TaxTMI 
TaxTMI 
2016 (6) TMI 52
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....ons, it was stated that Shri Rajkumar who is the kartha of the present appellant i.e. Rajkumar C, HUF stated that regular returns of income were being filed in the individual capacity and no returns were filed in the status of 'Rajkumar C, HUF', appellant herein. It is stated that Shri Rajkumar appeared before the Investigation Wing of the Department and gave a statement on 26/08/2008 and also filed a letter dated 24/12/2008 before the ADIT, Investigation Wing that the income earned from real estate activities belong to the HUF. However, no returns were filed. While matter stood thus, assessments were in the hands of Shri Rajkumar, in his individual capacity were completed lu/s 143(3) read with sec.153C of the of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] on 28/2/2010 for the assessment years 2005-06 to 2007-08 bringing the income earned from the activity of real estate to tax and gains arising out of sale of lands etc. However, on appeal before the CIT(A) , the contention of the assessee that the income belonged to HUF came to be accepted by the CIT(A). However, the CIT(A) had directed the AO initiate assessment proceedings to tax this income....
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....f the CIT(A) was dismissed by this Tribunal. Pursuant to the directions of the CIT(A), the AO had issued notice u/s 148 to the appellant i.e. Rajkumar C, HUF for the assessment years 2005-06 to 2007-08 recording the following reasons: "The assessee is in the business of real estate and has not disclosed income from real estate transactions for A.Y. 2007-08. The assessee had earned at' income of Rs. 2,4025,150/ for A.Y 2007-08. The assessee had not filed any return of income in his capacity of HUE. The assessee had not disclosed this income in return of incomes filed in the capacity of individual. There was a search u/s. 132 of IT Act in the case of Sri. Purushotham Reddy others where the residence of the assessee was covered oil 26.08.2008. Based on the incriminating material seized DCIT, CC-2(2). Bangalore had brought these amounts of Rs. 2,40,25,150/- for A.Y 2007-08 in the hands of Sri C.Rajkumar (Indl.) in the assessment order dt: 28.12.2010. The assessee preferred an appeal before C1T(A)-VI, Bangalore who in his order (dt 05.08.2011 has field as under: Similarly, for the AY 2007-08 on the basis of cash flow statement CIT(A) has held that an amount of Rs. 2,40,25,150/-....
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.... In the absence of application of mind by the AO to form a belief or reason that income got escaped assessment, re-assessment proceedings are not valid in law and in support of this proposition, reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kamadhenu Steel & Alloys Ltd. (248 ITR 33)(Del). It was further contended that income cannot be assessed in the hands of HUF as partition of the HUF had already been taken place and the partition deed was already seized by the department during the course of search and seizure operations. 7. On the other hand, learned Departmental Representative contended that it is a clear case of escapement of assessment of tax as defined u/s 147 of the Act as no return was filed by the appellant though there was taxable income exceeding maximum amount not chargeable to tax in the hands of the appellant. 8. We heard rival submissions and perused material on record. At the outset, we shall deal with the preliminary ground challenging the very validity of the re-assessment proceedings as it goes to the root of the jurisdiction of the assessment proceedings. Indisputedly, Shri Rajkumar made a statement before ADIT, ....
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....(P.) Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Incometax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income-tax has been obtained. The Income-tax Department cannot rely on any other material apart from the report." 11. The same principle was reiterated in a judgment of the Division Bench of this Court in Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332(Bom.) :- "...the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons....The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the m....
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....information/directions of CIT(A) and independently arrived at a belief that on the basis of the material which he had before him, income had escaped assessment. The AO merely acted on the directions of the CIT(A). The directions of the CIT(A) are not binding on the AO and it is a matter of record that the AO, in fact, had challenged the correctness of the CIT(A)'s order before the Tribunal which came to be dismissed. The directions of the CIT(A) are only in the form of opinion/view of the CIT(A). The AO has to independently form an opinion that income has escaped assessment which is not discernible from the reasons recorded. The formation of belief that income escaped assessment also vitiated by the fact that the correctness of the order passed by the CIT(A) was challenged in appeal before the Tribunal by the AO. Therefore, AO had not independently made up his mind on the basis of information in his possession to form opinion that income escaped assessment, which is sine qua non for valid initiation of re-assessment proceedings. 9.3 It is trite law that the initiation of re-assessment proceedings should be done by the AO only on the AO's own satisfaction and not at the behest of t....
