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TMI Blog2006 (6) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the Assessing Officer initiated action under section 147. In the present case, the material gathered by the Assessing Officer during the course of assessment proceedings or enquiry made by him during the remand proceedings cannot be taken into account for the purpose of deciding the validity of the initiation of the reassessment proceedings. In the present case also, whether the Assessing Officer was justified in initiating reassessment proceedings or not has to be decided on the basis of material and evidence placed on record and the legal position discussed above. The undisputed facts of the case are that the assessee had filed returns for the assessment years 1994-95, 1995-96 and 1996-97 claiming deduction under section 80-IA of the amount mentioned in the preceding paragraphs. Since no objection has been raised by the Revenue on any other ground, it is clear that the claims of the assessee were supported by audit report of the auditors. Further, it is also a fact that the assessee was engaged in the business of manufacture of Laptop computers and the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the considered opinion that there was no information/material available with the Assessing Officer for entertaining a belief that income chargeable to tax had escaped assessment. The Ld. CIT(A) was not justified in sustaining the action of the Assessing Officer for initiating the reassessment proceedings, which were illegal and void ab initio. Accordingly, we quash the reassessments completed by the Assessing Officer under section 143(3) read with section 147 and consequent order of the CIT(A) for all the assessment years - The appeals of the assessee are allowed. - JOGINDER PALL ACCOUNTANT MEMBER and A. D. JAIN JUDICIAL MEMBER For the Appellant : V. K. Tulsian, For the Respondent : Darshan Singh. ORDER PER JOGINDER PALL, ACCOUNTANT MEMBER. These three appeals have been filed by the assessee against consolidated order dated 30-12-2003 of CIT(A), Jammu with Hqrs. at Amritsar, for the assessment years 1994-95, 1995-96 and 1996-97. Since the issues involved in these appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience. 2. The first two common grounds relate to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/- and Rs. 11,40,248/- for the assessment years 1994-95, 1995-96 and 1996-97 respectively. While completing the reassessments, the Assessing Officer disallowed the claim of the assessee for deductions under section 80-IA for all the above-mentioned assessment years. 4. Being aggrieved, the assessee filed the appeals against the assessment orders before the CIT(A) where inter alia action of the Assessing Officer for initiating the reassessment proceedings under section 147 was challenged for all the assessment years. It was submitted before the CIT(A) that the Assessing Officer failed to establish and to place any material on record which formed the basis of reopening the assessments. It was argued that reassessment proceedings have been initiated merely on the basis of suspicion and hearsay. For reopening the assessments, the Assessing Officer has referred to some statement of third party recorded in the absence of the assessee, without allowing an opportunity to cross-examine the party and also without supplying a copy of the statement. Further, proper proof of the identification of the wife of the deceased landlord Sh. M.K. Mattu was submitted before the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 5-9-2002 and 30-9-2002 stating therein that he had examined gate-pass register. But the same did not indicate any local manufacturing activity carried out by the assessee at Jammu. The gate-pass was signed by the Inspector, Excise Deptt., Jammu. He further stated that on the basis of further local enquiries made by him, it was learnt that no manufacturing activity was being carried out by the assessee. He also inspected the premises and noted the items lying there. He also stated that though the assessee purchased machinery worth Rs. 3.5 lakhs required for manufacture of laptop computers, yet there was no evidence to show that the same was transported to the site of the manufacture. The explanation of the assessee was that the machinery required was very light and the same was transported from Delhi to Jammu as personal luggage of Sh. Anjai Mandal who travelled by Air. He also reported that the assessee also got its books of account audited from M/s. Shinghal Ashok and Associate, CA, Delhi. As regards the raw-materials, the Assessing Officer reported that though address given in the bills for purchase of raw-material was of Jammu, but the assessee got the same released at Delhi A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the assessee from the said premises. (v) The Ld. CIT(A) also observed that the place from where the manufacturing activity was being carried out did not have any telephone connection. The only one connection was in the name of Smt. Mohini Raina, without any STD facility. Since all the partners were residing at Delhi and manufacturing activity was claimed to have been carried out from Jammu, the absence of telephone connection caused serious doubts about the manufacturing, activities having been carried out from Jammu. (vi) The assessee was not able to furnish any concrete evidence to show that machinery and raw-material purchased were transported to Jammu where the manufacturing activity was being carried on. Thus, taking note of the above mentioned facts, the learned CIT(A) upheld the action of Assessing Officer for reopening the assessments and denying deduction under section 80-IA claimed by the assessee in the returns. The assessee is aggrieved with the order of the CIT(A). Hence, these appeals before us. 6. The Ld. counsel for the assessee, Sh. V.K. Tulsian, submitted that during the course of assessment proceedings, the Assessing Officer did not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, the Assessing Officer learnt that no business activity was being carried out by the assessee from the said premises and, therefore, the Assessing Officer entertained a belief that income chargeable to tax by claiming deduction under section 80-IA for these three assessment years had escaped assessments. He submitted that the reasons recorded by the Assessing Officer are vague and unspecific. He submitted that