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TMI Blog2022 (11) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars. The notice records mechanically that the ITO had reasons to believe that income chargeable to tax has escaped assessment. In other words, there is no reference to any new and tangible material forming the basis for the above belief about escapement of income from tax. In short, the same material already available on record was re-examined by the ITO to come to the conclusion that there was an escapement of income. Notwithstanding the explanation to Section 147 of the Act that production of books of accounts by itself will not amount to a full disclosure, the reasons communicated should still have to indicate that there was a failure to make a full disclosure although the accounts were produced before the AO. In the instant case, there is no such statement anywhere on the record, which could have formed the basis for the belief of the ITO that income had escaped assessment. In the present case, it appears that the reopening of the assessment was based on the same material already available before the AO and without any noting, at the time of reopening of the assessment that there was a failure on the part of the assessee to make a full and true disclosure of all materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons. On 26th July 2021, the ITO communicated the reasons again saying that the Assessee had booked a sum of Rs.55,95,700/- as vehicle expenses and hire charges without deducting TDS on the hiring charges paid to the service provider. 6. However, the approval by the Principal Commissioner of Income Tax, Sambalpur-Opposite Party No.4 (PCIT) to the reopening appeared to be dated 26th March, 2021. Accordingly, it was contended that the PCIT (Opposite Party No.4) while approving initiation of the reassessment proceedings did not apply his mind that the reason had been recorded more than three months thereafter i.e. on 30th June, 2021. According to the Petitioner, it is only thereafter that he received the notice dated 30th March, 2021 under Section 148 of the Act. 7. Pursuant to the request for reasons made by the Assessee by the reply dated 9th July 2021, the National Faceless Assessment Centre (NFAC) by the letter dated 7th January, 2022 again provided to the Assessee the reasons for the reopening of the assessment. This time the reasons were slightly more elaborated and read as under: An information available on record reveal that during the F.Y. relevant to the A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-XVII-BB. Accordingly, the said amount is to be disallowed u/s. 40 a (ia) and to be considered as the income of the assessee. 12. Reference was also made to the Explanation 1 under Section 147 of the Act, which reads thus: Production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. 13. It was submitted that since on the above issue no opinion was formed at the time of regular assessment, the question of change of opinion did not arise. Reliance was placed on the decision of the High Court of Mumbai in Export Credit Guarantee Corporation of India Ltd. v. Additional CIT (30 taxman.com 211) (2013) and the decision of the Delhi High Court in Honda Siel Products Ltd. v. DCIT (197 taxman 415) (2011). 14. This Court heard the submissions of Mr. Sidhartha Ray, learned counsel for the Petitioner and Mr. Sidharth Sankar Mohapatra, learned Senior Standing Counsel for Income Tax Department. 15. In support of his submission that the reopening of the assessment was ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment order as under: An explanation was called for low Net Profit or Loss shown from Large Gross Receipts. The A/R of the assessee filed an explanation. The same has been placed in record and verified the same and no adverse was found. 19. After verifying the documents, the ITO noted as under: Thus, the total claims of expenses under these heads of expenses are Rs.5,20,799/- . In the course of assessment proceeding, the assessee has failed to produce all the relevant bills/vouchers in support of the expenses claimed though the relevant bills/vouchers were as called for. Hence, in absence of supporting vouchers, I deem it fair and reasonable to disallow a sum of Rs.52,080/- i.e. 10% expenses claimed in different heads for Rs.5,20,799/- and the same is added to the total income. 20. It is seen, therefore, that the original assessment was on the basis of a complete and careful examination of the books of accounts produced by the Assessee. There was application of mind by the ITO to the materials produced by the Assessee. 21. As regards the reasons for reopening the assessment, it is stated to be based simply on information available on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withstanding the explanation to Section 147 of the Act that production of books of accounts by itself will not amount to a full disclosure, the reasons communicated should still have to indicate that there was a failure to make a full disclosure although the accounts were produced before the AO. In the instant case, there is no such statement anywhere on the record, which could have formed the basis for the belief of the ITO that income had escaped assessment. 24. In Income Tax Officer-I, Ward District VI, Calcutta v. Lakhmani Mewal Das (1976) 3 SCC 757 , the Supreme Court explained the legal position on what was expected of the Assessee a regards full and true disclosure in the context of Section 147 (a) of the Act as it then stood, and which observations hold true even now. It was observed as under: 7. It would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the Income-tax Officer must have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under 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). If 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure especially when it is issued in a quasi- judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence. 32. Therefore, while issuing a show-cause notice, the authorities must take care to manifestly keep an open mind as they are to act fairly in adjudging the guilt or otherwise of the person proceeded against and specially when he has the power to take a punitive step against the person after giving him a show cause notice. 28. This would apply in equal measure to a notice under Section 148 of the Act for a reopening of assessment followed by the reasons supplied. In the present case, it appears that the reopening of the assessment was based on the same material already available before the AO and without any noting, at the time of reopening of the assessment that there was a failure on the part of the assessee to make a full and true disclosure of all material particulars. On the same material already available, the ITO formed reason to believe that income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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