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....olour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer." The ratio fully governs the present case and the record illuminates the failure of the Assessing Officer to adhere to this principle while issuing notice under section 148 in the present case. It is true that satisfaction of the Assessing Officer for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to be scrutinised. However, it is always open to question the existence of such belief on the ground that what has been stated is not the correct state of affairs existing on record. Undoubtedly, in the face of the record, the burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the Assessing Officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in p....
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....ructions are being taken for remedial action, viz., remedial action should invariably be initiated as a precautionary measure in respect of audit objections, even if the objection is not accepted by the Income-tax Officer or without the assessing authority applying his mind to such information for reaching his own conclusion. Once the remedial action is initiated, it can be dropped with the approval of the Commissioner of Incometax if the objection raised is one of facts and the facts stated to the audit are found to be incorrect." 9.4 Now, the law is fairly well settled that the decision to reopen the assessment has to be taken by the AO alone and noITA one else. In other words, AO could not have been subjected to any compulsion while taking the decision to reopen the assessment. The AO is a quasi-judicial authority. The quasijudicial authority which is expected to perform statutory functions cannot act on the dictates of any authority. In this regard, it is apt to reproduce the observations made by the Hon'ble Delhi High Court in the case of Sun Pharmaceuticals Industries Ltd. vs. DCIT: "18. That a quasi judicial authority, which is expected to exercise statutory functions on ....
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....elax the rigour of the law or grant relief to the taxpayers which is not to be found in the statute. But the Central board cannot dilute the discretion of the Commissioner which has been conferred by the statute." 24. In Dr. M.L. Passi v. CBDT (supra) the above legal position was reiterated. In CIT v. SPL's Siddhartha Ltd [2012] 345 ITR 223 (Del) the Court found that for the purposes of Section 151 (1) of the Act the approval for issuance of notice under Section 147 had to be given only by the Joint Commissioner or Additional Commissioner. Instead the approval was taken, in that case, from the CIT (3) who was not competent to approve the action even though he was a higher authority. When the Court examined the file, it found that although it was routed through the Additional Commissioner, he did not apply his mind for due sanction but instead requested the CIT to accord the approval. The Court observed: "Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority h....
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....contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A'. Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or reassessment falling within the scope of the said proviso. The scope of the proviso is confined to an assessment or re-assessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under section 31 i.e., in an appeal before the Assistant Appellate Commissioner, under section 33 i.e., in an appeal before the Tribunal, under section 33A i.e., in a revision before the Commissioner, under section 33B, i.e., in a revision before the Commissioner against an order of the Incometax Officer, and under sections 66 and 66A, i.e., in a reference to the High Court and appeal against the High Court's order to the Supreme Court. Learned counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is the subject-matter of the appeal or the revision, as the case may be. Learn....
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....ctions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression "finding" as well as the expression "direction" can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein." It was clarified that the words 'any person' would refer to those who were not nominee parties to the appeal although the assessment of their income would depend upon the assessments of the assessee. Mudholkar, J. speaking for the minority referred to this Court's decision in S.C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR 1 wherein the validity of the aforementioned provisions was questioned; read down the proviso appended to section 34(1) stating : ". . . No doubt, this Court has recently held in S.C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR 1 that the proviso, insofar as it removes the bar of limitation with respect to persons other than the asse....
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....icular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pertaining to A. The same principles seem to apply when the question is whether the income under enquiry is taxable in the assessment year under consideration or any other assessment year. As regards the expression 'direction' in section 153(3)(ii) of the Act, it is now well-settled that it must be an express direction neces....
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....r that clause, did not exist in the present case. Sri Srinivasan contended that the second condition also was not satisfied in this case because the ITO was in possession of all the material facts relating to the income of Rs. 72,116 when he dropped the proceedings on April 11, 1968, and that if he did not tax that income for the year 1962-63, it was not due to any omission or failure on the part of the petitioners' family to disclose that income or any material facts relating thereto fully and truly. Sri Srinivasan maintained that merely because the ITO had subsequently taken the view then that such income was taxable for the assessment year 1963-64 and not for the assessment year 1962-63, it was not open to him (the ITO) to reopen the assessment again on account of his change of opinion as to the assessment year in which such income could be taxed. In support of his contention, Sri Srinivasan relied on the decision of the Supreme Court in Gemini Leather Stores v. ITO [1975] 100 ITR 1. There, the facts were these: The assessee-firm had utilised certain drafts for making purchases at Madras and Calcutta. Those drafts represented its undisclosed income. This aspect of the matte....