TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2383
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.... similar, the appeals are being disposed of by this common order. 3. The common question that arises for consideration in both cases, as urged by the Revenue, is whether in the facts and circumstances of the case, the ITAT was right in holding that the reopening of the assessment under Section 148 of the Act was bad in law as the reasons to believe formed by the Assessing Officer (AO) was not in terms of Section 147 of the Act.? 4. The facts in brief as far as ITA No.292/2015 is concerned are that the Assessee, Indo Arab, filed its return of income for the AY 2002-2003 on 21st October, 2001, declaring a total income of Rs. 36,02,307. The return was processed and an acknowledgement was issued under Section 143(1) of the Act. Subsequently, the AO received information from the Enforcement Directorate (ED) that in the books of the Assessee there were huge cash deposits. The following reasons were thereafter recorded in the file by the AO for reopening of the assessment under Section 148 of the Act: "Information has been received from the Enforcement Directorate that in the books of M/s. Indo Arab Air Services there has been huge cash deposits. In the books of M/s. Indo Arab Air Ser....
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....o Arab the cash deposit of Rs. 3.23 crore was out of the business receipts and duly disclosed in its account. 6. The AO, however, rejected the above contentions of Indo Arab and held that in the absence of books of accounts the cash deposits in the sum of Rs. 3,23,00,550 for Financial Year 2001-2002 was required to be treated as unexplained income. It was directed to be added back to the income of the Assessee. 7. As far as ITA No.299/2015 is concerned, the Assessee, RL Travels, filed its return of income for AY 2002-2003 on 28th October, 2002 declaring a total income of Rs. 45,82,407/-. The following reasons were recorded by the AO for seeking to reopen the assessment under Section 148 of the Act: "In the books of M/s. R.L. Travels, New Delhi there has been cash deposits of Rs. 90,50,000/- during the F.Y 2001-02 as detailed in Annexure - A. Also, in the books of accounts of M/s. R.L. Travels, Trivendrum, it is seen that two amounts of Rs. 15 lacs and Rs. 10 lacs have been shown as received in cash by M/s. R.L. Travels, New Delhi from its Trivendrum Branch in the month of March 2002 but no plausible explanation has been offered by Sh. Chetan Gupta, partner of RL Travels, regard....
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.... the AO. 12. The appeal filed by Indo Arab was allowed by the ITAT by the impugned order dated 18th June, 2014. The ITAT noted that the information in the first place was not correct inasmuch as Indo Arab was regularly assessed to income tax. The AO had himself given a finding that the cash transaction was recorded in the books of accounts. Further the observation that there was no plausible explanation offered by the Assessee from the ED's point of view was vague and could not form the basis for the AO to form a belief regarding income escaping assessment. The statement given by Mr. Chetan Gupta to this effect was also not enclosed with the information sent by the ED. Consequently both sets of information received from the ED were found to be factually incorrect. The ITAT was of the view that the said information ought to have been verified from the available record by the AO to form a reason to believe that income had escaped assessment. 13. With regard to the appeal filed by the RL Travels, the ITAT noted that it was a sister concern of Indo Arab and relying on the order in the case of Indo Arab, the ITAT by the impugned order dated 22nd October, 2014 set aside the addition an....
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....many years is a serious matter. Since the finality of a judicial or quasi-judicial proceedings are sought to be disturbed, it is essential that before taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence. (e) The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation is belief regarding escapement of income. (f) The fact that the words "definite information" which were there in section 34 of the Act of 1922 before 1948, are not there in section 147 of the 1961 Act would not lead to the conclusion that action can now be taken for reopening an assessment even if the information is wholly vague, indefinite, far-fetched or remote." 17. In Assistant Commissioner of Income Tax v. Rajesh Jhaveri ....
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....reat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer..." 19. The decision of this Court in CIT v. Orient Craft Ltd. (2013) 354 ITR 536 (Del) provides a complete answer to the specific question whether even where a return had not been picked up for scrutiny and there was only an intimation under Section 143(1) of the Act, the jurisdictional requirement of the AO having to record 'reasons to believe' under Section 147(1) of the Act that income had escaped assessment had to be fulfilled. The Court explained: "13. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed ....
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.... In fact, the AO contradicted himself in the reasons recorded by him by noticing the information of the ED to the above effect and then stating that on perusal of the records for the AY in question it was noticed that the Assessee "had not disclosed these transactions in its books of accounts." Further the AO refers to the ED's information that Mr. Chetan Gupta, partner of the Assessee, failed to explain the sources of the cash deposits as shown in the books of accounts. However, that by itself could not have led the AO to even prima facie conclude that income of the Assessee had escaped assessment. The explanation or the lack of it of the entries in the books of accounts may have certain relevance as far as ED is concerned but that by itself does not provide the vital link for concluding that for the purposes of the Act any part of cash deposits constituted income that had escaped assessment. There is a long distance to travel between a suspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment. While the law does not require the AO to form a definite opinion by conducting any detailed investigation regarding the escapement of i....