TaxTMI 
TaxTMI 
2014 (12) TMI 438
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.... reassessment order u/s 147 / 147(3) dated 29.12.2006. (2) That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the information based on which the A.O had reopened the assessment was wholly vague, indefinite, farfetched and remote. (3) That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in annulling the assessment when the matter was setaside to the file of CIT(A) by the Hon'ble ITAT to re-decide the issue regarding non issue of notice u/s 143(2) of the Act, after taking into consideration Madras High Court decision as reported in 294 ITR 233 in the case of Areva T and D India Ltd vs ACIT." 2. Since all these 12 appeals filed by the Revenue involve common facts except for the change in the figures, therefore, both the ld. DR and ld. AR agreed that all these appeals be disposed off on the basis of the facts involved in the case of Rameshwarlal Sajjan Kumar in ITA No. 579/Kol/2010 and whatever view this Tribunal takes in the case of Rameshwarlal Sajjan Kumar, the same may be followed in other cases also. 3. The brief facts of this case are that the original assessment was made u/s 143(3) dete....
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.... that income had escaped assessment. So as per my opinion it is a fit case to initiate proceeding under section 148. So, issue notice notice U/s. 148 immediately. Sd/- (R.P. Nag) A.C.I.T, CC.XVI, Kolkata" 3.1 Subsequently, re-assessment u/s 147/143(3) was completed on 29.12.2006 determining the taxable income at Rs. 2,85,65,940/-. The additions made include the cash loan of Rs. 2,64,53,891/- and the interest thereon amounting to Rs. 50,56,938/-. The Assessee went in appeal before the CIT(A) who vide order dt. 7.3.2007 annulled the assessment by observing as under : "11. Considering the fact and that the service of notice u/s. 143(2) is mandatory, it makes no difference, whether a revised return was filed by the assessee in response to notice u/s. 148 or request was made to treat the earlier return filed u/s. 139 as return filed in response to the notice u/s. 148 of the Act. Further, it is also of no significance that the assessing officer continued the assessment proceeding by issuing notice u/s. 142(1) and due compliance of the same was made by the assessee. Recently, this issue was considered and examined in details by Hon'ble ITAT, Ahmedabad and it was held....
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....ted in 295 ITIR(AT) 169 on the basis of which the Ld. CIT(Appeals) has annulled the orders passed by the A.O. In the said case law, the Hon'ble Madras High Court has observed as under :- "that it was admitted that the notice under section 148 was valid. The facts showed that (i) the original return as well as the subsequent return filed in response to the notice under section 148 of the Act, were the same and there was no difference in the contents of both the returns; (ii) the assessee himself participated in all the proceedings objecting to the reassessment; (iii) the objections of the assessee were not considered by the Assessing Officer; (iv) there was a valid reopening of the assessment, but there were procedural irregularities committed by the Assessing Officer in completing the reassessment. [Matter remanded with a direction to the Assessing Officer to consider the matter afresh, particularly the objections by the assessee for the reopening and issue of notice under section 143(2)]" Keeping in view the fact that the case law was not considered by the Ld. CIT(Appeals), we consider it fit to set aside the issue to the file of the Ld. CIT(Appeals) to redecide the same....
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.... already stands completed. It is not within the powers of CIT(A) to set aside an assessment order and direct the Assessing Officer to remove an irregularity in the nature of non issue of notice u/s 143(2) of the I.T. Act in respect of a completed assessment order. Therefore it is not possible for the undersigned to either remove or ask the Assessing Officer to remove the irregularity of non issue of notice u/s 143(2) of the I.T. Act in respect of an assessment order which is already completed. 4. My predecessor had passed the order on 28.02.2008 and till that date finance act 2008 was not implemented. A new section 292BB was added in the Income Tax Act vide Finance Act 2008. The section is narrated as under: "292BB. Notice deemed to be valid in certain circumstances. Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this....
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....f Assessing Officer to reopen the case was the statement of Sri Sunil Kumar Agarwal dated 26.03.99. The facts show that the Assessing Officer had this information at the time of making original assessment. This information was not utilized to make any addition to total income for the Assessment Year under appeal in the original assessment made u/s 143(3) on 15.02.2002. However Assessing Officer inferred from the same information, which was available with him even at the time of making the original assessment, that the preference shares of Rs. 54,00,000/- issued during the Assessment Year under appeal were bogus in light of the confession made by Sri Sunil Kumar Agrawal vide his statement dated 26.03.1999. 4.2 I had called for the statement of Sri Sunil Kumar Agrawal dated 26.03.1999 from the Assessing Officer during the appellate proceedings and examined the same. Appellant is already aware of this statement as apparent from his submission. This is a 10 page statement with annexure running into 46 pages. In this statement Sri Sunil Kumar Agrawal admitted that the polar Group companies had inflated the bills to suppress the income and the excess amount paid on such bills was rece....
