AI Drafter 
TaxTMI 
TaxTMI 
2016 (5) TMI 804
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....n order dated 26th November 2002, the Court directed that the proceedings in terms of the abovesaid notice under Section 148 of the Act may continue before the Assessing Officer ("AO") but no final order shall be passed during the pendency of the writ petition. 3. The Petitioner was earlier a partner of M/s. Rangwala Enterprises. The other partner was Ms. Ritu Rangwala. The business of the firm was taken over by the Petitioner as a sole proprietor on 1st December 1998 as a going concern with all its assets and liabilities. It is stated that the Petitioner was also a deriving income from letting out of property, i.e., Flat at G-4, Arunachal, 19, Barakhamba Road, New Delhi in which the Petitioner has 47% share. Besides, the Petitioner has also income under head long term capital gains and other sources like interest from savings bank account and others. 4. On 1st December 1998 the Petitioner wrote to the AO regarding retirement of the other partner, Ms. Ritu Rangwala, from the partnership firm. It is stated that from that date the firm was converted into a proprietorship with the Petitioner as sole proprietor. A copy of the retirement deed dated 30th November 1998 evidencing th....
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....ction 147/148 of the Act as being without jurisdiction and bad in law. The AO was also requested to supply a copy of the reasons under Section 148 (2) of the Act for reopening the assessment. 10. The Petitioner states that her authorized representative ("AR"), i.e., Mr. Sanjeev Gupta, CA visited the office of the AO, i.e., DCIT on several dates beginning with 11th October 2001 up to 20th December 2001 for procuring copy of the reasons recorded by the AO for issuance of the notice under Section 148 of the Act. However, the request was not acceded to. The Petitioner states that she had also sent reminders on 19th November 2001 and 10th December 2001 for supply of reasons recorded but the reasons were not supplied. 11. On 26th November 2001 the Respondent issued notice to the Petitioner under Section 142 (1)/143 (2) of the Act enquiring about the business and other matters relating to past several years of the Petitioner and her family members. This letter was stated to have been given by the AO to the Petitioner's AR on 3rd December 2001 requiring the compliance within a week. Reasons for reopening assessment 12. On 20th December 2001 the Petitioner's AR was orally instru....
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....es claimed are on the higher side and has to be examined. This case therefore, needs scrutiny and in the facts and circumstances, I have reason to believe that the Assessee has deliberately resorted to and adopted ways and means to avoid to declare the correct income thereby resulting in the escapement of taxable income. Issue notice under Section 148 of the Income Tax Act, 1961." Reply to Petitioner's challenge 13. In response to the letter dated 10th December 2001 of the Petitioner challenging the re-opening of assessment under Section 148 of the Act, the Income Tax Officer (" ITO") Ward 36 (2) wrote a letter dated 21st December 2001 to the Petitioner setting out the reasons considered by the AO and thereby rejecting the challenge. The letter further stated that from the details furnished by the Assessee in the final account for the two periods, it was seen that for the period 1st April 1998 to 30th November 1998 there was a loss of Rs. 3,12,885 which was wrongly claimed as a deduction from the property income in view of Section 10 (2A) of the Act. The ITO therefore noted that the AO was accordingly of the view that" "the Assessee has thus artificially and with an ulteri....
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....best a change of opinion based on suspicion and surmises. 17. It is further submitted by Mr Monga that the notice under Section 148 of the Act cannot be issued for the purpose of verification of the material already available with the authorities. Mr. Monga placed reliance on the decision in Commissioner of Income Tax v. Kelvinator of India Limited (2010) 187 Taxman 312 (SC), and decisions of this Court in Commissioner of Income Tax v. Orient Craft Limited (2013)354 ITR 536 (Del), Mohan Gupta (HUF) v. Commissioner of Income Tax (2014) 366 ITR 115 (Del) , Pr. Commissioner of Income Tax v. Tupperware India (P) Ltd. (2016) 236 Taxman 494 (Del), Commissioner of Income Tax v. Batra Bhatta Company (2010) 321 ITR 526 (Del), Commissioner of Income Tax-V v. Times Business Solution Ltd. (2013) 354 ITR 25 (Del), Commissioner of Income Tax - Central v. Indo Arab Air Services (2016) 283 CTR 92 (Del) and Asia Satellite Telecommunications Co. Ltd. v. Assistant Director of Income-tax, International Taxation (2013) 29 taxmann.com 317 (Del). Submissions of counsel for the Revenue. 18. Countering the above submissions it is pointed by Mr. Dileep Shivpuri, learned counsel for the Revenue that....
