2014 (11) TMI 477

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....ferred by the assesee relate to the legal issue questioning validity of initiation of proceedings u/s 147 of the Act, it was heard first and respective arguments were advanced by the parties. 4. The relevant facts are that the assesee is engaged in the software development business and during the year profit from M/s. Mind Mill and M/s. Stardata was declared by software export at Rs. 43573134/-. The return was filed on 31.10.2002 and processed u/s 143(1) of the Act. Subsequently the AO noted that some income has escaped assessment and recorded the following reasons:- "The return of income for the A.Y. 2002-03 has been filed on 31.10.2002. The income has been declared at Rs. 4,85,250/-. It is seen that the assessee is engaged in "Software Development" business and during the year profit from M/s. Mindmill and M/s. Stardata has been declared by Software Export Rs. 4,35,73,134/- has been declared exempt u/s 10B of the I.T. Act, 1961. It is further seen from the profit and loss account of M/s. Stardata that apart from software export of Rs. 19,75,177/- the assessee has also credited 'interest' to the tune of Rs. 13,14,637/- and has claimed net profit of Rs. 1,49,283/-. The same w....

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....lidity of initiation of reassessment proceedings following the decisions of Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. 291 ITR 500 (SC). It was held by him that there was sufficient relevant material to enable the AO to have a prima facie information that income of the assessee had escaped assessment and as such initiation of proceedings is valid. Against this action of the Ld. CIT(A) the above objection has been raised by the assessee before us. 6. In support of the above objection the Ld. AR submitted that it is evident from the reasons recorded that there was no fresh material which surfaced after furnishing of return of income and as such initiation of proceedings u/s 147 of the Act is without jurisdiction. He pointed out that the AO had admitted that initiation is based on the scrutiny of accounts attached with the return of income and no more. He contended that mere reappraisal of the return of income cannot confer jurisdiction to initiate proceedings u/s 147 of the Act. He submitted that it is a well settled law that even in cases, when no assessment u/s 143 (3) has been framed, surfacing of fresh material is necessary after accept....

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..... Atul Jain and others 299 ITR 383 (Delhi) and Signature Hotels (P) Ltd. vs. ITO 60 DTR30 (Delhi). The Ld. AR submitted further that even in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd.(supra) relied upon by the Ld. CIT(A), their Lordships of Hon'ble Supreme Court have been pleased to hold that at the stage of issue of notice the only question is whether there was relevant material on which a reasonable person could have formed a requisite believe that income of the assessee had escaped assessment. However it is equally true and undeniable in the present case that there was no material which constitute a relevant material to establish or to have a belief that income chargeable to tax has escaped assessment. In such circumstances exemption of jurisdiction is untenable. Ld. AR submitted further that issue of jurisdiction can even be raised in the second round of proceedings which has been well supported by several decisions including the decisions below mentioned :- 1. P.V. Doshi vs. CIT 113 ITR 22 (Gau.) Hemal Knitting Industries vs. ACIT 127 ITD 160 (third member (Chennai)) 9. Ld. DR on the other hand placed reliance on the finding of the first appellate autho....

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....ted position by the AO that initiation of proceedings u/s 147 of the Act is based on the scrutiny of accounts attached with the return of income. The contention of the assessee before us on the issue of validity of initiation of proceedings u/s 147 of the Act is that mere reappraisal of the return of income cannot confer jurisdiction to proceed u/s 147 of the Act. It has been contended by the Ld. AR that even in the cases where no assessment u/s 143(3) has been framed it has been held in several decisions by the Hon'blle Courts including Hon'ble Jurisdictional Delhi High Court that the surfacing of fresh material is necessary after acceptance of return u/s 143(1) and before issue of notice u/s 148 of the Act. In this recent decision in the case of CIT vs. Orient Craft Ltd. (supra) the Hon'ble Jurisdictional Delhi High Court has been pleased to hold that the reasons disclosed that the AO reached the belief that there was escapement of income on going through the return of income filed by the assessee after he accepted the return u/s 143(1) were without scrutiny and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the AO. The reasons rec....

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....i G Nambiar vs. JCIT (supra) has expressed the similar view that the reopening was bad in law in that case also where reopening was made in the absence of tangible material or fresh information. 12. We also concur with the contention of the Ld. AR that issue of jurisdiction can have been raised in the second round of proceedings as it is supported by the decision of third member bench of the Tribunal in the case of Hemal Knitting Industries vs. ACIT (supra), wherein the third member agreed with the view expressed by the Ld. Accountant Member that assessee could challenge validity of proceedings initiated u/s 147 in second round of litigation before the Tribunal. In that case also assessment order was passed on 31.3.2004 against which assessee went in first appeal wherein one of the grounds related to validity of initiation of reassessment proceedings was raised. Ld. CIT(A) rejected the assesee's appeal both on jurisdiction as well as on merits. The assessee went in second appeal before the Tribunal on merits of the case. The Tribunal remanded the matter back to AO for disposal on merits. In the course of proceedings before AO, assessee again raised an issue relating to validity ....