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....will also be a cash loan is only a speculation in absence of any evidence either from the statement of Sri Sunil Kumar Agarwal or as evident from the assessment order and also on account of the fact that many of the loans and capital taken by the group concerns were genuine as per the statement of Sri Sunil Kumar Agarwal. On the basis of above mentioned statement of Sri Sunil Kurnar Agarwal and the evidence of seized printouts of laptop in possession of Assessing Officer, the Assessing Officer could have at best considered the reopening of the assessments of Assessment Years 1997-98 and/ or Assessment Year 1998-99 but in absence of any similar evidence for Assessment Year 1999-00 the drawing of similarity of any loan or capital taken during the Financial Year relevant for Assessment Year 1999- 00 is only a suspicion and not any belief. 4.3 Appellant has relied on the decision of H'ble Supreme Court in case of ITO Vs Lakhmani Mewal Das. 103 ITR 437. In this decision, H'ble Supreme Court has held as under: "..the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that th....
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....nt of such loan for the earlier Assessment Years without any specific name of any name lender. There is no information as which creditor of loan or capital even in earlier Assessment Years is genuine or non genuine. Therefore it is quite apparent that the Assessing Officer has formed a reason to reopen the assessment on the information which is wholly vague, indefinite, far-fetched and remote. 4.4 The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of H'ble Supreme Court is applicable in the present case and therefore I hold that the notice issued by Assessing Officer u/s 148 was invalid and therefore the reassessment order....
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....other Key person, Shri Anil Agarwal, also confessed this mal practice in his statement recorded u/s. 132(4). One Shri B .P. Agarwal, a trusted employee of the Polar Group of Cos has also confirmed this in his statement u/s. 132(4). It therefore appears that in the course of the search several vital information regarding unaccounted loan transaction of the Polar Group of Cos was discovered and these are listed as below: 1. Two Laptops seized from the possession of Shri Sunil Agarwal. 2. Statement of Shri Sunil Agarwal u/s. 132(4) 3. Evidence of unaccounted loan transactions as detailed in LP- 1 to LP- 10 4. Statement of Shri Anil Agarwal recorded u/s. 132(4) 5. Statement of Shri BP. Agarwal recorded u/s. 132(4). (B) Assessment u/s. 143(3) during the Feb./ March-2002. At Flag-B is placed copy of the assessment order passed u/s. 143(3) in the case of Shri Rameswar Lal Sajan Kumar for A.Y. 1999-2000. It will be seen from the assessment order that it is totally devoid of any kind of comments, discussions and conclusion. Such assessment orders, without any discussion and consideration have been passed in all the other 11 cases of Polar Group of Cos. What is not to be....
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....arch was never taken up nor commented upon by the Ld. AO. Therefore, initiation of proceedings u/s. 147 was both reasonable and logical in view of various material evidences which had been generated through action u/s. 132(1). (C) Re-assessment proceedings have been challenged by the Assessee. Re-assessment has been challenged by the assessee at both pre-assessment stage and post assessment stage. At the pre-assessment stage reasons for re-opening were given to the asseesee and his objections were disposed off by a specific order which was conveyed to the assessee by the AO through his letter No. 710 dtd. 02.11.2006 (this letter is placed at Flag-'D'). During the post assessment period, before the CIT(A) Central-II, Kolkata, the assesee challenged the re-assessment on two grounds: Firstly, it was stated that the notice for re-assessment was issued beyond the four year period, that there was also no reason to believe that income had escaped assessment and that the cases were re-opened on a mere change of opinion. Secondly, the assessee also challenged that as no notice u/s. 143(2) was issued the entire re-assessment proceedings stands nullified. The CIT(A) in his orde....