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....made in the income or loss declared in the return, namely- (i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie in admissible, shall be disallowed: Provided further that an intimation shall be sent to the Assessee whether or not any adjustment has been made under the first proviso and notwithstanding that no tax or interest is due from him: Provided also that an intimation under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable." 21. What is evident is the requirement of the AO having to send an intimation to the Assessee specifying if any tax or interest found is due on the basis of the return filed after adjustmen....
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.... further that no intimation under this sub-section shall be sent after the expiry of two years from the end of the assessment year in which the income was first assessable." 23. Here again the word used is „intimation‟. The first proviso states that the acknowledgment of the return „shall be deemed to be an intimation‟ where either no sum is payable by the Assessee or no refund is due to him. The provision underwent changes as far as the outer limit of two years from the end of the assessment year in which the intimation is to be sent. The Rajesh Jhaveri decision 24.1 The entire legislative history of Section 143 (1) of the Act was discussed by the Supreme Court in Assistant Commissioner v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra). The facts of that case were that the Assessee filed its return of income for the AY 2001-02 on 30th October 2001, declaring total loss of Rs. 2,70,85,105. The said return was processed under Section 143 (1) of the Act accepting the loss returned by the Assessee. After the revenue audit raised an objection relating to showing of a debt of Rs. 1,285.72 lakhs as bad debts, the AO reopened the assessment on the gro....
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....to minimize the Departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D.K. Jain, J.) in Apogee International Limited v. Union of India (1996) 220 ITR 248 (Del). It may be noted above that under the first proviso to the newly substituted section 143 (1), with effect from 1st June 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under Section 143 (1) where (a) either no sum is payable by the Assessee, or (b) no refund is due to him. It is significant that the acknowledgement is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any „assessment‟ is done by them? The reply is an emphatic „no‟. The intimation under Section 143 (1) (a) was deemed to be a notice of demand under Section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable by such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no ....
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.... 143 (3) of the Act was overlooked in some of the decisions of the High Courts, including this Court. Decision in Orient Craft Ltd. 26.1 In Commissioner of Income Tax v. Orient Craft Limited (supra), the question that arose for consideration was whether the reopening of the assessment made by the AO under Section 147 of the Act of an assessment for the AY 2002-03 was valid and whether the intimation under Section 143 (1) sent to the Assessee by the AO in respect of such return was an 'assessment'? 26.2 It was urged on behalf of the Assessee that the requirement of the AO having to form 'reasons to believe' that income chargeable to tax has escaped assessment for the AY in question, was a sine qua non even where the return was merely processed under Section 143 (1) of the Act. The Court noted that: "it is true that no assessment order is passed when the return is merely processed under Section 143 (1) and an intimation to that effect is sent to the Assessee. However, it has been recognized by the Supreme Court itself in Assistant CIT v. Rajesh Jhaveri Stock Brokers (P) Limited (supra), a decision that was relied upon by the Revenue, that even where pro....
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....essed under Section 143 (1) in a more vulnerable position than an Assessee in whose case there was a full-fledged scrutiny assessment made under Section 143 (3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of Assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of providing valid reasons to believe could be circumvented by first accepted the return under Section 143 (1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143 (3) and cases where mere intimations were issued earlier under Section 143 (1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed." 26.6. The Court in Orient Craft Ltd. (supra) then proceeded to also explain Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and point out that the differenc....
