TaxTMI 
TaxTMI 
1999 (12) TMI 105
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....ts shown in the name of Smt. Bhagwani Devi and M/s. Jagdamba Finance Corporation were found to be not genuine as the creditors were merely name lenders as held by Assessing Officer in the case of M/s. Metal House assessed by the ITO, Ward-14 (4), New Delhi M/s. Jagdamba Finance Corporation could not prove the capacity to advance heavy loans to M/s. Metal House and the credit in the name of M/s. Jagdamba Finance Corporation was held to be not genuine in the case of Metal House. In view of this information the action under section 147(a) of the Act was taken by the Assessing Officer with the prior approval of the CIT. Ultimately, reassessments were made by adding the unexplained cash credits and interest thereon at Rs. 6,14,975, Rs. 6,10,218, Rs. 8,47,870, Rs. 7,21,870 and Rs. 17,71,680 for the five years respectively. 4. Aggrieved the assessee preferred first appeal before the learned CIT(A). It was submitted before him on behalf of the assessee that the proceedings under section 147(a) of the Act were unjustified and without jurisdiction as the pre-requisites laid down under section 147 were not satisfied in the case. It was contended that the assessee had made full and true dis....
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....an 173 (Kar.) 7. The learned CIT(A) was satisfied and convinced with the aforesaid submissions and contentions. He observed that from the perusal of the reasons recorded for the issue of notice under section 148 it was clear that the Assessing Officer had invoked the provisions of section 147(a) of the Act in all the five years in question. He held that the Assessing Officer was not justified in invoking the provisions of section 147(a) of the Act because there was no material for the formation of belief that by reasons of assessee' failure to disclose fully and truly all material facts, income chargeable to tax had escaped assessment for the assessment years in question. The mere fact that there were certain cash credits did not lead to the conclusion that there was failure to disclose true particulars of income or that income to the extent of cash credit had escaped assessment. All that the Assessing Officer had in his possession was some general information in the form of happening in the case of Metal House which did not have any direct nexus with the transaction specifically in question. Thus there was no material with the Assessing Officer to justify the reopening of the a....
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....ment proceedings initiated in the case under section 147(a) of the Act were proper and justified because the cash credit in the name of M/s. Jagdamba Finance Corporation were found to be bogus because M/s. Jagdamba Finance Corporation was found to have no capacity to advance loans and it was only a name lender. She added that the Assessing Officer in this case was also assessing the case of M/s. Metal House where in he had found that the cash credit shown in the name of Jagdamba Finance Corporation in the books of M/s. Metal House were not genuine because M/s. Jagdamba Finance Corporation did no have the capacity to advance the loans. With that knowledge in mind and on that basis the Assessing Officer had reason to believe in the present case to hold that the cash credit in the name of M/s. Jagdamba Finance Corporation in the books of the present assessee were also bogus and the present assessee had furnished inaccurate particulars of his income in the returns filed and as such the provisions of section 147(a) were attracted in the assessee's case. 11. The learned DR further submitted that from the mere production of books of account before the Assessing Officer, it could not be....
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....] 82/199 (All.) and CIT v. Ashok Cement Ltd. [1992] 106 CTR (Cal.) 292. She also relied on the decision in Jagdish Prasad v. CIT [1976] 104 ITR 214 (All.) and Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) in support of her contention that application of section 147(a) was justified. 14. The learned DR further submitted that the learned CIT(A) had erred in quashing the assessments on the ground that there was no valid assumption of jurisdiction. She contended that by giving such finding the learned CIT(A) had held that there was no failure or omission on the part of the assessee. She argued that such finding was contrary to facts on record and was therefore wrong. She urged that the revenue's appeal should be considered in this light also. 15. The learned DR filed paper book containing copies of the order sheet, proposals under section 147(a) for approval of CIT, letter dated 5-5-1989 of ITO Ward-14(4), New Delhi addressed to ACIT, Circle-14(1), New Delhi regarding loan to M/s. Jagdamba Finance Corporation treated as bogus in the case of M/s. Metal House for assessment year 1982-83 etc. She submitted that though the letter of ITO Ward-(14), New Delhi to ACIT, Circle-1....
