TaxTMI 
TaxTMI 
2015 (10) TMI 23
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....f the assessment under Section 147 of the Act. 2. The controversy involved in the present appeal relates to the action of the AO in reopening the assessment in respect of transactions that had been examined and verified by the AO during the initial assessment proceedings which culminated in the assessment order dated 31st December, 2003. The assessment was re-opened based on information received by the AO from the Investigation Wing that the Assessee had obtained accommodation entries from certain entry operators during the relevant period. The Assessee's challenge to the initiation of re-assessment proceedings as well as the addition made to the Assessee's taxable income pursuant thereto, was sustained by the CIT(A) as well as the Tribunal. 3. This appeal was admitted on 6th January, 2014 and the following questions were framed for consideration:- "(a) Is the impugned decision of the ITAT justified and correct inasmuch as it holds that the reopening of assessment of the petitioner was not in accordance with law; and (b) Whether the ITAT fell into error in not upholding the Revenue's contentions that the other accounts have to be added on merits under Se....
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....uded a sum of Rs. 55,15,400/- from Richie Rich and Rs. 2 Lacs from Adam Impex Pvt. Ltd. On receiving this information, the AO recorded as a reason to believe that the income of the Assessee for AY 2001-02 had escaped assessment and, accordingly, issued a notice dated 31st March, 2008 under Section 148 of the Act. Thereafter, the AO issued a notice dated 7th November, 2008 under Section 143(2) of the Act. In response to the aforesaid notice, the Assessee requested the AO to treat the return as originally filed as a return in response to the notice under Section 148 of the Act. The Assessee also sought the reasons for the re-opening of the assessment. 4.4 Thereafter, the AO proceeded with the reassessment proceedings and called upon the Assessee to furnish details in respect of certain transactions reflected in its bank account. Subsequently, the AO also provided the Assessee with the reasons for initiating proceedings under Section 147/148 of the Act. 4.5 The Assessee objected to the reopening of the assessment vide a letter dated 12th December, 2008. According to the Assessee, the reasons recorded were wrong; without application of mind; and there was no tangible evidence, wh....
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.... an appeal before the Tribunal, which was rejected by the order dated 9th November, 2012 - the order impugned in the present appeal. The Tribunal had held that the Assessee had disclosed all the relevant material at the time of original assessment and, therefore, the pre-condition under the proviso to Section 147 of the Act had not been met. The Tribunal further held that the reopening of assessment was not based on any fresh material but material disclosed by the Assessee during the initial assessment. The Tribunal also observed that the reasons recorded by the AO for reopening of assessment did not contain any allegation that there was any failure on the part of the Assessee to disclose all material facts. The Tribunal relied upon the decisions of this Court in Wel InterTrade P. Ltd. & Anr. v. ITO: 308 ITR 22 (Del.) and Haryana Acrylic Manufacturing Company v. CIT & Anr.: 308 ITR 38 in support of its view that the reopening of assessment could not be sustained as the necessary condition for invoking Section 147 of the Act had not been met. The Tribunal was also of the view that the addition had been made on account of a change in AO's opinion, which was not permissible. 5. Mr ....
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.... contention. 9. We have heard the learned counsel for the parties. 10. The first and foremost issue to be addressed is whether the AO could assume jurisdiction to reopen the assessment based on the information received from the Investigation Wing of the department. It is now well settled that the AO can reopen the assessment if he has reason to believe the Assessee's income has escaped assessment. However, his reasons to believe must not be based on surmises, conjectures or occasioned by change in opinion but must be based on some tangible and credible material on the basis of which a reasonable belief could be formed that income of an assessee has escaped assessment. The language of Section 147 requires the AO to have a reason to believe and not a reason to suspect. The reason to believe that income of an Assessee has escaped assessment must be bonafide and reasonable. It is also settled that the material on which the AO forms his opinion must not be the same material which had been considered at the time of the initial assessment, as in that case, the proceedings under Section 147 of the Act would amount to reviewing the assessment order merely on a change of opinion, which....
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....s to give a schematic interpretation to the words " reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of " mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of " change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of " change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is " tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act,....