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....ome chargeable to tax has escaped assessment. Thirdly, the Court in Orient Craft Ltd. (supra) also discussed the entire case law as per the reason to believe including the decision in Kelvinator of India Limited (supra). Other decisions of this Court 27. In Mohan Gupta (HUF) v. Commissioner of Income Tax-XI (supra) the return for the AY 2005-06 filed by the Assessee was processed under Section 143 (1) of the Act. On 26th March 2012 the Revenue issued a notice under Section 148 of the Act for reopening the assessment. The reason to believe as recorded by the AO was that the income on purchase and sale of shares ought to have been treated as business income rather than Short Term Capital Gain ("STCG") as claimed by the Assessee in the return filed by it. The AO was of the view that the earlier intimation under Section 143 (1) did not involve the application of mind by the AO and the new information had resulted from the scrutiny assessment for AY 2007-08. The Court relied on its decision in Orient Craft Limited (supra) and held that the record does not show "any tangible material that created the reason to believe that income had escaped assessment. Rather, the reassessment pro....
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....ome Tax v. Tupperware India (P) Limited (supra) the return of income was processed under Section 143 (1) of the Act at the returned amount. The return was for the AY 2003-04. It was sought to be urged that the AO had reasons to believe that the amount had escaped assessment after having examined the audit report and consequently notice was issued on 21st October 2005. The Court came to the conclusion that since the report of the statutory Auditor had already been enclosed with the return filed, "there was no material that the AO came across so as to have „reasons to believe that the income had escaped assessment." The Court relied on the decision in Orient Craft Limited (supra) and answered the question on the validity of the reopening of the assessment in favour of the Assessee. 31. In each of the above decisions, the Court proceeded on the basis that there had to be some new tangible material to justify forming 'reasons to believe' that the income had escaped assessment. During the course of the arguments in Tupperware India (P) Limited (supra) [decision dated 10th August 2015] the Court's attention was not drawn to the decision rendered by the Supreme Court f....
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...., was not even addressed by the High Court. 32.6 To be fair to the Bombay High Court, the decision in Rajesh Jhaveri Stock Brokers (P) Limited (supra) was delivered more than four years after its decision and therefore, there was no occasion for the Bombay High Court to have followed that ruling. However, the Supreme Court while setting aside the judgment of the Bombay High Court took note of the fact that in the meanwhile the AO had completed the assessment holding that the transaction amounted to a sale. This was affirmed by the CIT (A) but reversed by the ITAT relying on the decision of the High Court. Since the said decision of the High Court was being set aside, the Supreme Court also set aside the subsequent order dated 29th January 2004 of the ITAT and remitted the matter to the ITAT to decide the appeal on merits. Decisions post Zuari Estate Development 33. The true purport of the decision in Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) came for consideration before the Bombay High Court in Writ Petition No. 3027 of 2015 (Khubchandani Healthparks Pvt. Ltd. v. Income tax office 6(3)(4), Mumbai). By an interim order dated 10th February 20....
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....suing notice for reopening was that the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment." The Court however did not refer to the decision of the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra). Summary of the legal position 35.1 The upshot of the above discussion is that where the return initially filed is processed under Section 143 (1) of the Act, and an intimation is sent to an Assessee, it is not an 'assessment' in the strict sense of the term for the purposes of Section 147 of the Act. In other words, in such event, there is no occasion for the AO to form an opinion after examining the documents enclosed with the return whether in the form of balance sheet, audited accounts, tax audit report etc. 35.2 The first proviso to Section 147 of the Act applies only (i) where the initial assessment is under Section 143 (3) of the Act and (ii) where such reopening is sought to be done after the expiry of four years from the end of the relevant assessment year. In other words, the requirement in the first proviso to Section 147 of there having to be a failure on the part of the Assessee "t....
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....ee to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. 35.9 The decisions of this Court and other Courts to the extent inconsistent with the above decisions of the Supreme Court cannot be said to reflect the correct legal position. Analysis of the case at hand 36. In light of the above legal position, when the case at hand is examined, it is seen that the return filed having been processed under Section 143 (1) of the Act, there was no occasion for the AO to form an opinion on whether that was any escapement of income to begin with. A perusal of reasons to believe reveals that the AO on going through the return subsequently found that the Assessee had showed a loss of the firm, M/s. Rangwala Enterprises at Rs. 3,12,885. A loss of Rs. 12,94,055 of the firm was converted into a loss of the proprietary concern. Thus it was after comparing the profit and loss account for the two periods, i.e., prior to the Assessee taking over the partnership firm and thereafter it was noticed that the Assessee had wrongly cla....