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....e Ld.ITAT 'C' Bench have been ignored by the CIT(A) on the pretext that it is not within his powers to issue notice u/s. 143(2) of the IT Act or to direct the Assessing Officer to issue such notice in respect of and assessment order which already stands completed. He also stated that it is not within his powers to set- aside the assessment in order to remove irregularities. These are, however, irrelevant, issues because what the Ld. CIT(A) had to decide was only the applicability of the judgment of Madras High Court in the present case. Initial injustice was done to the interest of the Department when CIT(A) in his earlier order dtd. 07.03.2007 arrived at a conclusion based on the judgment of a lower Authority (Ahmadabad Tribunal) without taking into cognisance the judgment of a superior authority (Madras High Court). Further, when the matter was set-aside by the Hon'ble Tribunal to the CIT(A) once again injustice was done to the interest of the Department by the Ld. CIT(A) in his order dtd. 24.02.2009 by not deliberating upon the judgment of the Madras High Court and its applicability to the instant case even though there was specific direction from the Hon'ble ITAT 'C' Bench K....
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....unds taken by the assessee and held at para 4.4 of his order as stated below :- "4.4. The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of Hon 'ble Supreme Court is applicable in the resent case and therefore I hold that the notice issued by Assessing Officer u/s. 148 invalid and therefore the assessment order of the Assessing Officer is annulled." DR's ARGUMENT We have already discussed earlier that the original assessment orders were devoid of any kind of conclusion based on examination of seized material. When there is no discussion on the issue in the assessment order and no details were called for by the Assess....
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....o F.Y. 1998-99 which pertain to A.Y. 1999-2000. Inspite of such clear cut evidence, the Ld. CIT(A) has held that no cash transaction has taken place between 1.4.1998 to 31.3.1999. The observations and conclusions of the Ld. CIT(A) are therefore actually incorrect and faulty. Finally, I will also like to mention that with effect from A.Y. 1989-99 reopening of cases can be done by the AO if he has reasons to believe that income has escaped assessment even though there was no failure on the part of the assessee. In this context, I will draw your attention to the following cases Rakesh Agarwal Vs. ACIT(Del) 225 ITR 496 Prafulla Chunni Lal Patel Vs. M.J. Makwana ACIT Gujarat 236 ITR 832. On the basis of the above arguments I request your honours to set-aside the invalid and flawed order of Ld.CIT(A) dtd. 24.12.2.009 and confirm the additions made by the AO in all the 12 cases of Polar Group u/s. 147/143 of the IT Act." 5. The ld. AR on the other hand vehemently contended that the AO while framing the assessment u/s 143(3) had all the material available with him on account of the search and there was no failure on the part of the Assessee to disclose fully and truly all....
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....ved, it is expedient to discuss the relevant provisions. The relevant provisions of Sec. 147 are reproduced as under : "147. 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 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 (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a not....
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....ess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012." 6.1 From reading of this section, it is apparent that this section empowers the AO to assess or re-assess income chargeable to tax if he has 'reason to believe' that income for any assessment year has escaped assessment. This section authorizes the AO not only to re-assess but also to assess the Assessee in respect of an income which escaped assessment. For initiating the proceedings under this section, no doubt there must be 'reason to believe'. 'Reason to believe' would mean cause or justification. If the AO has cause or justification to know or suppose that income has escaped assessment, it can be said that assessing officer ha....
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....unds of appeal taken by the Assessee. The Revenue challenged the order of CIT(A) on the ground that CIT(A) was wrong in annulling the assessment made u/s 147/143(3) just on technical reasons without going into the merits of the case relying on the order of the Hon'ble Madras High Court as reported in the case of Areva T and D India Ltd. Vs. Asst. CIT, 294 ITR 233 (supra). The Tribunal although set aside the issue to the file of CIT(A) to re-decide the same after taking into consideration the decision of Hon'ble Madras High Court in Areva T and D India Ltd. Vs. Asst. CIT reported in 294 ITR 233 (supra). While setting aside the order to the file of CIT(A), the Tribunal stated that the Assessee's are at liberty to substantiate their claims, both legally as well as on merits. This is a fact that in this case the CIT(A) vide its order dt. 7.3.2007 has not decided the other grounds taken by the Assessee and annulled the assessment only on the issue relating to the notice issued u/s 143(2). Since the Revenue has challenged the order of CIT(A) on this very issue, the Tribunal has set aside, the said issue as the jurisdiction of the Tribunal u/s 254(1) is limited to the grounds of a....