neither the Assessing Officer has given the date of the visit of the predecessor Assessing Officer nor his own visit at the premises. He submitted that this fact is also not borne from the record. He has also not given the name of the person whose statement was recorded and under what section the same was recorded. He submitted that the condition precedent for initiating reassessment proceedings is that the material which comes in possession of the Assessing Officer must have a direct nexus with the reason to believe that income chargeable to tax had escaped assessment. He submitted that in this case, the Assessing Officer has invoked the provisions of section 147 only for the purpose of verification and making roving and fishing enquiries, which is not permitted u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of recording the statement. It is also not known whether the statement was recorded by the Assessing Officer or by an Inspector. He further referred to the answers given by Sh. M.L. Sarup, where he stated that he was attending to consultancy and related matters like Excise, Sales-tax and Income-tax for which he was charging fees of Rs. 5,000/-. He also stated that the audit was being done by the auditors at Delhi. Full name and address was also mentioned. He particularly drew our attention to answer of Sh. M.L. Sarup where he stated that the assessee was in the business of manufacture of Laptop computers and he further gave the name of the working partner. He submitted that nowhere Sh. Sarup has stated that assessee was not carrying on any business at Jammu. Thus, how it could be believed that assessee was not carrying on any manufacturing business at Jammu. He also referred to the statement of Smt. Raj Kishori Mattu, which does not even indicate who had recorded the statement, when the statement was recorded and under what section the same was recorded on 3-6-1999. It does not even bear the signatures of the officer who recorded the statement. Thus, he submitted that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. Since the notice was based on vague statement of any person and no live link or nexus between statement and belief and if the notice issued under section 148 is invalid for any reason, the entire proceedings taken by the Assessing Officer would become void for want of jurisdiction. (v) Hotel Bahia Fort v. Assessing Officer [2004] 138 Taxman 66 / 2 SOT 511 (Asr.) (Mag.) In this case, it was held that since there was no other material with the Assessing Officer for initiating the reassessment proceedings except District Valuation Officer s report. So the report of DVO for determining cost of construction could not be made the sole basis for reopening of assessment. (vi) ICICI Bank Ltd. v. K.J. Rao, Dy. CIT [2004] 136 Taxman 669 (Bom.) In this case, it was held that if there is no failure to disclose material facts, then even if there is excess relief granted, the assessment cannot be reopened beyond the period of 4 years from the end of relevant assessment year. If the legal inference drawn from the material facts is erroneous it cannot be said that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion. (x) CIT v. Narendra Mohan Bagroy [2004] 90 ITD 90 (Pat.) (Mag.) (TM) In this case, it was held that the expression reason to believe does not mean reason to suspect . The expression reason to believe in section 147 does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith; it cannot be a merely a pretence. There must be rational connection between the reasons for the belief and the relevant material. (xi) G.B. Bros. Konda Rajagopala Chetty Beedi Factory (P.) Ltd. v. ITO [2003] 132 Taxman 737 (AP) It was held that once the assessee has filed/disclosed fully and truly all the material facts regarding situation of office, site then there is no occasion to invoke section 147 subsequently. The Hon ble High Court by following the Apex Court decision in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1997] 106 ITR 1, observed that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Explanation 2(c) of section 147, which read as under : 147. 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 and 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 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 and 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings must exist before such action could be initiated by the Assessing Officer. Explanation 2(c) deals with deemed escapement of income where assessment has been made, but income chargeable to tax has been under assessed or such income has been assessed at too low a rate or such income has been made the subject-matter of excessive relief under this Act or excessive loss or depreciation allowance or any other allowance under this Act has been allowed. 8.1 The expression used in section 147 is that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. The expression reason to believe used in section 147 has special significance. It does not mean reason to suspect . It is reasonable belief of a honest and reasonable person based upon reasonable grounds. The expression used is not satisfied . The reason to believe requires higher level of evidence and material than the requirement of satisfaction of the Assessing Officer which essentially means the material which comes to the notice of Assessing Officer must be a definite, specific and direct and not unspecific or vague. This issue was considered by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the reassessment proceedings. The duty of the Ld. CIT(A) was also to confine himself to the material on record on the date when the Assessing Officer initiated the proceedings and not to look into the material subsequently gathered by the Assessing Officer during assessment and remand proceedings. 