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....ity. She also relied upon the Supreme Court decision in CIT v. Jai Prakash Singh [1996] 219 ITR 737 and Kapur Chand Shrimal v. CIT [1981] 131 ITR 451/7 Taxman 6 (SC). She further submitted that on several dates the legal heir Shri O.P. Gupta communicated with the Department but he did not mention that the notice should be served on both the legal heirs. He only contended before the Assessing Officer that the proceedings were not valid on account of non-issue of notice under section 148 to the other legal heirs. She stated that as per the Income-tax records which were available to the Assessing Officer, complete list of all the legal heirs was not before him. She therefore, contended that the impugned assessments could not be quashed on the ground of non-issue of 148 notices to all the legal heirs. 17. The learned counsel for the assessee, on the other hand supported the order of the learned CIT(A). He submitted that the action initiated by the Assessing Officer under section 147(a) was without any material and was without valid jurisdiction. He pointed out that the proposal under section 147(a) for the assessment years 1980-81 to 1983-84 were sent for approval of CIT on 31-3-198....
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.... learned counsel further submitted that the allegations of non-disclosure of full and true material facts in the return was unjustified and without any basis. He stated that the assessee had furnished the details of cash creditors amount of loans and interest thereon etc. Thus the assessee that made full and true disclosure about the cash credits in the name of M/s. Jagdamba Finance Corporation and other creditors. He contended that it was not the duty of the assessee to point out inferences to the Assessing Officer from the primary facts disclosed with the return. It, was for the Assessing Officer to draw inferences from the primary facts disclosed by the assessee with the return. He, therefore, contended that there was no case for action under section 147(a) of the Act because the assessee was not guilty of non-disclosure of full and true material facts with the return. He relied on the decisions in Bengal Luxmi Cotton Mills Ltd. v. ITO [1973] 87 ITR 618 (Cal.), Lakhmani Mewal Das case and Indian Oil Corpn.'s case. 19. The learned counsel further submitted that the assessee had disclosed primary facts regarding the cash credits in the name of M/s. Jagdamba Finance Corporation ....
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.... than 2 years from the date of show cause notice under section 263 indicated that there was change of mind for which also there was no sufficient justification. He argued that the assessee could not be made victium of change of mind of the authorities. 22. The learned counsel further submitted that the CIT(A) had granted approval to the proposal under section 147(a) in mechanical manner inasmuch as he had not applied his mind to the facts of the case and existence of reasons for the proposed action under section 147(a) rather he had just put his signature on the Assessing Officer's proposal under section 147(a) of the Act. He argued that such mechanical approval of proposal vitiated the action under section 147 in this case making the proceedings improper and invalid. 23. The learned counsel further submitted that the proposal under section 147(a) was sent to the CIT for approval on31-3-1989but on that date there was no material on record to warrant such proposal. He pointed out that the letter of ITO, Ward-14(4) regarding bogus cash credit in the name of M/s Jagdamba Finance Corporation in the books of M/s Metal House itself was dated 5-5-1989 i.e., after the date of the pro....
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.... Phool Chand Bajrang Lal's case and 119 ITR 667 (sic). It was a case only where the Assessing Officer had drawn inferences while making the asstt. in the case of M/s. Metal House that in his opinion M/s. Jagdamba Finance Corporation did not appear to have sufficient creditworthiness. This was a mere inference and not a material fact which could be said to have been found to conclude even prima facie that loan taken from such creditor had not been taken to hold that the assessee had not disclosed true and correct facts. He added that in the case of M/s. Jagdamba Finance Corporation regular and valid assessment had been made and nowhere it had been held that such a concern was bogus, dummy or existed on paper only. He further added that the assessment in the case of M/s. Metal House was also set aside and therefore, it could not be said even otherwise anything had been 'found' all that can be said was that the Assessing Officer suspected that the cash credit in the name of M/s. Jagdamba Finance Corporation was bogus, but that suspicion could not be treated as substitute for materials and reasons to believe that action under section 147(a) was warranted in the case. For this he relied....
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....ssessing 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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 refer-red to as the relevant assessment year). Explanation :---For the purposes of this section, the following shall be deemed to be cases where income chargeable to tax has been under-assessed; or (a) where income chargeable to tax has been escaped assessment; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or (d) where excessi....
