TaxTMI 
TaxTMI 
2017 (9) TMI 743
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....s are as under: The respondent-assessee is a company registered under the Companies Act. For the assessment year 2009-10, the assessee had filed the return of income on 13.09.2009 declaring total income of Rs. 78.46 lacs (rounded off). The return was accepted under section 143(1) of the Act. No scrutiny assessment under section 143(3) of the Act was framed. Subsequently, a survey was carried out at the premises of the assessee-company. A statement of the Director of the company Shri Parasmal Jain was recorded on 30.08.2012 during such survey several documents were seized. The assessee also had written a letter dated 04.09.2012 to the Assessing Officer in which, it was stated inter alia that the company had verified its record for various years. Certain issues and transactions recorded in the regular books of accounts may not be possible to substantiate, as required under law, as it may take lot of time and effort. The company would like to avoid protected litigation. To avoid litigation and penalty and to buy peace, the company would voluntarily disclose an amount of Rs. 9 crores as its undisclosed income which would comprise of Rs. 7.52 crores for the assessment year 2009....
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.... food Pvt Ltd 45000 4500000 45000 450000 Total 752000 75200000 752000 7520000 During survey proceedings, the statement of Shri Parasmal Jain, director of the company was also recorded. But the statement left unconcluded, due to his health reasons. Accordingly, the assessee was summoned u/s. 131 of I.T.Act on 31.08.2012, to attend the office of ACIT, Circle 1(2), Baroda on 03.09.2012. In compliance to summon issued, the assessee attended the office of the undersigned, where his statement u/s 131 was recorded. While recording statement, the director of the company was asked vide Q. No. 57 to 70 of the statement recorded u/s 131 of the Act on 03.09.2012 about details of investors of the company and the investments made by them. But the director Shri Parasmal Jain who is the only beneficiary to enjoy the profits of the company and who take care all the matters of the company, was unable to give any detail in respect of investors. Even he was not able to name any one of investors who made such huge investments in the company. Later, on the same day the director of ....
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....ner rejected the assessee's appeal. Thereupon, the assessee preferred appeal before the Tribunal. 5. Before the Tribunal, the assessee, for the first time, raised the ground of validity of the notice of reopening which the Tribunal permitted since it touched upon the very jurisdiction of the Assessing Officer to reassess. The asssessee also canvassed detailed arguments on the merits of the additions made by the Assessing Officer and confirmed by the CIT(Appeals). With respect to the legality of the notice for reopening, the assessee had raised following five contentions: i. The Assessing Officer has not established a live link between the material relied upon to reopen the assessment and the escapement of income; ii. The reopening of assessment is done without application of mind as the Assessing Officer has not looked into the material available before him; iii. The Assessing Officer had initiated the proceedings on the basis of incorrect facts and irrelevant material; iv. The Assessing Officer had reopened the assessment without any fresh tangible material in his possession to show that income of the assessee had escaped assessment; ....
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....o 620 of the paper book already tiled with the return. The Assessing Officer's first reason is that a scrutiny thereof indicates the assessee to have introduced unaccounted capital through share capital and premium. The same is nowhere even referred to in the body of assessment order containing 13 pages of Assessing Officer's findings. We afforded sufficient opportunity to Shri Patel to take us to any such material in BF-Ol forming part of the paper so as to even prima facie indicate at slightest pretext that there is even any evidence much less a conclusion indicating assessee's unaccounted income have been invested in the share capital in question. He fails to refer to any such material. We accordingly observe that the impugned reopening reasons nowhere indicate any live nexus between the income sought to be reassessed. Our View therefore is that the Assessing Officer has proceeded on a mere apprehension leading to the impugned long drawn process of roving inquiry which has held to be not permissible by the hon'ble apex court. This met reason accordingly fails the test of cause-effect relationship as discussed in preceding paras. The assessee's first limb of argument is t....
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....emember. We reiterate that assessee transferred its share capital in financial year 2008-09 and this survey statement is dated 03-09-20 12 i.e. after a time gap of four years. There is further no issue that the department had already impounded BF-Ol on 31-08-2012 stating all details of assessee's companies contained in its annual statement and other documents. The same was furnished back only after issuance of reopening notice (supra). There is thus nothing in Shri Jain's statement which could be held to be treated as an admission or that it is pointing towards introduction any unaccounted income in share capital. The CBDT circular dated 10-03-2003 {as reiterated on 18/12/2014 vide clarification no. 286/98 /2013-IT(Inv-II)} has already clarified that search /survey teams have to collect evidence instead of obtaining confessions of the concerned assessee. Hon'ble jurisdictional high court in Kailashben case (supra) takes notes of the same in para 13 of the judgement to conclude that an addition in absence of corroborative evidence ought not to be made merely on the basis of assessee's admission. We accordingly reject Revenue's contentions supporting this third li....
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.... also filed a catena of case law supporting the impugned reopening. First one of Olwin Tiles (supra) upholding Assessing Officer's action issuing section 148 notice since the assessee therein had received huge premiums having regard to its net worth. We reiterate that there is no such reason in the impugned reopening before us. The same can also not be allowed to be substituted at this stage. We find Revenue's judgments on this legal aspect are not germane to the issue since the re-openings therein fulfilled all relevant parameters as per facts involved therein. The same are accordingly distinguished. 36. We rely upon our detailed discussion hereinabove to finally conclude that all four reasons of the impugned reopening recorded by the Assessing Officer have to be held as not sustainable as per the settled law. We accordingly quash the impugned re-opening. The assessee's additional ground is accepted. All other arguments advanced at both parties' behest qua merits of the case are rendered academic." 7. We may recall that the return filed by the assessee was originally accepted without scrutiny. The notice for reopening was issued after the survey was carried out at ....