8.3 In the present case also, whether the Assessing Officer was justified in initiating reassessment proceedings or not has to be decided on the basis of material and evidence placed on record and the legal position discussed above. The undisputed facts of the case are that the assessee had filed returns for the assessment years 1994-95, 1995-96 and 1996-97 claiming deduction under section 80-IA of the amount mentioned in the preceding paragraphs. Since no objection has been raised by the Revenue on any other ground, it is clear that the claims of the assessee were supported by audit report of the auditors. Further, it is also a fact that the assessee was engaged in the business of manufacture of Laptop computers and the project was approved by the Ministry of Industries, Government of India, State Excise Deptt., Sales-tax Deptt. and assessee had also obtained loan from State Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee firm, my predecessor (Income-tax Officer, Ward-1, Jammu) who was previously holding jurisdiction over the case had visited the place of business activities and the statement of the person who was residing at the given address was also got recorded by him. After going through all these facts and the statements recorded, it is clearly established that no business activities are being carried out in the given address in the State of Jammu and Kashmir. I had personally also visited the given address and made inspection of the activities being carried out, but it was noticed that no such activities were ever being carried out in the said premises. 3. Taking into consideration all these facts, it is clearly established that since assessee has failed to establish any industrial unit on the given address as has been alleged by him, therefore, it has clearly contravened the provisions of section 80-I(A) of the Income-tax Act, 1961 and hence is not entitled to any deduction under the said provisions of the Act. Accordingly, I am satisfied that income which was chargeable to tax has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961 and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns (P.) Ltd. (supra). Therefore, even on this point also, reopening of the assessment on the basis of reasons recorded suffers from major legal infirmity. 8.4 In the reasons recorded, the Assessing Officer has referred to the statement of Sh. Pawan Raina, who was residing at the premises where business was carried on by the assessee. A copy of the statement placed before us does not mention the section under which his statement was recorded on 12-3-1997. It does not show the place at which the statement was recorded. There is no entry in the order-sheet to show the date of visit of the Assessing Officer to the premises of the assessee. There is no entry about the fact of recording the statement. As per provisions of the Act, the statement could be recorded under section 131 of the Act. However, the assessment records called for from the Assessing Officer did not show issue and service of summons on Sh. Pawan Raina. The statement could also be recorded during the course of search action under section 132(4) of the Act or it could even be recorded under section 133A by an Income-tax Authority. Since no search and seizure action under section 132(1) and survey action under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiating reassessment proceedings that no business was carried on when in fact, the business already stood closed has no meaning. His answer that he had never seen any goods being received or loaded from the premises is to be seen in the context that business already stood closed. In reply to a question that the sign board of the assessee was existing at the premises, he had simply stated that he had no knowledge about the activity being carried out there in the premises. This fact again is to be seen in the context that business had already been closed. Further, the fact that Sh. Pawan Raina shifted to this place only in February 1996, how could he tell about the fact whether any business was being carried out from the said premises in the past or not. Thus, even on the basis of facts stated by Sh. Pawan Raina, it could not be inferred that the claim of the assessee for deduction under section 80-IA was bogus. In other words, there is no material or information in the statement of Sh. Pawan Raina to support the conclusion that claim for deduction under section 80-IA in respect of the period when such business was carried on by the assessee was not genuine. Therefore, initiation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer who recorded the statement does not exist. A copy of summon issued to Smt. Raj Kishori Mattu is not on record. It is also not known whether the statement was recorded under section 131 or some other section. Therefore, this statement is not valid in the eye of law and cannot form the basis of initiating the reassessment proceedings. Further, the statement bears the date on which it was recorded as 3-6-1999. A copy of the reasons recorded by the Assessing Officer for the assessment year 1994-95 furnished by the ld. DR vide his letter dated 25-8-2005 along with other statements shows that the reasons were recorded on 22-9-1998. Obviously, this statement was not available at the time when the Assessing Officer initiated action under section 147 and issued a notice under section 148 for this assessment year. Obviously, therefore, this statement could not form the basis of initiating reassessment proceedings for the assessment year 1994-95. Copies of the reasons recorded for the assessment years 1995-96 and 1996-97 furnished by the Ld. DR show that these are the replica of reasons recorded for the assessment year 1994-95. No reference has been made to the statement of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Assessing Officer which enables him to form a reason to believe that income chargeable to tax had escaped assessments. In the present case, the material placed on record does not show any nexus between the statements and the formation of belief by the Assessing Officer that income chargeable to tax had escaped assessment. The Assessing Officer cannot initiate the reassessment proceedings on the basis of suspicion, vague or unspecific information. It is trite law that where the Assessing Officer had no specific basis for his belief that income chargeable to tax had escaped assessment, the reassessment proceedings initiated by the Assessing Officer simply for the purpose of making further verification of the claim of the assessee would be without jurisdiction, illegal and invalid. If the Assessing Officer wanted to verify such claim, he could have done so by issue of notices under section 143(2) within the period prescribed under the Act. The machinery of reassessment proceedings could not be resorted to, for covering the legal lacuna/procedure or even for patch-up work by the Assessing Officer. In the present case, we are of the considered opinion that there was no informati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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