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....----------------------------------------------------------------------------------- Name of the creditor Amount Intt. shown to have been paid/payable. ---------------------------------------------------------------------------------------------------------------------------------------------------- Smt. Bhagwani Devi Rs. 12,000 Rs. 1440 M/s. Jagdamba Finance CorporationRs. 5,55,000 Rs. 39,324 As per information now received vide letter dated 5-5-1989 from ITO Ward-14(4), New Delhi the creditors appeared to be a name lender only and is indulging in hawala business. In the case of M/s. Metal House assessed by ITO ward - 14(4), New Delhi M/s. Jagdamba Finance Corporation could not prove their capacity to advance such a big loan and credit in their names was not held to be genuine. Under the above circumstances, credit of Rs. 5,55,000 in the books of my assessee appears to be bogus and is merely a camouflage for the assessee's own concealed income. I have, therefore, reasons to believe that for failure on the part of the assessee to disclose full particulars of his income. An income to the extent of Rs. 6,08,364 has escaped assessment within the meaning of section 147(a)....
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....e found to be bogus as there were no sources thereof. There was none of these information on record of the Assessing Officer on the basis of which proper and valid action under section 147 could have been initiated in the case. The information about the cash credits in the name of M/s. Jagdamba Finance Corporation as recorded in the order sheet was therefore not the proper reasons or basis for coming to the belief that income had escaped assessment in the case. 29. Another important aspect of the case to be noted is that the order sheet entry as above shown that the Assessing Officer had sent proposal under section 147(a) for approval of CIT on31-3-1989and after his approval the notice under section 148 was also issued on31-3-1989. It is an admitted fact that the Assessing Officer of the present case received information from ITO Ward- 14(4),New Delhiregarding loan of M/s. Jagdamba Finance Corporation having been treated as bogus in the case of M/s. Metal House, by the letter dated5-5-1989. Thus on 31-3-1989 i.e., the date on which the proposal under section 147(a) was sent for approval of CIT the letter dated 5-5-1989 of ITO Ward-14(4), New Delhi was not on record of the Assess....
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....n under section 147(a) of the Act two conditions were required to be fulfilled (i) that the Assessing Officer must have reason to believe that income, profit & gains chargeable to tax had been under-assessed or escaped assessment and (ii) that he must have reason to believe that such escapement or under-assessment was occasioned by reasons of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year. As observed by the learned CIT(A) in the impugned appellate order the assessee had furnished the details of the cash credits including the cash credit in the name of M/s Jagdamba Finance Corporation alongwith the returns filed, and in the course of the original assessment proceedings. After due consideration of those details, the cash credits were accepted as genuine in the original assessments. Thus it would appear that the assessee had disclosed all the primary facts relating to cash credits as well as interest payment thereon. The duty of the assessee was to furnish these primary facts and it was not his duty to draw inferences for the Assessing Officer from these primary facts and place before him i.e.,....
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....reditors figured in a fist made out by the department was too general and vague to lead to an inference regarding the truth or otherwise of the loans recorded by the assessee. By the Court : "If there had been any material connecting the specific credits in the assessee's books and leading to an inference of their non- genuineness the position may be different. But where all that the ITO has got is some general information that certain creditors are not genuine money lenders but only name lenders and there is nothing to connect the particular cash credits appearing in the books of the assessee with any definite statement or confession or the like made by the creditor or some one else in respect of the assessee's transaction specifically in question, it is not possible to hold that the conditions precedent for action under section 147(a) had been fulfilled." 32. The Patna High Court --- Ranchi Bench in the case of Ranchi Handloom Emporium held that the notice of reassessment under section 147 issued in the case was not valid and was liable to be quashed because the assessee had disclosed primary facts regarding the loans and it was for the Assessing Officer to draw his inferences....
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....re 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 the assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The original assessment for the assessment year 1958-59 was made on the respondent after allowing deduction of a sum of Rs. 10,494 towards interest to certain creditors. Thereafter, by a notice under section 148 of the Income-tax Act, 1961 datedMarch 8, 1967served on the respondent on March 14, 1967 the ITO sought to reopen the assessment. In his report made in February, 1967 to the Commissioner for reopening the assessment of the respondent for the assessment year 1958-59 after four years under section 147(a) of the IT Act, 1961, two reasons were mentioned (i) that M.K. who was shown to be one of the creditors of the respondent had since confessed that he was doing only name lending; and (ii) that N.M., D.K.N., B.S. and others whose names too were mentioned in the list of the creditors of t....