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....ntry business. The same included Mahan Enterprises Ltd. as well as Richie Rich. A list of entries had also been provided, which included certain bank transactions with the Assessee. The investigation report also indicated that the entries were provided as gifts or subscription to share capital. 17. Section 147 of the Act does not postulate that the AO arrives at a final conclusion and ascertains, as a fact, that the income of the Assessee had escaped assessment. All that is required at the stage of initiation of proceedings for reassessment is for the AO to form a reasonable belief on tangible material that the income of the Assessee has escaped assessment. In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.: 291 ITR 502, the Supreme Court explained the above in the following words:- "16. 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 inc....
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....le unless the condition as specified in proviso to Section 147 was met and the income of the Assessee had escaped assessment on account of Assessee's failure to disclose truly and fully all material facts for assessment of its income. Indisputably, the issue regarding unsecured loans from Richie Rich had been examined by the AO in the initial assessment and the Assessee had provided all the necessary evidences to establish the genuineness of the transactions. In view of the same, it has been contended that the conditions as contained in the proviso to Section 147 have not been met as there has been no failure on the part of the Assessee to either file the return of income or to disclose fully and truly all material facts. 20. In Calcutta Discount Company v. Income Tax Officer: 41 ITR 191 the Supreme Court considered the import of the words "omission or failure to disclose fully and truly all material facts necessary for his assessment" and observed as under: "The words used are "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year". It postulates a duty on every assessee to disclose fully and truly all material fa....
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.... of M/s Haryana Acrylic Manufacturing Co. (P) Ltd. (supra) must be understood in the context of the facts of that case. It is also relevant to note that in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. (supra) the reasons recorded by the AO did not even mention that the Assessee had failed to disclose truly and fully all material facts necessary for the assessment. The said decision cannot be read as an authority for the proposition that if the AO, based on tangible material obtained subsequent to the conclusion of the assessment, forms a belief that the income of an Assessee has escaped assessment on account of bogus entries passed by the Assessee in its books of accounts, the AO would, nonetheless, be precluded from reopening of the assessment after expiry of four years from the end of the relevant assessment year since the issue had been examined in the initial assessment. 24. In our view, the question whether the Assessee could have been stated to disclosed fully and truly all material facts have to be examined in the light of facts of each case and also the reasons that led the AO to believe that income of an Assessee has escaped assessment. In a case where the primary fac....
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....f 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 sections 148 to 153 referred to as the relevant assessment year). Explanation 1: for the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where income chargeable to tax has been underassessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Incometax Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed. Explanation 2: Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." 28. Section 147 after the amendment w.e.f. 1st April, 1989 reads as under:- "147. If the Assessing Officer has reason to believe that any i....
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....is Act has been computed.]" 29. It is at once seen that the Amendment in Section 147 of the Act brought about a material change in law w.e.f. 1st April, 1989. Section 147(a) as it stood prior to 1st April 1989 required the AO to have a reason to believe that (a) the income of the Assessee has escaped assessment and (b) that such escapement is by reason of omission or failure on the part of the Assessee to file a return or to disclose fully and truly all material facts necessary for his assessment for that year. After the Amendment, only one singular requirement is to be fulfilled under Section 147(a) and that is, that the AO has reason to believe that income of an Assessee has escaped assessment. However, the proviso to Section 147 of the Act provides a complete bar for reopening an assessment, which has been made under Section 143(3) of the Act, after the expiry of four years. However, this proscription is not applicable where the income of an Assessee has escaped assessment on account of failure on the part of the Assessee to make a return or to disclose fully and truly all material facts necessary for his assessment. Thus, in order to reopen an assessment which is beyond the ....
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....vailable in the initial assessment period. 32. There is yet another safeguard provided to the Assessee which was sought to be side-stepped by the AO. The Supreme Court in the case of G.K.N Driveshafts (India) Ltd. v. ITO: (2003) 259 ITR 19 (SC); (2003) 1 SCC 72 had held that if an Assessee if so desirous, could seek reasons for issuance of notice under Section 148 of the Act and the AO would be bound to furnish the same within a reasonable time. The Court further held that that the noticee would be entitled to file objections against the issuance of the notice and the AO would be bound to dispose of the same by passing a speaking order. 33. In the present case, the Assessee filed its objections by a letter dated 12th December, 2008 and requested the AO to drop the proceedings. The Assessee by its letter dated 18th December, 2008 sent in response to another notice, also provided its response in respect of the alleged accomodation entries, which were reported by the Investigation Wing. However, the objections filed by the Assessee were not disposed of by the AO and he proceeded to frame the assessment. This Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. (supra) had obs....