TaxTMI 
TaxTMI 
2014 (7) TMI 391
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....ent had been furnished, which included the details of unsecured loans vide communication dated November 27, 2008. 1.2 Yet another notice dated December 03, 2008 called for genuineness and creditworthiness of all the parties whose names appeared in the list of unsecured loans and deposits, which were required to be furnished along with complete address and PAN. The petitioner vide communication dated December 15, 2008 provided not only the addresses, PANs and details of the amount with dates, but the confirmation letters as well. After the entire exercise, scrutiny assessment under section 143(3) was completed on December 22, 2008 and the Assessing Officer made disallowances under section 14A and 94(7) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The petitioner aggrieved by such order challenged the same before the CIT (Appeals) and the same is pending before the CIT (Appeals). 1.3 In the meantime, the impugned notice under section 148 of the Act dated March 28, 2013 came to be issued, beyond the period of four years from the end of relevant assessment year on the ground that the Assessing Officer had a reason to believe that the income had escaped t....
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....ame by stating that he intended to file writ petition against the invalid notice. 1.7 The petitioner vide its letter dated March 13, 2014 requested the respondent to supply a copy of the letter received from the DCIT, Kolkata, on the basis of which she had formed the reason to believe. However, soon thereafter on March 14, 2014, the objections have been filed to the reasons recorded essentially challenging such notice on the ground that there was nothing to indicate that the petitioner had not fully and truly disclosed all the material facts necessary for assessment. It was the say of the petitioner that the original assessment got completed after scrutiny, where alleging the genuineness of the transactions, no additions have been made in respect of unsecured loans. It was also the say of the petitioner that the confirmation letters furnished pursuant to the notices issued along with substantiating documents also take away the very basis of such notice. The sworn affidavit of the Director of Basant Marketing Pvt. Ltd. also specifically stated that all the transactions of loans given to the petitioner were genuine and given through banking channels. We notice that there was no stat....
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....ly the names of the parties, but their PAN and other details confirmed the genuineness of the transactions. In absence of any omission or failure on the part of the petitioner to furnish any material particulars, the very notice must fail. He further urged that the information passed over to the Assessing Officer is in pre-inquiry stage. There was no case of accommodation entry at all. Therefore, it was incumbent upon the Assessing Officer to make preliminary inquiry before issuance of the notice. The entire issue has remained in realm of suspicion. Since no authority has gone beyond the reason to suspect, the Court must intervene. He urged that the object of the Apex Court in directing the Revenue Authority to provide the reasons recorded and to dispose of the same cannot be perceived as an empty formality. Relying on the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd v. ITO [2003] 259 ITR 19, he further urged that the availability of the efficacious remedy is no ground in the instant case where there is nothing to indicate that the petitioner did not disclose fully and truly all material facts and, therefore, the very assumption of jurisdiction on the pa....
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....essment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in Cl. (a) on the part of the assessee, the Income-tax 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 Ss. 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 (hereafter in Ss. 148 to 153 referred to as the relevant assessment year)." 8. Section 147, thus, permits the reopening of the assessment to the Assessing Officer on his forming a belief that the income chargeable to tax has escaped the assessment. For the Assessing Officer to be authorised to reopen any assessment beyond the period of four years, he could so do it if the assessee fails to make a return under section 139 of the Act or in respect of a notice under sub-section (1) of section 142 or he fails to disclose fully and truly all the material facts necessary for such assessment. We are concerned, in the present case, with the reopening of the assessment beyond the period of four....
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.... The Court also went to an extent of saying that there are two distinct and different situations where the transaction itself on the basis of subsequent information is found to be bogus transaction and in such event, mere disclosure of the transaction cannot be said to be true and full disclosure and the Income-tax Officer would have jurisdiction to reopen the concluded assessment. The subsequent information on the basis of which the Income-tax Officer acquired the reason to believe that the income chargeable to tax had escaped on account of omission on the part of the assessee to fully and truly disclose primary facts when was reliable, specific and relevant and not vague or unspecific, the reopening was permitted. It would be apt to quote some observations of the Apex Court in the case of PhulChand Bajrang Lal (supra), which read as under : "... one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 apperas to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie, now your hands are ....
