44. The Hon'ble Mumbai High Court in ICICI Home Finance Co Ltd Vs ACIT, Mumbai 2012-TIOL-590-HC-MUM-IT held as under:- "The belief u/s 147 that income has escaped assessment has to be the reasonable belief of the AO himself and cannot be an opinion and/or belief of some other authority. The AO cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief that income has escaped assessment. On facts, the recorded reasons are identical to the objection of the audit authority. The reasons do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the AO before he issued the s. 148 notice (India Eastern Newspaper Socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Ltd. v. R.B. Wadkar 268 ITR 332 = (2004- TIOL-72-HC-MUM-IT), the reasons for reopening as recorded must be clear and not suffer from any vagueness so to keep the assessee guessing for the reasons. It is the reasons which provide the link between the evidence and the conclusion. In this case the reasons as recorded do suffer from the vice of vagueness." 49. As regards, the transaction of USD $ 14149 based on which the reassessment proceedings are initiated, it was submitted that the same has already been assessed in AY 2003-04 reassessment proceedings and the same cannot be considered in the relevant AY of 2002-03. 50. On the basis of the above submissions, the ld. AR submitted that that the reassessment proceedings may be quashed. 51. On the other hand, the ld. DR submitted that reopening of assessment is within the time limit. Further, he submitted that unaccounted money was deposited into HSBC Bank, Geneva and these facts came to the knowledge of AO. After recording due reasons, the AO reopened the assessment to bring the escaped income to tax and the assessee being the beneficial owner of HSBC Bank, there is very good reason to believe that income has escaped assessment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eve that there was income which has escaped assessment. 56. In the present case, the AO simply relied upon the information received by him and stated that the investment in assessee's joint account with his ex-wife, Ms. Vandana Virwani with HSBC Bank which has not been disclosed in the return of income filed by the assessee is the income which escaped assessment in the hands of assessee. It clearly shows that AO simply acted upon the information and did not apply his own mind to the information to arrive at a belief independently that on the basis of material before him to come to the conclusion that income has escaped assessment. Further, it is to be noted that it is a joint account of assessee with his ex-wife, Ms. Vandana Virwani with HSBC Bank, Geneva and the assessee solely cannot be considered as owner of the account so as to bring the entire transaction in that account in the hands of the assessee. 57. Further the transaction with HSBC Bank led to the conclusion of the AO that this investment was unexplained and the AO has not brought on record any material with respect to this conclusion that this deposit was unexplained. It was only a doubt, but not a reason to believe m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. Had the revenue made protective assessment in the case of 'G', then it could have taken action against the assessee. Thus, the basic requirement for reopening the assessment that the Assessing Officer should have reason to believe that income has escaped assessment, was not satisfied in this case. Hence, the Commissioner (Appeals) was justified in holding that the assessment could not be reopened for making protective addition. [Para 2.6] In view of the above discussion, it was to be held that the Commissioner (Appeals) was justified in cancelling the assessment in the hands of the assessee. [Para 2.8] In the result, the appeal filed by the revenue was to be dismissed." 59. In the present case also, first of all, the AO is not sure whether income has to be assessed in the hands of assessee or his ex-wife, Ms. Vandana Virwani. Next, he was not sure in which assessment year it has to be taxed, whether AY 2002-03 or 2003-04. In addition, he is not sure who is the exact owner of this bank account. 60. Further, the HSBC bank account is a joint account with assessee's ex-wife. It does not lead to the conclusion that the assessee is the sole owner and beneficial of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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