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....an 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 Delhi High 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 is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective....
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....ssee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, 1998 and May 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word intimation as substituted for assessment that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) ....
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.... 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 assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. 14. Additionally, section 148 as presently stands is differently couched in language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Amendment) Act, 1987, the provision read as follows: "148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection. (2) The Assessing Officer shall, before issuing any notice under this sect....
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....is a vital distinction between reopening of an assessment where the return of an assessee has been accepted under section 143(1) of the Act without scrutiny and where the scrutiny assessment has been previously framed. In the former case, the Assessing Officer cannot be stated to have formed any opinion and therefore, unlike in the latter case, the concept of change of opinion would have no applicability. Despite this clear distinction, the common thread that would run through both sets of exercises of reopening of assessment is that the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment. Such reason to believe, as held by Supreme Court in case of Commissioner of Income Tax vs. Kelvinator of India Ltd. reported in [2010] 320 ITR 561, would mean a tangible material to enable the Assessing Officer to come to a conclusion that there is escapement of income from assessment. The reason must have live link with the formation of the belief. At the same time, the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) had reiterated that at stage of issuance of notice (for reopening of assessment) the question is whether there w....
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....trend suggests that in a case where the return of an assessee is accepted under section 143(1) of the Act without scrutiny, the Assessing Officer of course, subject to the limitation provision contained in the Act, would have a right to reassess the income provided that he forms a belief that income chargeable to tax had escaped assessment. Such formation of belief, of course, must be based on a tangible material which would have a live link with the formation of the belief and cannot be based on unconnected, remote or vague material. It is equally well established that the notice for reassessment cannot be issued for a mere roving or a fishing inquiry. Nevertheless, the formation of belief is a subjective satisfaction of the Assessing Officer to be arrived at on the basis of objective consideration of materials on record. The validity of such formation of belief is of course open to challenge. Nevertheless, in our opinion, it is not permissible to criticize the formation of belief and to declare it as invalid from the inception by carrying out threadbare examination of documents, materials and the evidences which have come on record during the assessment proceedings. It is one thi....
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....e demonstrates either in fact or in law that the Assessing Officer could not have formed a belief that income chargeable to tax had escaped assessment, the notice could as well be quashed. 14. In the present case, the Tribunal has evaluated the evidence on record in minutest detail as if each limb of the Assessing Officer's reasons recorded for issuing notice of reopening was in the nature of an addition made in the order of assessment which had either to be upheld or reversed, which was simply impermissible. 15. We may refer to some of the decisions cited on behalf of the assessee. In case of Krupesh Ghanshyambhai Thakkar vs. Deputy Commissioner of Income Tax reported in 77 taxamann.com 293, this Court observed that the Assessing Officer cannot resort to reopen the assessment for a fishing or roving inquiry or to seek to verify any claim. This is a well settled proposition with which, there could be no dispute. 16. Decision in case of TANMAC India vs. Deputy Commissioner of Income Tax, Circle-I, Pondicherry reported in 78 taxmann.com 155 of the Madras High Court seems to be suggesting that if after issuing intimation under section 143(1) of the Act, the Assessing Offi....
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....cision of the Supreme Court in case of Kelvinator of India Ltd. (supra) was rendered in the background of a case of reopening of an assessment which was previously framed after scrutiny. The observations of the Supreme Court of requirement of reason to believe even after amendment in Section 147 of the Act therefore, must be seen in background of such facts. We are afraid, the Supreme Court never meant to convey that to reopen an assessment, which was accepted under Section 143(1) of the Act, there must be some tangible material, which is alien to the record". 18. The Court thereafter referred to the Division Bench judgement in case of Gujarat Power Corporation Ltd vs. Assistant Commissioner of Income Tax reported in 350 ITR 266 and it was held that in case of reopening of assessment within 4 years from the end of relevant assessment year, the concept of true and full disclosure would not apply and the expression "tangible material" does not mean material alien to the original record. 19. The decision in case of Orient Craft Ltd. (supra) was also considered by Delhi High Court in case of Indu Lata Rangwala vs. Deputy Commissioner of Income Tax reported in 384 ITR 337. The Cou....
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....e chargeable to tax has escaped assessment." 20. In case of EL Forge Ltd. vs. Deputy Commissioner of Income Tax, Special Range-I, Chennai reported in 45 taxmann.com 402, the Division Bench of Madras High Court considered the validity of notice of reopening in case of an assessee whose return was accepted under section 143(1) of the Act. The Division Bench relied on the decision of Supreme Court in case of Kelvinator of India Ltd.(supra) held that the notice was invalid on the ground that there was no failure on part of the assessee to disclose truly and fully all material facts. The observations of the Court may be noted: "7. The facts of the case show that there was no denial of the fact that the assessee had disclosed the details as regards the carry forward of the losses as well as the income computed and all these details were very much there before the Assessing Officer; that there is no denial of the fact that there was no failure on the part of the assessee in disclosing the facts necessary for assessment and that there is no such allegation that the escapement of income was on account of the failure of the assessee in not disclosing fully and truly all material ....