TaxTMI 
TaxTMI 
2004 (5) TMI 247
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....d under section 147 also as proceedings under section 148 is only a reassessment proceeding and not the original assessment. 3. The CIT(A) erred in holding that the Assessing Officer had mechanically signed the reasons recorded for issue of notice under section 148 as there is nothing on record to indicate that there was lack of application of mind." 3. All the three grounds of appeal relate to the validity of initiation of proceedings under section 147 of the Act. This is the main issue. It has been observed by the Assessing Officer that the income-tax returns for assessment year 1989-90 was filed on 15-12-1989 by declaring income at Rs. 15,09,530. The case was processed under section 143(1)(a) on 22-1-1990. Thereafter proceedings were initiated under section 147/148 and the assessee was issued notice under section 148 on 15-12-1992 which was served on 18-1-1993. In response to this notice, the assessee sent a reply vide letter dated 16-2-1993 and submitted that the return already filed on 15-12-1989 be considered as a return filed in pursuance of notice under section 148. In compliance with notice issued under section 143(2), Shri Mukesh Jain, CA attended the office a....
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....has relied on the decision of Hon'ble Calcutta High Court in the case of Smt. Sova Sarkar v. ITO [1983] 139 ITR 386 whereby it has been held that when return has been filed by the assessee, it cannot be ignored by the ITO and he will have no jurisdiction to issue a notice under section 148 without completing the assessment. He has also relied on the judicial pronouncement of the Hon'ble Allahabad High Court in the case of S.P. Kochhar v. ITO [1984] 145 ITR 255 wherein it was held that so long as assessment is pending, the assessing authority cannot have reason to believe that income for the relevant assessment year has escaped assessment. He has further held that from these judgments it is clear that after picking up the case for scrutiny by issuing a notice under section 143(2) of the Act, the only course open to the Assessing Officer was to complete the assessment within the limitation time prescribed in section 153(1)(a) of the Act. If assessment is not completed by this date, the same cannot be allowed to be reviewed under a different provision of the Act because this will render the provisions of section 153 of the Act as ineffective and meaningless. He has also consid....
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....o take steps under section 143(2) will not render the Assessing Officer powerless to initiate the reassessment proceedings. In this inference the Hon'ble Allahabad High Court has relied on the decision of the Hon'ble Calcutta High Court in the case of Jorawar Singh Baidv. Asstt. CIT [1992] 198 ITR 47. The learned DR has further argued that proceedings under section 147 are also within time. According to her 18th January, 1993 was the date of service of notice under section 148 and the limitation runs from end of the financial year 1993 i.e. 31-3-1993 upto two years i.e. 31-3-1995. Hence limitation for completing the assessment under section 147 should be upto 31-3-1995 whereas the present assessment has been completed on 24-1-995. Hence assessment under section 143(3)/147 is quite within limitation of time. The learned DR has further argued that deduction under section 80-O was allowable on net income where the assessee has claimed on gross income and it was sufficient and reasonable cause to believe by the Assessing Officer that the income has escaped assessment. She has referred to the provisions of section 80-O of the Act and she has argued that Explanation 2(b) to secti....
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....f Event Time limit under the Act Remarks 1. Return of Income of Rs. 15,09,530 filed u/s 139(1) of the Act 15-12-89 31-12-89 Return filed in time u/s 139(1) of the Act. 2. Issued intimation u/s 143(1)(a) accepting the Return. 22-1-90 31-3-91 3. Issued notice u/s 143(2)- hearing fixed for 18-6-90. 23-5-90 30-6-90 Notice issued in time in terms of proviso to section 143(2) i.e., end of the Financial Year in which the return is filed or expiry of six months from the end of the month in which the return is furnished, which-ever is later, i.e., 31-3-1990 or 30-6-1990, whichever is later. 4. Order u/s 143(3) not passed. 31-3-92 Assessment time-barred in terms of time limit in section 153(1)(a) of the Act which is two years from the end of the assessment year. 5. Issued notice u/s 147/148 15-12-92 Note : Notice u/s 148 is issued after the original proceedings initiated u/s 143(2) gets time barred. 6. Assessee files letter objecting to the reassessment-proceedings u/s 147 but without prejudice asks the Assessing Officer to treat the Return filed under section 139 as Return filed pursu....