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....o satisfying the second condition under section 147(a) of the Act that there was failure on the part of the assessee to disclose fully and truly all the material facts at the time of original assessment. 10.2 The Apex Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd., [2007] 291 ITR 500 (SC), has held that at the stage of issuance of notice of reopening, the Assessing Officer must have a reason to believe and not the established fact of escapement of income in the following manner : "The expression "reason to believe" in section 147 would mean cause or justification. If the Assessing Officer has cause or If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is "reason to believe" but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have forme....
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....at the material relied on by the Revenue in respect of 2G spectrum is confidential and cannot be disclosed and the Revenue asked the petitioner to file its objection to the reasons recorded and supplied reasons to the petitioner by way of a communication. In such a challenge, the High Court upheld the claim of the Revenue for privilege/ confidentiality of the 2G spectrum by holding that the law requires that the information upon which the Assessing Officer records his satisfaction that income has escaped assessment, if is communicated to the assessee, without the disclosure of any specific documents, the proceedings initiated under section 147 would not be rendered void. In the words of Delhi High Court : "22. In this context, the Court will now turn to the question of whether the disclosure of the 2G Spectrum Report is mandatory, and whether the failure to supply it is fatal to the present proceedings. The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the assesee, without mandating the disclosure of any specific document. While the 2G Spectrum Report has not been supplied in this case on grounds of con....
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....anies were filing IT return and if yes, then what kind of returns were filed. From the bank statement filed by the assessee, the Assessing Officer could have found out the addresses of the applicant-companies in the bank, who opened the bank accounts and their signatories. Such kind of inquiries were absent. The Court held that mere failure on the part of the creditors to respond to the department's notice could never be a basis to conclude that the assessee had undisclosed income and initiate proceedings under section 68 of the Act on the ground that the Assessing Officer failed to carry his suspicion to logical conclusion by further investigation and more steps could have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant companies and the assessee, the Court held that very important link was missing and, therefore, the additions were deleted. We must notice at this stage that the assessee had approached the High Court being aggrieved by the additions made by the Assessing Officer after their having failed before the Tribunal by way of appeals and, therefore, the Court noticed absence of any effor....
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....s judicial pronouncements on the very issue were regarded and, therefore, it would be apt to borrow the relevant aspects from the said judgment without once again discussing the very law : "11.2 In case of Phoolchand Bajrang Limited v. I.T.O (Supra), the Apex Court was dealing with a case of reassessment. In the original assessment, the assessee firm claimed that it had borrowed certain amount from a Calcutta based company. The I.T.O directed the assessee to file a copy of account of the said Calcutta Company to support the loan transaction and in reply thereto, assessee produced a confirmatory letter from the said company confirming payment of loan to the assessee. For nearly five years ie., A.Y 199394 to 196869, such deduction of interest, as claimed by the assessee having been paid to the Calcutta company, continued to be allowed by the I.T.O. Later on, I.T.O entertained some doubts about genuineness of loan transaction, and therefore, a communication was sent to I.T.O stationed at Calcutta. It was realized that the Managing Director of the said Calcutta company had confessed that he was only a namelender and had not advanced any loan to any party during the three assessment y....
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.... to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or nonspecific. xxxxxxxxxxxx 19. Again, in A.LA. Firm v. CIT, 189 (1991) ITR 285, a three Judges bench of this Court, to which one of us (S.C. Agrawal, J.,) was a party, after an elaborate discussion of the subject opined that the jurisdiction of the Income Tax Officer to reassess income arises if he has in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe, that income chargeable to tax and had escaped assessment. It was held that even if the information be such that it could have been obtained by the I.T.O. during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income Tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under Section 147 of the Act are satisfied. 20. From a combined review of the judgments of this Court, it follows that an Income tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read wit....
