TaxTMI 
TaxTMI 
2006 (5) TMI 129
X X X X Extracts X X X X
X X X X Extracts X X X X
....n behalf of the assessee. 3. The fact concerning this matter are as under: 3.1 The assessee derived income from house property, from salaries, short-term capital gain and other sources. He filed return of income for the assessment year in question on 30-3-1996 showing income at Rs. 4,42,350. The return was processed under section 143(1)(a) vide order dated 20-9-1996. Thereafter a notice under section 148 dated 2-3-1998 was served upon the assessee. The assessee vide letter dated 20-12-1999 submitted that the return already filed on 30-3-1996 be treated as the return filed in response to the notice under section 148. 3.2 The assessee challenged the validity of the notice issued under section 148 and also the validity of the assessment proceedings on that basis and in this regard following grounds were taken before the learned CIT(A): "1. That assessment order framed under section 147/148/143(2) is absolutely illegal and without jurisdiction. 2. That under the facts and circumstances of the case, learned Assessing Officer wrongly invoked the provisions of section 147 of the Income-tax Act and consequently, the notice issued under section 148 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....khmani Mewal Das [1976] 103 ITR 437 (SC); and (ii) Anant Kumar Saharia v. CIT [1998] 232 ITR 533 (Gauhati). 3.5 The learned CIT(A) accepted the contention of the assessee by holding that the Assessing Officer had acted illegally and in unwarranted manner in issuing notice under section 148 when he had no reason to believe that income had escaped assessment. He also observed that notice under section 148 could not be issued in making roving enquiries on the basis of vague suspicion. He thus annulled the assessment order dated 30-3-2000 by holding that the same was bad in law and was ab initio null and void The relevant observations of the learned CIT(A) as per para 3.1 of his order on this issue are as under: "3.1 Keeping in view the above mentioned observations I have no hesitation in holding that while the Assessing Officer might have had a faint "reason to suspect" that income has escaped assessment, it cannot be said that he had "reason to believe" that the income has escaped assessment. I cannot over emphasise that the requirements of law, specially when it comes to taking action under section 147/148, have to be met with in letter and spirit. The Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l, issuance of notice under section 148 could not be justified. In support of his submissions, the learned counsel placed reliance on the following decisions: (i) CIT v. Foramer France [2003] 264 ITR 566 (SC); (ii) CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi); (iii) Oil and Natural Gas Corpn. Ltd. v. Dy. CIT [2003] 262 ITR 648 (Uttranchal); (iv) G.B. Bros. & Konda Rajagopala Chetty Beedi Factory (P.) Ltd. v. ITO [2004] 267 ITR 774 (AP); (v) Ajanta Pharma Ltd. v. Asstt. CIT [2004] 267 ITR 200 (Bom.); and (vi) CIT v. R.S. Sibal [2004] 269 ITR 429 (Delhi). 6. We have carefully considered the entire material on record and the rival submissions. The assessee had filed copy of balance-sheet as on 31-3-1995 with the original return. As per this balance-sheet the assessee had disclosed receipt of gift of Rs. 28,90,000. A copy of the balance sheet is available at page 13 of the paper book. Even for the reasons recorded in issuing notice under section 148 it is mentioned that the balance-sheet of the assessee revealed that the assessee had received a gift of Rs. 28,90,000. Thus it is undisputed that the assessee had given t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No interest have been declared which leads to the conclusion that the assessee has not declared income from these sources nor he has filed any valuation of properties purchased and sold. The income, therefore, escaped assessment. The assessment is reopened under section 147." 6.2 The assessment under section 143(1) had been completed on 22-2-1996. The balance-sheet of the assessee reveals that the assessee had received a gift of Rs. 28,90,000, for which no details had been filed. In view of the above it is clear that the assessee had disclosed receipt of gift in his return. As the assessment was being framed under section 143(1)(a) and further as the Assessing Officer did not call for details from the assessee. The assessee had no responsibility or liability to furnish the details. 6.3 On perusal of the reasons recorded and the assessment order made under section 143(3)/147 it is found that the Assessing Officer had not received any other information or material suggesting concealment of any income on the part of the assessee. In the reasons recorded the Assessing Officer has mentioned that the assessee had not filed detail regarding receipt of gift. Thus, for want of details....
