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TMI Blog2022 (5) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... son to believe recorded by the assessing officer was neither bonafide nor based upon reasonable ground. It was based on vague feeling that there might have been some escapement of income from assessment. Therefore, reason to believe recorded by the Assessing Officer could not give jurisdiction to the assessing officer to issue notice u/s 148. The stand taken by the respondents in the counter affidavit dated 25.04.2022 reveals that the case of the petitioner was selected for reassessment under Section 147/148 on the basis of CBDT Circular dated 04.03.2021 being potential case for taking action under Section 148 - AO has blindly applied the aforesaid Circular of the CBDT, without looking into the facts of the present case and in complete ignorance of the direction of the CBDT in paragraph 3 of the said Circular. In paragraph 3 of aforesaid Circular the CBDT has clarified that action under Section 148 of the Act shall be taken by the assessing Officer in respect of the specified categories of cases after forming a reasonable belief that income chargeable to tax has escaped assessment. Thus reason to believe recorded by the AO for issuing the impugned notice under section 148 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iny and notice under section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act, 1961 ) was issued on 13.08.2018 which was followed by notices under Section 142(1) of the Act, 1961. A show cause notice dated 07.12.2019 was also issued to the petitioner and the petitioner submitted entire details as required by the assessing officer. 4. Vide notice dated 23.11.2019 under Section 142(1) of the Act, 1961 issued during the course of regular assessment proceedings, the assessing officer required the petitioner to furnish reply on several points and also required him to furnish entire details of all the accounts maintained with the Bank/Post Office/Financial Institutions and the cash deposited by him in the Bank during the demonetization period. Every details with regard to cash deposit were also required to be furnished. The petitioner furnished the entire details which were examined by the assessing authority. After thorough scrutiny of the case, the assessment order under Section 143(3) of the Income Tax Act, 1961 was passed on 25.12.2019 by the assessing officer, assessing the petitioner's total income at Rs. 44,74,620/-. He made an addition of Rs. 2,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act, 1961-regarding. 1. The Central Board of Direct Taxes (Board), in exercise of its power under section 119 of the Income Tax Act, 1961 (Act), with an objective of streamlining the process of selection of cases for issue of notice under section 148 of the Act, hereby directs that the following categories of cases be considered as 'potential cases' for taking action under section 148 of the Act by 31.03.2021 for the A.Y. 2013-14 to A.Y. 2017-18 by the jurisdiction Assessing Officer (JAO): i. Cases where there are Audit Objection (Revenue/Internal) which require section under section 148 of the Act; ii.Cases of information from any other Government Agency/Law Enforcement Agency which require action under section 148 of the Act; iii. Potential cases including:- (a) Reports of Directorate of Income -tax (Investigation), (b) Reports of Directorate of Intelligence Criminal Investigation. (c) Cases from Non-Filer Management System (NMS) other cases as flagged by the Directorateof Income -tax (System) as per risk profiling; iv. Cases where information arising out of field survey section, regarding action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause, were found not verifiable and acceptable to justify the genuineness of transactions. Notice u/s 133(6) of the I.T. Act, dated 09.02.2021 issued for same amount of Rs. 1,05,00,000/- from department. In notice u/s 133(6), it is seen that in notice 133(6), details have been sought regarding source of cash deposits in SBN Notes, amounting to Rs. 1,05,00,000/- in bank accounts during the period 08.11.2016 to 31.03.2017. Period mention in notice u/s 133(6) is specific, not for period 01.04.2016 to 31.03.2017 (for F.Y. 2016-17). Once again, it has stated that the submission/documentary evidences filed by the assessee, were found not verifiable and acceptable to justify the genuineness of transactions. Subject to the above remarks, the amount of Rs. 38,83,000/- is added as undisclosed income and the assessment is completed u/s147 r.w.s. 144B of IT Act, 1961 after adding Rs. 38,83,000/- as undisclosed income. 13. The first question that needs to be considered in the present writ petition is as to whether reason to believe recorded by the assessing officer was totally unfounded and whether it was based on change of opinion . Reason to Belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. In case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the change of opinion and the material present before the assessing Authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to reinitiate proceedings under Section 21(1) of the Act on the basis of change in subjective opinion (CIT v. Dinesh Chandra H. Shah, (1972) 3 SCC 231; CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC 360). (emphasis supplied) 15. In the case of The Commissioner of Sales-Tax U.P. vs. M/s. Bhagwan Industries (P) Ltd., Lucknow, AIR 1973 SC 370 (Paras 9 10), Hon ble Supreme Court has held as under: 9. The controversy between the parties has centered on the point as to whether the assessing authority in the present case had reason to believe that any part of the turnover of the respondent had escaped assessment to tax for the assessment year 1957-58. Question in the circumstances arises as to what is the import of the words reason to believe , as used in the section. In our opinion, these words convey that there must be some rational basis fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is settled principles of law that proceedings under Section 21 of the Act, 1948 can be initiated if the material on which the Assessing Authority bases its opinion, is not arbitrary, irrational, vague, distant or irrelevant. There must be some rational basis for the assessing authority to form the belief that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. If such a basis exists, the assessing authority can proceed in the manner laid down in Section 21 of the Act, 1948. If the grounds are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or not is not a matter which would be gone into by the High Court for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. The question as to whether that material in sufficient for making assessment or re-assessment under section 21 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words definite information which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. 12. The powers of the Income-tax Officer to reopen assessment though wide are not plenary. The words of the statute are reason to believe and not reason to suspect . The reopening of the assessment after the lapse of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 147 (a) are has reason to believe and these words are stronger than the words is satisfied . The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income Tax Officer in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147 (a). It there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax, Delhi vs. Kelvinator of India Ltd. (2010) 320 ITR 561(SC) wherein this Court has held as under: (SCC p.725, para 5-7) 5 .where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4- 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe .. Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. 6. 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 fulfillment of certain precondition 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. 7. 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 1-4-1989, Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e formation of the belief must be based on tangile material and must be based on a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular assessment year. In other words, such material on which the assessing Authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. If the grounds for formation of reason to believe are of an extraneous character, the same would not warrant initiation of proceedings under Section 147 of the Act, 1961. (c) If, there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of income of the assessee has escaped assessment, it can take action under Section 147 of the Act, 1961. If the grounds taken for initiating reassessment proceedings under Section 147 of the Act, 1961 are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as accepted by the assessing officer. 25. After the assessing officer had earlier made assessment for the same assessment year and accepted the explanation of the petitioner regarding cash deposits in bank, reassessment proceedings for the alleged escapement of the income from assessment to tax on the ground of cash deposits in bank which were earlier considered by the assessing officer in regular assessment proceedings, would amount to change of opinion . Since the assessing officer, during the course of the regular assessment proceedings, consciously applied his mind to the cash deposits in bank by the petitioner, then initiation of the reassessment proceedings on the same set of facts would tantamount to change of opinion . Therefore, the assessing officer could not assume jurisdiction to initiate reassessment proceeding in the facts and circumstances of the present case. 26. Apart from above, reason to believe recorded by the assessing officer was neither bonafide nor based upon reasonable ground. It was based on vague feeling that there might have been some escapement of income from assessment. Therefore, reason to believe recorded by the Assessing Officer could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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