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TMI Blog2024 (10) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) - the impugned order throws no light as to how an unsecured loan reflected in the assessee s book was reason enough to believe that the income of the assessee had escaped assessment. Assessee had, in its letter explained that it had availed of the unsecured loan from its the then director Sh. Ashok Kumar Jain. It had also pointed out that the notes to the accounts for the financial year ended on 31.03.2012 and also disclosed that loan Rs. 5,00,000/- was received from Sh Ashok Kumar Jain, who was the Key Management Personnel. Notwithstanding the note, the AO has proceeded on the unfounded premise that the amount shown outstanding as unsecured loan in the balance sheet is unexplained and, thus chargeable to tax u/s 68 of the Act. As explained in Lakhmani Mewal Das [ 1976 (3) TMI 1 - SUPREME COURT ] the assessment can be reopened only on account of reason to believe and not reason to suspect . In the present case, a fortiori, there is no reason to even suspect that the balance sheet of the assessee did not correctly reflect its state of affairs. Necessary condition for initiating re-assessment u/s 147 of the Act is not satisfied - Assessee appeal allowed. - HON'BLE MR. JUSTIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned notice stating that it had reasons to believe that the assessee s income for the assessment year 2012-13 had escaped assessment within the meaning of Section 147 of the Act. Respondent no. 2 also proposed to re-assess the assessee s income/loss for the relevant assessment year. 8. Pursuant to the impugned notice, the petitioner submitted before respondent no. 2, a copy of its return filed for the assessment year 2012-13, without prejudice to its rights and contentions. The petitioner declared Nil income, which was the same as furnished by the assessee in its return dated 16.04.2019. The petitioner also requested the AO to provide a copy of the reasons recorded and the material on which the re-assessment proceedings were initiated. It also informed AO that with effect from 10.01.2019, the assessee (Alankar Promoters Pvt. Ltd.) had ceased to exist. Thereafter, the petitioner sent reminders to the AO for furnishing the reasons for initiating the re-assessment proceedings as well as the copy of the approval under Section 151 of the Act. 9. On 11.11.2019, the AO furnished the reasons recorded for initiating the re-assessment proceedings. However, the petitioner claims that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the assessment of the assessee s income chargeable to tax was re-opened in accordance with law. 19. In the present case, it is material to note that the assessment sought to be re-opened pertains to the assessment year 2012-13. 20. In terms of Section 147 of the Act, the AO can assess or re-assess the income chargeable to tax provided he has reason to believe that the assessee s income has escaped assessment. The operative part of Section 147 of the Act as applicable at the material time, is set out below: 147. Income escaping assessment. 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) (b) of s. 147 are satisfied, the Income Tax Officer has no jurisdiction to issue a notice under s. 148. 24. On the aforesaid basis, the Supreme Court concluded that the assessing officer did not have any material before him, which would satisfy the requisite conditions under Section 147 of the Act. Thus, the assessing officer could not have issued a notice under Section 148 of the Act. 25. The threshold conditions to be satisfied for re-opening the assessment have been the subject matter of various other decisions rendered by the Supreme Court as well. At the stage of initiating the proceedings for re-assessment, it is necessary for the assessing officer to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is an additional condition, which requires that no action be initiated after expiry of the period of four years unless the income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to fully and truly disclose all material facts necessary for its assessment. 27. In Commissioner of Income Tax v. Kelvinator of India Ltd.: 2010 (2) SCC 723 , the Supreme Court held that the assessing officer has the power to reopen the assessment if there was reason to believe that the income of the assessee had escaped assessment. The Supreme Court further held that reason to believe must be based on tangible material that has a live link with the formation of such belief. 28. In Commissioner of Income Tax II v. M/s Multiplex Trading and Industrial Co. Ltd., Neutral Citation No. 2015:DHC:7971-DB , this Court took note of the amendment to Section 147 of the Act, with effect from 01.04.1989 and observed: 29. It is at once seen that the Amendment in Section 147 of the Act brought about a material change in law w.e.f. 1st April, 1989. Section 147 (a) as it stood prior to 1st April 1989 required the AO to have a reason to believe that (a) the income of the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. 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 can now 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 many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of issue of notice. The assessment/reassessment proceedings in this case for AY 2012-13 pertain to period beyond four years but before the expiry of six years from the date of issue of notice. In view of the same, as no assessment has been made in this case for AY 2012-13, u/s 143 (3) or u/s 147, the first proviso to section 147 is not applicable to the case. 31. We are at loss to comprehend as to how availing of a loan by the assessee as reflected in its books of account could be a reason for the AO to believe that the assessee s income had escaped assessment. There is no material to indicate that the AO had any ground to believe that the loan availed by the assessee (as reflected in the books of accounts) was chargeable to tax under the Act. 32. There is neither any allegation nor any material to even remotely suggest that the assessee had earned income chargeable to tax, which was camouflaged as an unsecured loan and reflected in its books of accounts. The AO had clearly no material on record to form any belief that the income of the assessee had escaped assessment. 33. The impugned order does not reflect any ground for believing that the income of the assessee had escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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