X X X X Extracts X X X X
X X X X Extracts X X X X
....material facts necessary for assessment" is concerned, in the case of G.B. Bros. & Konda Rajagopala Chetty Beedi Factory (P.) Ltd., the Hon'ble Andhra Pradesh High Court has held as under: "The duty of the assessee 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 Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer 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 reopening assessments." 6.8 We have also considered the ratio of decision of Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173. In that case the scope and effect of section 147 of the Income-tax Act, as substituted with effect from 1-4-1989 was considered by the Hon'ble High Court. In that case the petitioner was incorporated as a limited company for the purpose of esta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for reopening the assessment. This material was gathered on examination of assessment in the case of the assessee for earlier year and subsequent year. It was during the course of assessment for the subsequent assessment year that the Assessing Officer found that the assessee had made a wrong or incorrect claim. Thus, the opinion of the Assessing Officer for reopening the assessment was based on some other material than the material disclosed by the assessee in the return of income for the assessment year involved. However, in the present case, there was no other material before the Assessing Officer except the entry in the balance sheet in which receipt of gift was disclosed. The Assessing Officer has reopened the assessment only on the ground that the assessee did not give details of the gift. As observed earlier, the assessee was not required to do so. To reiterate, the Assessing Officer had no other material or information except the information given by the assessee himself and on the same information the Assessing Officer just in order to make a roving enquiry, has initiated the reassessment proceedings which course is not justified. 6.9 In view of the above decisions, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lar Ventures for purchase of property and sum of Rs. 3,50,000 has been shown against Pritam Pura shop. These transactions clearly reveal that the assessee is dealing in properties on which no income has been declared. Further the assessee has loaned a sum of Rs. 2,00,000 to Anupam Komal and a sum of Rs. 4,00,000 to Prem Bhatia. No interest have been declared which leads to the conclusion that the assessee has not declared income from these sources nor he has filed any valuation of properties purchased and sold. The income, therefore, escaped assessment. The assessment is reopened under section 147." 2. In response to notice under section 148 the assessee furnished a letter dated 20-12-1999 stating therein that the return already filed on 30-3-1999 may be treated as return in response to notice under section 148 of the Act. The original return was filed by the assessee declaring total income at Rs. 4,42,347. The balance sheet also annexed with the return of income. In the capital account shown in the balance sheet the assessee included an amount of Rs. 28,90,000 on account of gift. During reassessment proceedings the assessee was given sufficient opportunity to substantiate the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficer has not appreciated the gravity of the onus that rested on him under section 147 on forming a "reason to believe" that any income chargeable to tax has escaped assessment. In this case, the Assessing Officer only had reason to suspect that income has escaped assessment. In fact, a bare perusal of the reasons recorded under section 147 reveal that the Assessing Officer has simply narrated the various facts mentioned in the statement of accounts, without in any way trying to show from where stems the belief that income has escaped assessment. Accordingly, I am constrained to observe that the Assessing Officer has acted in an arbitrary manner in issuing the notice under section 148 for he had no reason to form a belief that income chargeable to tax has escaped assessment. The provisions of section 147 cannot be invoked on the basis of conjectures or surmises or by simply presuming that income has escaped assessment. The Hon'ble Supreme Court in the case of Lakhmani Mewal Das 103 ITR 437 has observed as under: 'As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sment and since the Assessing Officer had reason to believe, it was sufficient to confer jurisdiction to take action under section 147 read with section 148 of the Act. 6. Furthermore, there is yet another reason for reopening the assessment. The return of income filed on 30-3-1999 was processed under section 143(1) of the Act. There was thus no application of mind on the return of income so processed. Under section 143(1) of the Act, the Assessing Officer makes only such adjustments as are required to be done within the framework of section 143(1) of the Act itself. There is no scrutiny at all. The presence of assessee is not required nor any document or evidence in support of the return is required to be produced. No enquiry relating to the income of an assessee is made and the processing is confined to provisions of adjustments specified in that section. The Assessing Officer, therefore, cannot be held to have formed any opinion on the facts disclosed. If no opinion was formed by the Assessing Officer then question of change of opinion would not arise. I, therefore, hold that processing of return of income so done under section 143(1) of the Act purportedly without applicatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er section 143(1)(a) cannot be treated to be an order of assessment, though the intimation under section 143(1)(a) was deemed to be a notice of demand under section 156 for the apparent purpose of making machinery provision relating to recovery of tax applicable. By such an application only recovery indicated to be payable in the intimation became permissible. Nothing more than this can be inferred from the deeming provision. In view of this as there is no assessment under section 143(1)(a), the question of change of opinion does not arise. Such a view has also been taken by the Hon'ble High Court of judicature at Delhi in the case of MTNL at page 183 as under: "The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion as contended, does not arise." 8. Section 147 of the Act also authoriz....