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.... taken by the Assessee that initiation of the proceedings are barred by limitation in view of proviso to Sec. 147 but the CIT(A) decided in favour of the Assessee on the issue that the same information was available with the AO even during the original assessment by observing as under : "4.4 The facts of the present case clearly show that an Assessing Officer who has a proper understanding of Income Tax Act cannot hold a belief that the loan or capital credited in the books of account during the year under appeal is not genuine on the basis of information about some unspecified loan or capital of preceding years. In fact the same information was available with the Assessing Officer even during the original assessment year and at that time this information was not considered to be sufficient to hold that the loan or capital credited during the year could be non genuine. The above mentioned decision of H'ble Supreme Court is applicable in the present case and therefore I hold that the notice issued by Assessing Officer u/s 148 was invalid and therefore the reassessment order of the Assessing Officer is annulled." 6.5 The Assessee has not filed any appeal or cross objection befo....
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....e vague and based on suspicion. We also noted that the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) nowhere took the view that some fresh tangible material should come subsequently in the possession of the AO while taking action u/s 147 The Hon'ble Supreme Court while comparing the old provisions of Sec. 147 and the provisions as has been substituted w.e.f. 1.4.1989 has clearly laid down under para 17 of its decision that under the substituted Sec. 147 for 'reasons to believe' existence of only the first condition is sufficient. If the AO, for whatever reasons, has reason to believe that income has escaped assessment, it confers jurisdiction to re-open the assessment. It is further stated that both the conditions must be fulfilled if the case falls within the ambit of proviso to Sec. 147. The CIT(A), we noted, has not allowed the relief to the assessee on the applicability of proviso to section 147 and that is not the issue before us. No doubt the ingredients of Sec. 147 are to be fulfilled. We noted that the Hon'ble Supreme Court in the case of Raymond Wollen Mills Ltd vs. ITO, 236 ITR 34 when a similar quest....
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.... Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:" 6.10 We noted that Sec. 34 authorises the AO to take action for re-assessment under two situations; the first situation is given in Sec. 34(1)(a) and second is given in Sec. 34(1)(b). Sec. 34(1)(a) empowers the AO to assess or re-assess the escaped income, where the AO has reason to believe, due to the omission or failure of the Assessee to make a return of his income u/s 22 or to disclose fully and truly all the material facts necessary for his assessment. U/s 34(1)(a) 'reason to believe' is qualified by the words 'omission or failure'. Sub-clause (b) applies to a case where there may be no omission or failure but the AO, in consequence of information in his possession, has reason to believe about the escaped income. U/s 34(1)(b) thus the 'reason to believe' for escapement of the income must have arisen in consequence of the information coming in the possession of the AO. The Hon'ble Supreme Court has analysed th....
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....e must be fresh facts or tangible material with the AO. We noted that in Sec. 147, as was in existence prior to 1.4.1989, under sub-clause (b) similar language has been used as had been used in Sec. 34(1)(b). For ready reference the said section 147 as was in existence prior to 1.4.1989 is reproduced as under :- "147. If - (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (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 sections 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....
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....ns precedent does not exist, but an investigation whether the inferences raised by the Income-tax Officer are "correct or proper" cannot be made. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into the possession of the Income-tax Office after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected." 6.13 From the provisions of Sec. 34(1)(b) and 147(b) which were under the Income Tax Act prior to 1.4.1989 it is apparent that for arriving at 'reason to believe' that income chargeable to tax has escaped assessment it was necessary that the AO must have information in his possession prior to arriving at reasons to believe that income escaped assessment. This information has been interpreted by the court....
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....view of explanation 2 clause (c) of Sec. 147. 6.14 In the case of Praful Chunilal Patel 236 ITR 832 as relied by ld. A.R, we noted that their Lordships of the Hon'ble jurisdictional High Court have held as under : "The power to make assessment or reassessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. The words 'escaped assessment', where the return is filed, cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration, or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based. In cases where the AO had overlooked something at the first assessment, there can be no question of any change of opinion, when the income which....
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....the belief, is not for the court of judge but it 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 non-specific information. To that limited extent, the court may look into the conclusion arrived by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief." 6.18 Thus, while the court will not judge the adequacy of the reasons provided by the Assessing Officer, the court must assess whether the belief is based on relevant and specific information that could lead to such a belief. This wellaccepted principle has found acceptance in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); Central provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 (SC), Sri Krishna Pvt. Ltd. v. ITO [1996] 221 ITR 538 (SC); [1996] 9 SCC 534." 6.19 We have perused the reasons recorded by the AO. In our opinion the reasons recorded cannot be regarded to be arbitrary,....
