TaxTMI 
TaxTMI 
2004 (8) TMI 617
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...., we shall first take up the additional ground of appeal. Additional ground of appeal : Reopening of assessment under section 147/148 of the I.T. Act. 4. The additional ground of appeal taken by the assessee reads as under: "1. On the facts and circumstances of the case and in law the learned CIT(A) erred in not appreciating the fact that : (a)the learned Assessing Officer had reopened the assessment on account of transaction with M/s. Manoj Diamonds (which were found out to be valid transactions) and not on account of interest, and (b)all material facts had been disclosed with the return and therefore, the reopening was bad in law. The appellant relies on the decision in the case of Groz Backert Asia Ltd., 86 ITR* 291 (Chd.)." *Wrongly mentioned as "ITR". It should be read as "ITD". 5. As evident from the above, the issue relates to the validity of the notice issued under section 147/148. Perusal of the assessment order, the appellate order passed by the learned CIT(A) and the grounds of appeal taken before the learned CIT(A) shows that this issue was neither raised by the assessee nor adjudicated upon by the authorities below. The learned Departmental Repr....
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....the Assessing Officer in the assessment order are incorrect. It is also not the case of the assessee that the Assessing Officer had not recorded the reasons as required under section 147/148. 8. Having reopened the assessment the Assessing Officer proceeded to make the assessment under section 147, read with section 143(3). However, he did not make any addition or disallowance on account of labour charges paid to M/s. Manoj Diamond. The Assessing Officer has given detailed reasons for not doing so, in the assessment order. During the course of the assessment proceedings under section 147, the Assessing Officer noticed that the assessee had received interest amounting to Rs. 3,50,000 and Rs. 5,30,036 from Bank and from other parties respectively which it claimed as income from business and therefore included the same for computation of deduction under section 80HHC. The Assessing Officer, however, held the said interest as income from other sources and hence he excluded the same from computation of deduction under section 80HHC. Thus, the addition that was eventually made in the assessment order was not the one which had led to initiation of proceedings under section 147/148. ....
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.... 477^1 (SC) were also referred to at the time of hearing. 12. In reply the learned Departmental Representative submitted that the impugned notice had been issued by the Assessing Officer in accordance with the provisions of law and hence was valid. 13. We have considered the rival submissions. There can be no dispute that the legality or otherwise of the impugned notice is required to be examined with reference to the statutory conditions laid down for issue of notice under the relevant provisions of law. The learned authorized representative for the assessee was fair enough to concede that the notice under section 147/148 was issued within four years from the end of the assessment year under appeal and hence, the case of the assessee deserves to be examined with reference to the main provisions of section 147 and not the proviso thereto. The provisions of section 147, as they stood at the relevant point of time, read as under : "147. Income escaping assessment.-If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such inc....
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....al of the main provisions of section 147 shows that, in order to assume jurisdiction under section 147, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment for the relevant assessment year. Once the aforesaid condition is fulfilled, the Assessing Officer gets jurisdiction to issue the notice under section 147. Section 147, however, does not stop at that. It further provides as to what income can be brought to tax once the Assessing Officer has issued a notice under section 147/148 and assumed jurisdiction thereunder section 147 provides in clear and unambiguous terms that the Assessing Officer, after he has invoked the jurisdiction under section 147, cannot only assess or reassess such income which has escaped assessment and for which he has issued the notice under section 147/148 but 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. It is therefore abundantly clear that, on assumption of jurisdiction under section 147, the power of the Assessing Officer extends not only to tax the escaped income for which the no....
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....j Diamond. It is in this view of the matter that he issued the impugned notice under section 147/148. 16. Facts and circumstances of the case leading to issue of the impugned notice make it quite clear that there were sufficient materials, for re-opening the assessment, at the time when the notice under section 148 was issued. In our view, letters received from the Assistant Commissioner of Income-tax assessing D.R. Doshi, Prop. M/s. Manoj Diamonds were relevant as also sufficient for the formation of the requisite belief under section 147. On the facts of the case we therefore, hold that the belief of the Assessing Officer that income chargeable to tax had escaped assess- ment was based on definite, relevant and specific information received from the Assessing Officer assessing D.R. Doshi, Prop. M/s. Manoj Diamond and hence, the said information was sufficient enough to provide a rational connection or live link for the formation of the requisite belief under section 147. All the conditions for exercising the jurisdiction under section 147 stood fulfilled in the case before us. In S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), the Hon'ble Supreme Court has held that if there are....
