TaxTMI 
TaxTMI 
2011 (1) TMI 48
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....d by the Directorate of Investigation without forming an independent opinion. It is urged by him that the expression used in Section 147 of the Act is „reason to believe and not „reason to suspect and it is the settled legal position that there should be direct nexus or live link between the materials relied upon by the revenue and the belief that income has escaped assessment. It is contended that on a bare reading of the reason to believe, it is evident that the jurisdiction to reassess the income has been assumed on the basis of unspecific and vague information which cannot justify the formation of the belief or the reason to believe that income has escaped assessment. The entire foundation of the belief that the income has escaped assessment is that "certain investigations were carried out by the Directorate of Investigation, Jhandewalan" though no particulars had been given on what basis the Directorate of Investigation had come to the conclusion that accommodation entries were given to the petitioner. It is urged that no details of the persons who supposedly alleged that the transactions of the petitioner were bogus were provided and further the nature of the alle....
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....1974 SC 87. 4. Mr. M.P. Sinha, learned counsel appearing for the revenue, supported the order passed by the competent authority contending, interalia, that the assessing officer has applied his independent mind and has not been solely guided by the information given by the Directorate of Investigation. It is proponed by him that the objections raised by the petitioner has been appositely dealt with and by no stretch of imagination it can be said to be a cryptic order passed in a mechanical manner. The learned counsel for the revenue would submit that what is basically contended by the learned counsel for the assessee - petitioner pertains to sufficiency of material which should not be gone into at this stage. It is put forth by him that the same has to be delved into at the time of assessment and the petitioner would be afforded adequate opportunity of hearing to explain the same. The learned counsel has further submitted that the decisions which have been placed reliance upon by the learned counsel for the petitioner are distinguishable on facts and, hence, the same really do not render much assistance to him. 5. To appreciate the controversy, it is appropriate to refer t....
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.... of Rs.27,00,000/- has been alleged in the reasons as accommodation entry. (v) Amount received on sale of investments was utilized to give loans and the same appear in the balance sheet under the head „loans and advances." 6. Upon receipt of the said objections, the same were dealt with vide Annexure P-2 dated 28th June, 2010. In paragraph 3, the authority concerned referred to its earlier decision and reproduced the same. We think it appropriate to reproduce the relevant portion of the same whereby the objections have been rejected: "REASONS RECORDED IN WRITING FOR REOPENING THE CASE UNDER SECTION 148 M/s AGR INVESTMENT LTD. ASSESSMENT YEAR 2003-04 Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: "Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of busin....
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....ssessee to introduce its own unaccounted money in its books of accounts. In this respect, it would be pertinent to cite here the case of IPCA Laboratories Ltd. vs. DCIT (2001) 251 ITR 420 (Bombay). ii) It would be pertinent to state here as under:- Assessee must disclose all primary facts fully and truly - The words „omission or failure to disclose fully and truly all material facts necessary for his assessment for that year‟ postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision on the question before the assessing authority lies on the assessee - Calcutta Discount Co. Ltd. vs. ITO [1961] 41 ITR 191 (SC); Indian Oil Corporation v. ITO [1977] 106 ITR 1 (SC); ITO v. Lakhmani Mewal Das (supra)." 7. The questions that emerge for consideration are whether there has been application of mind or change of opinion, whether the objections have been properly dealt with and whether there is a mere suspicion or reason to believe. Regard bei....
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....reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under S.147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under S.147(a). It there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law c....
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....must be material that have nexus to hold opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier. [Emphasis added] 12. In Sheo Narain Jaiswal & Ors. v. Income Tax Officer & Ors., [1989] 176 ITR 352 (Patna), it was held that reassessment proceedings can be initiated under Section 147(a) of the Act if the Income-tax Officer has reason to believe that there has been escapement of income and that the said income escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that period or year. Both the conditions are conditions precedent for the assumption of jurisdiction under Section 148 of the Act. 13. In Phool Chand Bajrang Lal & Anr. v. Income Tax Officer & Anr., [1993] 203 ITR 456 (SC), the Apex Court has held thus: "From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessmen....
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....under Article 226 of the Constitution of India should refrain from exercising the power. In the instant case, the case of the petitioner was fairly considered and thereafter the above decision is taken." [Underlining is ours] 15. In Bombay Pharma Products v. Income Tax Officer, [1999] 237 ITR 614 (MP), it was held as follows: It is also established that the notice issued under Section 148 of the Act should follow the reasons recorded by the Income-tax Officer for reopening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Whether such reasons are sufficient or not, is not a matter to be decided by the court. But the existence of the belief is subject to scrutiny if the assessee shows circumstances that there was no material before the Income-tax Officer to believe that the income had escaped assessment." [Emphasis added] 16. In H.A. Nanji & Co. v. Income Tax Officer, [1979] 120 ITR 593 (Calcutta), it has been held that at the time of issue of notice of reassessment, it is not incumbent on the ITO to ....
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....eness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment." [underlining is ours] 19. In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd, [2007] 291 ITR 500 (SC), it has been ruled thus:- "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean c....
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.... of a direction given by the Additional Commissioner of Income Tax to initiate proceedings under Section 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons:- "Thus, I have sufficient information in my possession to issue notice u/s 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above." 10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as „reasons' on the basis of which he was proceeding to issue notice under Section 148. We are afraid that these cannot be the reasons for proceeding under Section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal ....
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....rudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted." 22. The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the assessing officer treated them as objectio....