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....er section 147 of the Act. Therefore, the notices issued for reassessment for all the assessment years were not valid." 7. The learned DR has vehemently argued that the Hon'ble Delhi High Court's judicial pronouncement is clearly distinguishable from the facts and circumstances of the present case because in the present case the original assessment under section 143(3) had not been completed. While in the case of judicial pronouncement relied upon it was a case of completed assessment under section 143(3). In the present case intimation issued by Assessing Officer under section 143(1)(a) was not assessment order under section 143(3). The question of change of opinion by Assessing Officer did not arise. The Assessing Officer in the present case had not only not changed his opinion but found new facts regarding excessive deduction claimed under section 80-O of the Act. Hence, she has argued that in the present case the judicial pronouncement is not applicable. 8. We have considered rival submissions and materials on the file. First question to be considered in this matter is that whether the assessment made under section 147 is time barred. It is admitted by both the pa....
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....d of section 153. Hence, there is no infirmity or invalidity in the Assessing Officer's order. 10. We have also noted the reasons recorded by the Assessing Officer for coming to the belief that the income chargeable to tax had escaped assessment and action under section 147 was warranted in the case. Clearly the assessee had claimed excessive deduction under section 80-O by claiming it wrongly on gross amount instead of the net income. The assessee had also wrongly claimed deduction of entertainment expenses. The action under section 147 on account of claim of excessive deduction was fully covered by Explanation 2(b) of section 147. 11. Hence after having heard both the parties, perusing the material on record and considering provisions of law and the judicial pronouncements of the different High Courts we are of the view that the proceedings under section 147 had been validly initiated and the assessment framed under section 147 was proper and valid. Explanation 2(b) to section 147 of the Act is applicable and the ruling of the judicial pronouncements relied upon by the CIT(A) were before 1-4-1989 which were not applicable on the facts and in the circumstances of the pre....
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....of the CIT(A)'s order and also paragraph 5 of the order of my learned brother. 5. The CIT(A) considered the submissions of the assessee. He also considered the remand report of the Assessing Officer. The CIT(A)'s finding could be summarized as under: - (i) It is admitted fact that when the original return of income was filed through notice under section 143(2) was issued, no assessment order under section 143(3) was made up to 31-3-1992, i.e. the limitation period provided under section 153(1)(a) of the Act. (ii) On receipt of notice under section 148, the assessee intimated the Assessing Officer vide his letter dated 16-2-1993 that the return filed by it originally may be treated as a return filed in response to notice under section 148 of the Act. Section 148(1) provides that a return is filed in response to notice under section 148, then the provisions of this Act shall so far as may be apply accordingly as if such return were required to be furnished under section 139 of the Act. Thus, the notice under section 143(2) should have been issued within the time prescribed in proviso to section 143(2) of the Act. The assessee's letter is received by t....
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....ly to the reassessment proceedings under section 148 of the Act. (iii) The CIT(A) has erred in holding that Assessing Officer has mechanically signed the reasons recoded for issue of notice under section 148 of the Act as there is nothing on record to indicate that there was lack of application of mind. 8. We have therefore address ourselves to the findings of the CIT(A) and the challenge of the revenue to those findings. 9. Section 147 of the Act reads as under:- "147. If the Assessing Officer has reasons 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 (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 10. Under the newly substituted section 147 w.e.f. 1-4-1989, the Assessing Of....
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....ed by the Assessing Officer, if it is a case of escapement of assessment of income for a particular year. But mere fresh application of mind to the same set of facts are mere change of opinion. 13. Section 148 provides that before making the assessment, reassessment or re-computation of income, the Assessing Officer shall serve upon the assessee a notice. Sub-section (2) of section 148 provides that before issuing any notice under this section, the Assessing Officer shall record his reason for doing so. The combined reading of sections 147 and 148 makes it clear that firstly the Assessing Officer must have "reason to believe" that any income chargeable to tax "has escaped assessment" and before issuing notice under section 148, the Assessing Officer shall have to record the reasons. Both these conditions were prescribed in the pre-amended section 147 as well as in the section after the amendment w.e.f.1-4-1989. Under the section, the Assessing Officer can clothe himself with the jurisdiction only after recording the reasons for reopening the assessment. In fact, even under the Act of 1922, this was a pre-condition for assumption of jurisdiction. Since recording of reasons is a p....