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....TO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for re opening assessment. The ground or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to d....
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....h Court decision in S.P. Agarwala's case are also relevant to the present case. The reassessment proceedings in these cases were quashed on the ground that there were no material on record for the formation of belief that income had escaped assessment. 35. The learned DR had also relied on various judgments e.g., Delhi High Court decision in the case of R. Dalmia. The Supreme Court decision in the case of Phool Chand Bajrang Lal, the Calcutta High Court decision in Bengal Luxmi Cotton Mills Ltd.'s case and the Supreme Court decision in VIP Industries Ltd.'s case etc. The facts of these cases were distinguishable from the facts of the present case and therefore these judgments were not relevant and applicable to the present case. 36. In the case of R. Dalmia the Delhi High Court found that there was material on the basis of which notice under section 147(1) could be issued in the case. The issue involved in this case was whether income earned was assessable in the hands of member or association of person. In view of material on record, it was held that the Deptt. was justified in initiating simultaneously proceedings both against the association of person as well as its member....
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....n were false or bogus. 40. In the case of VIP Industries Ltd. the notice under section 148 was upheld by the Supreme Court because there was specific information that the payments of commission and part of the purchases claimed by the assessee and allowed in the original assessments were not genuine. Thus in that case notice under section 148 was issued on receipt of specific information which showed that the facts disclosed in the original assessments were not true and correct on the other hand, in the present case, there was no specific information regarding the genuineness of the cash credit in the name of M/s. Jagdamba Finance Corporation. 41. In view of the above, we hold that the aforesaid judgments relied upon by the learned DR were not relevant and applicable to the facts of the present case. 42. It will be relevant to mention some more facts about M/s Jagdamba Finance Corporation revealed from the material placed on our file. M/s. Jagdamba Finance Corporation Prop. Shri Ramesh Chand Goel was assessed to income tax by the ITO, Distt, VI(1), Addl.New Delhiassessments for the assessment year 1977-78 was completed in the case under sections 143(3) and 148 on19-3-1984.....
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.... or information having direct nexus or live link with the formation of belief that income had escaped asstt. It is not any and every material howsoever vague and indefinite or distant, remote and far-fetched which would warrant the formation of the belief about the escapement of income from asstt. The only difference is that while under section 147(a) action can be taken if the escapement of income from asstt. was by reasons of the omission or failure on the part of an assessee to make return under section 139 or to disclose fully and truly all material facts necessary for his assessment for that year, but action under section 147(b) can be taken without such omission or failure on the part of the assessee. If the Assessing Officer has information in his possession showing escapement of income from asstt. We have already seen in the preceding pages that there was no concrete specific definite information in possession of the Assessing Officer for the formation of belief that income had escaped asstt. Hence action under section 147(b) was not feasible. Again the limitation period of 4 years under section 149(1)(b) had also expired or31-3-1989. Explanation 2 to section 147 also does ....
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....sessee including the decision in Mrs. Suseela Sadanandan 's case, Shiv Lal Kanhayalal's case and the decision relied upon by the learned DR including the decision in Jai Prakash Singh 's case and Kapur Chand Shrimal's case. We are of the view that the non-issue of 148 notice to the other legal heir was a irregularity for which asstt. could not have been quashed but the same could have been set aside for removing the irregularity by issuing 148 notice to all the legal heirs as required under the law. The Supreme Court judgment in the case of Kapur Chand Shrimal is very specific on the point. The Supreme Court judgment in the case of Jai Prakash Singh is also relevant and applicable to the facts of the present case because in that case it was held that raising of objection by the legal representative for the first time in appeal that notice had been issued to all legal representatives was proper and entertainable but the assessment could be held only as irregular but not null and void. 46. On consideration of the facts and circumstances of the case, and the aforesaid reported decisions, we are of the view that the assessment was irregular for want of issue of notice under section ....