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....res of Rs. 54 lacs issued during the assessment year were bogus. The AO, we found, has inferred in the reasons that the capital introduced by the Partners are out of undisclosed loan arranged by Shri Sunil Kumar Agarwal. We noted from the finding of CIT(A) in para 4.2 that Shri Sunil Kumar Agarwal in his statement has admitted that Polar group of companies has inflated the bills to suppress the income and the excess amount paid on such bills was received back in cash and the total amount of such suppressed income since 1988-89 upto 1998-99 was about Rs. 16-17 crores. CIT(A) was of the opinion that in the statement nothing has been mentioned in respect of the cash loan obtained during the impugned assessment year and therefore drawing of any loan or capital during the impugned assessment year is not a belief but a suspicion. In our opinion, at the time of initiation of the proceedings the AO has to look into whether there is information or material relevant to the assessment year under consideration for the escapement of income. The said statement as contended by the ld. D.R and as stated by us above clearly prove that information in this statement also relate to impugned assessment....
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....8. While holding so, the Delhi High Court has discussed various decisions on this issue as under : "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 being had to the aforesaid issues, we think it appropriate to refer to certain citations in the field. In Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), while dealing with the validity of commencement of reassessment proceedings under section 147 of the Act, the apex court has held that there is prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. The High Court of Gujarat in Praful Chunilal Patel v. M. J. Makwana, Asst. CIT [1999] 236l1R 832 has opined that in terms of the provision contained in section 147, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the A....
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....elief, 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 section 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 could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid." In Birla VXL Ltd. vs. Asst. CIT (1996) 217 ITR 1, a Division Bench of the Gujarat High Court has opined thus (page 3) : "Explanation 2 to section 147 of the Act, as appended to the newly substituted section 147 makes certain provisions, where, in certain circumstances, the income is deemed to have escaped assessment giving jurisdiction to the Assessing Officer to act under the said provision. Another ....
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....re conditions precedent for the assumption of jurisdiction under section 148 of the Act. In Phool Chand Bajrang Lal v. ITO [1993J 203 I1R 456, the apex court has held thus (page 477) : "From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had 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 the drawing of....
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....nces that there was no material before the Income-tax Officer to believe that the income had escaped assessment." (emphasis added) In H. A. Nanji and Co. v. ITO [1979] 120 ITR 593 (Cal), it has been held that at the time of issue of notice of the reassessment, it is not incumbent on the Income-tax Officer to come to a finding that income has escaped assessment by reason of the omission or failure of the assessee to disclose fully and truly all material facts necessary for assessment. It has been further held that the belief which the Income-tax Officer entertains at that stage is a tentative belief on the basis of the materials before him which have to be examined and scrutinised on such evidence as may be available in the proceedings for reassessment. The Division Bench held that there must be some grounds for the reasonable belief that there has been a nondisclosure or omission to file a true or correct return by the assessee resulting in escapement of assessment or in underassessment. Such belief must be in good faith, and should not be a mere pretence or change of opinion on inferential facts or facts extraneous or irrelevant to the issue and the material on which the belief....
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....91 ITR 500 (SC), it has been ruled out(page 511) : "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 cause or justification. 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. The function of the "Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what....
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.... and the second and the third part 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 has arrived at the correction on facts. The law is well settled. There is no substantial question of law which arises for our consideration.(emphasis is ours) At this juncture, it is profitable to refer to the authority in GKN Drive shafts (India) Ltd. v. ITO [2003} 259 ITR 19 (SC) ; [2003] 179 ITR 11 (SC )wherein their Lordships of the apex court have held thus (page 20) ; "We see no justifiable reason to interfere with the order under challenge. However we clarify that when a notice under section 14 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitle....
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.... to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted." 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 objections and made a communication. However, Officer treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that the transactions involving Rs. 27lakhs mentioned in the table in annexure P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The Assessing Officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the Director of Incom....
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....r referred to the statement containing financial information regarding the company in question which was annexed to the letter. The statement contained information derived from the Bombay Stock Exchange Directory indicating that during the period 1965 - 70, the company had prospered, that the book value per equity share had risen from Rs. 318.55 for the year ending December 31, 1965, to Rs. 401 for the year ending December, 31, 1970, the earning per share had risen from Rs. 8.37 per to Rs. 44/- per share and that the dividend percentage had also risen from 2 per cent to 10 per cent for the same period. On the basis of the information contained in the letter of the Deputy Director and the documents annexed to it, the Income-tax Officer could have had reason to believe that the fair market value of the shares was far more than the sale price and that the market quotations from the Calcutta Stock Association shown by the respondent at the time of original assessment were manipulated ones and that as a result income chargeable to tax had escaped assessment. It could not be said that the information that was contained in the letter was not definite information, and could not be acted up....