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the formation of belief by the Income-tax Officer is essentially within the subjective satisfaction." Likewise in Raymond Woollen Mills Ltd.'s case at page 35 the Apex Court has given guidelines and stated the law in the following words: "We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case." 9. In the light of aforesaid legal position so long as the ingredients of section 147 are fulfilled the Assessing Officer is free to initiate proceedings under section 147 of the Act and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. A similar view has been taken in A. Pusalal v. CIT [1988] 169 ITR 215 (AT). 10. In the case of Lakhmani Mewal Das heavily relied upon by the Ld. CIT(A) it was held that there must be reason to believe that such income has escaped assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as also a member, the Delhi Bench of the Tribunal took a similar issue. Such a decision was taken in the case of Legato System India (P.) Ltd. v. ITO [2005] 2 SOT 71. The Delhi Bench of the Tribunal have also taken a similar view in another case of N.C. Gupta v. Asstt. CIT [2004] 270 ITR 106 (AT) by holding as under: "Held that the provisions of section 147 were amended with effect from 1-4-1989 after the amendment, there is no condition precedent that the escapement of income must be found on the basis of "information" coming to the possession of the Assessing Officer. The assessment can be reopened if the Assessing Officer has reason to believe that income chargeable to tax had escaped assessment. Such reason to believe can be founded on the basis of any material and cannot be restricted to "information" coming to the possession of the Assessing Officer. The notice of reassessment was valid." 12. Keeping in view the entire conspectus of the case legal position and precedents on record and since ingredients of section 147 are fulfilled and there are several reasons spelled out in the reasons recorded and led into formation of belief, I hold that the Assessing Officer w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment made was void ab initio and bad in the eye of law?" 2. The facts, as recorded in the orders of the learned Members, are briefly these. The assessee is an individual deriving income from house property, salaries, short-term capital gains and from other sources. He filed the return on 30-3-1996 showing income of Rs. 4,42,350 which was processed under section 143(1)(a) of the Act. A notice under section 148 was thereafter issued on 2-3-1998 and served on the assessee seeking to reopen the assessment in response to which the assessee filed a letter dated 20-12-1999 stating that the return already filed on 30-3-1996 may be treated as a return filed in response to the notice. The Assessing Officer completed the reassessment on a total income of Rs. 33,32,350 which included a sum of Rs. 28,90,000 assessed as "income from undisclosed sources", being the aggregate of two gifts received by the assessee from one Mohan Singh Makkar, a non-resident Indian. I am not concerned with the reasons for making the addition of the gifts as stated in the reassessment order, except to say that the Assessing Officer was not satisfied with the evidence adduced by the assessee in support of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... excess of the licence fee claimed and allowed as a deduction for the other years and thus there was prima facie material to show escapement of income. He noted that in the present case there was no such material or information and the only ground for reopening the assessment was that the assessee did not file any details in support of the gifts. According to the learned JM the assessee was not required to do so. He held that the Assessing Officer, by reopening the assessment, wanted to make a roving enquiry into the gifts which was 'not permissible. In this view of the matter, he dismissed the appeal of the Department. 5. The learned AM dissented and observed that during the enquiry conducted in the course of the reassessment proceedings, several materials and information came into the possession of the Assessing Officer to show that the gifts were not real and genuine, that the donor was a "professional donor" and that he did not have the capacity to make the gifts. Further, the assessee did not furnish full details about the gift in the return and the mere mention of the fact that he received gifts during the year which were shown in his capital account does not amount to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld have formed a requisite belief as entertained by the assessing authority". The judgments of the Hon'ble Delhi High Court in Jindal Photo Films Ltd.'s case and Kelvinator of India Ltd.'s case and certain other judgments of the Supreme Court referred to by the learned JM were sought to be distinguished on the ground that in those cases the assessments were originally made under section 143(3) after examination of the issues and verification of the relevant material and documents on record and thus there was application of mind and formation of an opinion by the Assessing Officer which was sought to be changed by him without any further material or evidence. The learned AM also referred to his own order in the case of Legato System India (P.) Ltd. where he had taken a similar view. For all these reasons, he held that the Assessing Officer was justified in law in initiating action under section 147/148 of the Act. He thus restored the reassessment. 6. The learned Members having thus differed, the matter is before me under section 255(4). I have considered the rival contentions very ably put forth by both the sides. 7. I agree with the learned CIT(DR) as well as th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... itself, it is no doubt not permissible to hold that he formed an opinion about the taxability of a particular receipt or the allowability of a particular expenditure when he accepted the return. I have already noticed this aspect. But at the same time, it seems clear to me that the law laid down with reference to section 147 as it existed before 1-4-1989, to the effect that the Assessing Officer can reopen the assessment only if he has "reason to believe" that income chargeable to tax had escaped assessment and not merely "reason to suspect" so remains the same even after the amendment with effect from the said date with the result that the Assessing Officer's action to reopen the assessment can still be struck down if this condition is not satisfied even though the action is not the result of a mere change of opinion. I may first refer to the judgment of the Supreme Court in Lakhmani Mewal Das' case, in which His Lordship Justice H.R. Khanna speaking for the court, observed at pages 448-449 as under:- "As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment." In Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 the Supreme Court, speaking through His Lordship Justice P.N. Bhagwati (as His Lordship then was) observed that the expression "reason to believe" is