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....e argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude. 22. In our opinion, therefore, in the facts of the present case the Income tax Officer, Azamgarh rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had no....
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.... prescribed at the relevant time did not contain any column requiring the assessee to furnish such information could not be accepted. Every assessee is expected to know the law that it was not entitled to claim normal depreciation above the prescribed ceiling. If that was done and if that had crossed the ceiling by availing the depreciation, he could be said to have omitted or failed to disclose fully and truly all material facts necessary for the purpose of assessment. xxxxxxxxxx 12.4 The Apex Court in case of Income tax Officer v. Lakhmani Mewal Das (Supra) held that in case of reassessment proceedings, the reasons recorded for formation of belief, as contemplated under Section 147 (a) must have rational connection with or relevant bearing on the formation of belief and rational connection postulates that there must be direct nexus or live link between material coming to Income tax Officer's notice and formation of his belief that there has been escapement of assessee's income from assessment in a particular year because of his failure to disclose fully and truly all material facts. 12.5 In a case before the Apex Court, the Income tax Officer had completed original ....
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....nment in 1964 and compensation thereof was paid in the same year. The assessee had made claim for higher compensation and the matter was finally settled by the Supreme Court nearly after 10 years and the enhanced compensation was availed to the assessee in the assessment year 1979-80. 12.8 The Assessing Officer was of the belief that since the income had accrued to the assessee under the head of Longterm capital gain given on transfer of assets in respect of its two units, such income was to be taxed in the very assessment year ie., 1964 when the transfer took place. Considering the fact that the Supreme Court pronounced its judgment which settled the dispute of enhanced compensation, the Delhi High Court held that there was no lack of disclosure by assessee with respect to enhanced compensation and therefore, reopening of assessment for the relevant assessment year was held without jurisdiction. xxxxxxxxxxx 13. In light of the discussion held hereinabove, the twin conditions required for the satisfaction of the Income tax Officer, in the event of reopening of assessment beyond the period of four years is that (i) there must be a reason to believe that income chargeable to tax ....
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....Mumbai who introduced him to the said companies for the purpose of providing him with margin funding for I.P.O applications. However, he had no clue with regard to the whereabouts of both these persons. He also failed to furnish details of loan amounts, refunds and profit extended by the said parties to him. The Income tax Officer on the basis of these details formed his belief that the assessee's income had escaped assessment within the meaning of Section 147 of the Act. This was thus a case where there were no full and true disclosures by the assessee. xxxxxxxxxx 17.5 Considering the main ground of challenge whether in the circumstances reflected in the reasons recorded would lead this Court to hold that there was no suppression on the part of the assessee in disclosing fully and truly all material facts. This aspect has two limbs - firstly, whether in fact there was a full and true disclosure on the part of the assessee, and secondly, whether from the material the Assessing Officer had with him, he in fact had formed a reason to believe that the income chargeable to tax had escaped the assessment. 17.6 The assessee at the time of original assessment in a scrutiny provi....
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.... of original assessment proceedings, cannot be said to be a disclosure of 'full' and 'true' facts and the Assessing Officer surely would have jurisdiction to reopen concluded assessment in such a case. The Apex Court also had observed in the said case that the Assessing Officer may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed, or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the Court may look the conclusion arrived at by the Income tax Officer and examine whether there was any mater....
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....aving come to his knowledge, recognized untruthfulness of the facts furnished earlier, he surely cannot be said to have changed his opinion on the same facts. The Apex Court also, while analyzing what amounts to 'full' and 'true' facts in the case of Sri Krishna Private Limited v. Income Tax Officer & Ors., reported in 221 ITR 538 has held the Income tax Officer can issue notice under section 148 of the Income tax Act, 1961, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason to believe is intended to be a check, a limitation, upon his power to reopen the assessment. Section 148 (2) imposes a further check upon the said power viz., the requirement of recording of reasons for such reopening by the Income tax Officer. Section 151 imposes yet another check upon the said power viz., the Commissioner or the Board, as the case may be, has to be....