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....37. The Hon'ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. has held that reason should be such which can lead to a belief. These cannot be a mere pretence, fanciful or arbitrary or irrational. It is admitted position that the sufficiency of the material cannot be investigated but certainly whether there was any material at all for formation of belief can always be examined by a court. These views also find support from the decision of Hon'ble Rajasthan High Court in the case of Sardar Kehar Singh v. CIT [1992] 195 ITR 769. 17. Hon'ble Delhi High Court in the case of Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 833 and in the case of United Electricals Co. (P.) Ltd. v. CIT [2002] 258 ITR 317 has held as under: - "Crucial expression (reason to believe) predicates that the Assessing Officer must hold a belief..........by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief." 18. Keeping in view the settled legal position, if we see the reasons recorded by the Assessing Officer, it is abundantl....
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....gs under section 147 of the Act is invalid. 22. The CIT(A) has also observed that the Assessing Officer has not applied his mind before issue of notice under section 148 of the Act. So called reasons recorded by the Assessing Officer have been given in para 14 of the CIT(A)'s order. Admittedly, the notice under section 148 has been issued within four years so the question of taking approval of the CIT for the issue of such notice did not arise. It is also settled law that it is the Assessing Officer's reason to believe which was relevant. The reading of the reasons itself makes it clear that the reasons were not recorded by the Assessing Officer. The words "hence if approved, notice under sect ion 148 may be issued" itself was indicative of the fact that some staff member had put the note which was mechanically approved by the Assessing Officer without application of his mind. Needless to say, it is not the appraisal of the Assessing Officer but the subjective satisfaction of the Assessing Officer which is important for formation of belief. The CIT(A) has, therefore, rightly held that the Assessing Officer has initiated reassessment proceedings under section 147 without ....
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....ed in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were return required to be furnished under section 139. 2. The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." 24. The use of the words "and the provisions of this Act shall so far as may be, apply accordingly as if such return were a return required to be furnished under section 139" is of great importance. The use of above words are not by way of clarification. These are the substantive provisions of law. This section makes it clear that when a return is filed in response to notice under section 148, such return will be deemed to be a return under section 139 and the provisions of the Act so far as may apply to such return will also be applicable. As the notice under section 143(2) is issued on a return filed under section 139, the natural conclusion will be that the Assessing Officer if he considers it necessary and expedient, shall issue a notice under section 143(2) of the Act requiring the assessee to produce any evidence on whi....
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....on 148 was issued. The return was filed. As the variation between the returned income and assessed income was more than the monetary limit prescribed by the Board, the question arose as to whether the procedural provisions of section 144-B will be applicable or not. The Hon'ble Supreme Court considered the issue and held as under: - "As to the argument based upon sections 144-A, 246 and 263, we do not doubt that assessments under section 143 and assessments and reassessments under section 147 are different, but in making assessments and reassessments under section 147 the procedure laid down in sections subsequent to section 139, including that laid down by section 144-B, has to be followed." 26. Hon'ble Punjab & Haryana High Court in the case of Mrs. Rama Sinha v. CIT [2002] 256 ITR 481 had considered similar issue. In this case, the return was filed in response to notice under section 148 of the Act. The question arose as to whether the procedure laid down for an assessment under section 143(3) on a return filed under section 139 of the Act will be applicable to the returns filed in response to notice under section 148 of the Act. The Hon'ble Court after c....
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....ench of the ITAT in the case of Uma Polymers P. Ltd. v. Asstt. CIT [2002] 123 Taxman Mag. 226 also considered this issue. In this case, the return was filed in response to notice under section 148 of the Act. The Assessing Officer issued notice under section 142(1) but not under section 143(2). The Assessing Officer framed the order under section 143(3) of the Act. The Bench considered as to whether the order under section 143(3) could be made without issue of notice under section 143(2) of the IT Act. The Bench held as under: - "The notice under section 143(2) is not merely procedural in nature but is a mandatory provision. Once the valid return under section 148 is filed by the assessee, the provision on the assessment of return filed under section 139 shall apply due to the mandatory provision of section 148 itself." 30. In view of the above, we are, therefore of the view that the CIT(A) has rightly held the assessment order to be invalid as the same was made on the notice under section 143(2) of the Act issued beyond the period of limitation prescribed under proviso to section 143(2) of the Act. 31. We find that ld. DR's arguments were centered mainly on two ....