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....tion 147. We are unable to accept the aforesaid submissions. There is a long line of judicial authorities for the proposition that validity of initiation of proceedings under section 147 has to be considered with reference to the material available at the time of initiation and not with reference to the materials or events becoming available after initiation. Availability of materials or even after initiation, in our view, can neither provide the basis for validating an otherwise invalid notice nor invalidate an otherwise valid notice under section 147. It is the existence and availability of materials at the time of initiation which alone have to be considered while judging the validity of initiation of proceedings under section 147. In taking this view we are supported by the decisions in Asa John Devinathan v. Addl. CIT [1980] 126 ITR 270 (Mad.) 284; Murarka Paints & Varnish Works Ltd. v. ITO [1978] 114 ITR 480 (Cal.); Chunnilal Surajmal v. CIT [1986] 160 ITR 141^1 (Pat.). As held in Bawa Abhai Singh v. DCIT [2002] 253 ITR 83^2 (Delhi) the only question at the stage of issuance of the notice is whether there was any relevant material on which a reasonable person could have forme....
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.... the case of proceedings under section 147. In D.P. Byrne v. CIT [2001] 249 ITR 311^3 (Delhi) the Hon'ble High Court has held that once valid proceedings are started under the relevant provisions, the ITO has not only jurisdiction but also it is his duty to levy tax on the entire income that had escaped assessment. In Circular No. 549 dated 31-10-1989, the Central Board of Direct taxes has explained the nature and scope of section 147 as follows : "(iii) The existing legal interpretation that once an assessment has been reopened, any other income that has escaped assessment and comes to the notice of the Assessing Officer subsequently during the course of proceedings under this section can also be included in the assessment has been incorporated in the new section itself". In the Law & Practice of Income-tax by Kanga, Palkhivala and Vyas - Ninth edition - Vol. II - page 1853, the position in this behalf has been explained as follows : "(ii) the Assessing Officer may also assess an item of untaxed income other than that which had led to the issue of the notice under section 148, if such income comes to his notice subsequently in the course of proceedings under this section." We ther....
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....ded with effect from assessment year 1992-93 to exclude 90% of the interest and hence, for assessment year 1991-92 the entire income of the assessee ought to be taken as profit of the business. 3. Without prejudice, the learned CIT(A) erred in not appreciating the fact that part of the interest received was from fixed deposits from banks. These deposits were kept to avail credit facility from the bank, for the export business." 23. We shall first take up the issue as to whether the interest receipts are business income of the assessee, as contended by the assessee or income from other sources as held by the Assessing Officer and the learned CIT(A). 24. Briefly stated, the facts of the case as relevant to the aforesaid issue are that the assessee had earned interest on fixed deposits with the Bank and on loans advanced to private parties. The Assessing Officer held the interest income as income from other sources and thus excluded the same while computing the deduction under section 80HHC. The claim of the assessee before the Assessing Officer was that it had to keep a sum of Rs. 35 lakhs in fixed deposits with its Bank for the purpose of availing various overdraft and othe....
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....ecision of the Special Bench of the Tribunal in Lalsons Enterprise's case (supra) is also relevant. It is, therefore, considered appropriate to set aside the order of the learned CIT(A) on the issue of admissibility of deduction under section 80HHC and restore the entire issue regarding the admissibility of deduction under section 80HHC to him for re-examination and decision in accordance with law including the decisions referred to above after providing reasonable opportunity of hearing to both the parties. All the main grounds of appeal are treated as allowed for statistical purposes in terms of the directions given above. 28. In view of the above, the appeal filed by the assessee stands partly allowed. ITA No. 4723/Mum./1997 for assessment year 1992-93. 29. The grounds of appeal as originally filed were not in conformity with rule 8 of the Income-tax Appellate Tribunal Rules. The assessee has since filed revised grounds of appeal and also sought to raise additional ground of appeal. Since the additional ground of appeal goes to the root of the matter, we shall first take up the additional ground of appeal. Additional ground of appeal : Reopening of assessment under s....