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..... Take this very case : the Income tax Officer says that on the basis of investigation and enquiries made during the assessment proceedings relating to the subsequent assessment year, he has come into possession of material, on the basis of which, he has reasons to believe that the assessee had put forward certain bogus and false unsecured hundi loans said to have been taken by him from non0existent persons or his dummies, as the case may be, and that on that account income chargeable to tax has escaped assessment . According to him, this was a false assertion to the knowledge of the assessee. The Income tax Officer says that during the assessment relating to the subsequent assessment year, similar loans from some of these very persons were found to be bogus. On that basis, he seeks to reopen the assessment. It is necessary to remember that we are at the stage of reopening only. The question is whether, in the above circumstances, the assessee can say, with any justification, that he had fully and truly disclosed the material facts necessary for his assessment for that year. Having created and recorded bogus entries of loans, with what face can the assessee say that he had truly an....
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....firmation of accounts for all transactions above Rs. 20,000/-as could be noticed from the communication dated September 19, 2008. The details of all sundry creditors with PANs and addresses have been furnished. It also reflects that no loans or advances were taken, except of a sum of more than Rs. 20,000/-, otherwise than by way of account payee cheque or bank draft as per reply dated November 27, 2008. The details furnished qua unsecured loans are exhaustive. Relevant part of further communication dated December 03, 2008 by which additional details were called for, which reads as under : "(1) Please furnish details as to how secured loans has acquired, mode of acquisition, details of assets pledged against such secured loans given on security. Name and complete address of banks/ institution from whom loans received and detail narration of year wise receipt of loan. xxxxxxxxxxx (3) Please furnish genuineness and creditworthiness of all the parties mentioned in the list of unsecured loans and deposits with complete address and PAN other wise such loans will be considered as unexplained and introduced form you unexplained source and will be added to the total income." 13. This....
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....one of them. Basant Marketing Pvt. Ltd. is a dummy company of one Shri Arun Dalmia and substantial material is found to base such reasons recorded during the search by CBI, Mumbai and, therefore, the Assessing Officer issued a notice to show cause as to why the said amount of Rs. 8.71 crore received from Basant Marketing Pvt. Ltd. should not be treated as cash credit under section 68 of the Act. 18. As mentioned hereinabove, we had called for the original file, which had revealed new, valid and tangible information supporting Assessing Officer's opinion received from DCIT, Kolkata, based on the material found during the search by the CBI, where Basant Marketing Pvt. Ltd. is said to be a dummy company of one Shri Arun Dalmia. What has been emphasised by the learned Senior Counsel appearing for the petitioner is that the Assessing Officer had attempted to fill in the gap by terming the amount received from Basant Marketing Pvt. Ltd. as "accommodation entry", which she could not have done without further inquiry/ verification. Yet another contention emphasised by the learned Senior Counsel is that the post notice correspondence made after the reasons recorded could not have adde....
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....l assessment, the Assessing Officer could have found by further inquiry or investigation as to whether the transactions were genuine or not. If on the basis of subsequent valid information, the Assessing Officer forms a reason to believe on satisfying twin conditions prescribed under section 147 of the Act that no full and true disclosure of facts was made by the assessee at the time of original assessment and, therefore, the income chargeable to tax had escaped assessment, his belief and the notice of reassessment based on such belief/ opinion needs no interference. In the present case, since both the necessary conditions have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. The information furnished at the time of original assessment, when by subsequent information received from the DCIT, Kolkata, itself found to be controverted, the objection to the notice of reassessment under section 147 of the Act must fail. At the costs of ingemination, it needs to be mentioned that at the time of scrutiny assessment, a specific query was raised with regard to unsecured loans and advances received from the said company namely, Basant Marketing Pvt. Ltd. ....