stronger than the expression "is satisfied" and that the belief entertained by the ITO shall not be arbitrary or irrational, that it should be reasonable or in other words it must be based on reasons which are relevant and material. Earlier, in S. Narayanappa v. CIT [1967] 63 ITR 219 (SC) a three-Judge Bench of the Supreme Court speaking through His Lordship Justice J.C. Shah held that the expression 'Reason to believe' does not mean a purely subjective satisfaction on the part of the ITO that the reason must be held in good faith, that it cannot be merely a pretence and that though the court cannot examine the sufficiency of the reasons for the formation of the requisite belief it c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly on the judgments of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 and S. Narayanappa's case, which were all decided with reference to either section 34 of the 1922 Act or section 147 of the new Act as it stood before the amendment, in order to hold that the meaning of the expression "reason to believe" continues to be the same even after the amendment. When a particular expression used by the Legislature has been judicially interpreted in a particular way to denote a particular meaning and content and if the same expression is continued to be used in the same provision despite other substantial amendments to the provision. I believe it to be the correct rule of interpretation that the expression must be given the same meaning as was given to it before the amendment. The amendment to section 147, so far as the expression "reason to believe" is concerned, is "a fortiori" because an attempt was made to drop the expression but bowing to representations it was restored expressly acknowledging that the expression has been interpreted in a particular manner by courts and to do away with the sam....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not one of a mere change of opinion, as contended by the learned CIT (DR). 11. Secondly, a "change of opinion" - a re-look or review of the facts without any further facts or a change in the law - does not exhaust the meaning and content of the expression "reason to believe". It is only one facet or illustration of what does not amount to "reason to believe". There may be several other facets or cases or illustrations or fact-situations of what cannot be construed as "reason to believe". For example, there can be a case of a reopening based merely on suspicion, gossip or rumour - as in the case of Lakshmana Shenoy v. ITO [1958] 34 ITR 275 (SC). There can be a case of a mere pretence, masquerading as a reason to believe - as in the case of Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 (SC). The decided cases on the point afford myriad instances of what cannot be held to be "reason to believe". A change of opinion on the same facts and legal position is only one instance of what is not "reason to believe". Therefore, merely because the present case for whatever reason is not covered by the yardstick of a mere change of opinion it does not automatically follow that it fulfils....
X X X X Extracts X X X X
X X X X Extracts X X X X
....original assessment was completed under section 143(3), even though the Assessing Officer had not recorded detailed reasons in the original assessment order on an analysis of the materials on record, describing the submission to the contrary made on behalf of the Department as "fallacious" and holding that if such a power to review his own assessment order is given to the Assessing Officer "the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong". In the case of section 143(1)(a), the statute itself forbids the Assessing Officer from enquiring into the return and permits him to carry out only a very limited category of "prima facie adjustments" to the return. The case of the Assessing Officer not recording a detailed analysis of the materials produced to show why and how he has come to accept the claim or contention of the assessee in the order of regular assessment passed under section 143(3) and the case of the statute forbidding the Assessing Officer from enquiring into the claims and contentions of the assessee and mandating him to accept the return as it is (subject to very limited adjustments allowed by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t when he held in paragraph 5 of his order that the return was not accompanied by the details of the gift and therefore a "reasonable belief could be formed that there is non-disclosure of material facts" while at the same time holding in paragraph 6 of his order that when the return is processed under section 143(1)(a) the "presence of the assessee is not required nor any document or evidence in support of the return is required to be produced". I see force in the contention. To hold otherwise would be to give an unbridled power to the Assessing Officer to first process or accept the return under section 143(1)(a) and later on issue notice under section 148 in order to verify the correctness of the return. This would mean that the provisions of section 147 would be rendered a substitute for section 143(2), an object which that section was not intended to achieve. It would also permit the Assessing Officer to accept the return under section 143(1)(a) in the hope that if he at any time in future wanted to verify and probe into the same he can always rely on section 147 and section 148, a situation which would tend to make a mockery of a legal provision which can be invoked only afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd it cannot be assumed, without a decision recorded in the assessment order with reference to them, that the Assessing Officer has applied his mind. It has been further held that in such a case the Assessing Officer cannot be said to have formed an opinion as to the allowability of the claim or contentions of the assessee, with the result that if a notice under section 148 is issued later it cannot be challenged on the ground of change of opinion. This case relates to change of opinion. I have already held in the beginning of my order that the case on hand is not one of change of opinion, agreeing with the learned CIT(DR) and therefore, there is no need to pursue the point any further. That apart, that judgment has nowhere held that the requirement of "reason to believe" can be done away with. The judgment reinforces my view that a reassessment prompted by a mere change of opinion is only one manifestation - one "avatar" - of what is not "reason to believe" and there are several other manifestations (or "avatars") of what is not "reason to believe" which have to be dealt with on their own terms. 16. For all the above reasons, I answer the first point of difference referred to m....