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....ccordingly dismissed. REFERENCE UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 In the above captioned appeal there is a difference of opinion between Judicial Member and Accountant Member. Therefore we request the Hon'ble President to refer the case to Third Member under section 255(4) of the Act for his opinion on the following points: "Whether on the facts and in the circumstances of the case the Judicial Member is right in upholding action of the Assessing Officer under section 147 reversing CIT(A)'s order on the grounds that: (1) The reasons recorded and the formation of belief that there was escapement of income for initiating the action under section 147 were proper and valid; (2) There was no change of opinion of Assessing Officer because assessment under section 143(3) had not been completed in the case and processing of return under section 143(1)(a) was not tantamount to assessment under section 143(3). (3) Since there was no assessment the provisions of explanation 2(b) of section 147 was applicable in the case. (4) Since the assessee had claimed excessive deductions including the deduction under section 80-O on gr....
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....n both the Members on that issue. In the instant case, there is no difference of opinion between my learned brother Judicial Member and me as regards the invalidity of assessment on the basis of notice under section 143(2) of the Act issued beyond the period of limitation. I am, therefore afraid as to whether any reference under section 255(4) of the Act is required as to whether the initiation of reassessment proceedings was valid or not. However, in case, the Hon'ble President, ITAT decides to refer the points to the opinion of Third Member, I propose the following points for the opinion of the Third Member:- "(i) Whether the Judicial Member was justified in holding that the initiation of proceedings under section 147 was valid or the Accountant Member was justified in holding that the initiation of reassessment proceeding was invalid inasmuch, as nowhere the Assessing Officer has recorded his satisfaction to the effect that 'he had reason to believe' that 'any income chargeable to tax has escaped assessment? (ii) Whether the Accountant Member was justified in holding that the so called reasons recorded by the Assessing Officer had any live link ....
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....ng that the initiation of re-assessment proceedings was invalid, inasmuch, as nowhere the Assessing Officer has recorded his satisfaction to the effect that "he had reason to believe" that "any income chargeable to tax has escaped assessment"? (ii) Whether the Accountant Member was justified in holding that the so called reasons recorded by the Assessing Officer had any live link with the material available with the Assessing Officer? (iii) Whether the Accountant Member was justified in holding that the reasons recorded if any was without application of mind of the Assessing Officer as the same was put to Assessing Officer for his approval only? (iv) Whether it is only Assessing Officer's reason to believe which was necessary before issue of notice under section 148 of the Act?" 2. At the initial stage of hearing it was seen that in fact there is no difference of opinion on question Nos. 3 to 5 as framed by the learned JM. The learned AM, in para 32 of his order, has clearly observed that there is no dispute to the contention of the DR that if no order has been passed on a valid return, then in view of Explanation to section 147; it will be a case ....
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....ring both the parties, the learned JM held (i) that in view of Explanation 2(b) to section 147, the Assessing Officer could validly issue notice under section 147 on 15-12-1992 despite the fact that assessment could not be completed in pursuance of notice under section 143(2) dated 23rd May, 1990; (ii) that assessee had claimed excessive deduction under section 80-O which resulted in escapement of income; and (iii) that Assessing Officer had reasons to believe that there was escapement of income on account of excessive claim under section 80-O and wrong claim of assessee regarding entertainment of expenses. Hence, the proceedings were validly initiated under section 147 (Paras 8 to 11 of the order of learned JM). 5. On the other hand, the learned AM opined (i) that reasons recorded by the Assessing Officer revealed that initiation of proceedings under section 147 was for the purpose of examination only; (ii) that there was no material with the Assessing Officer for formation of belief that there was escapement of income; (iii) that reasons were not recorded by Assessing Officer himself which resulted in non application of mind by Assessing Officer. Hence, it was held that procee....
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....e of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated or re-opening the assessment. 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 far-fetched 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 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." A....