TaxTMI 
TaxTMI 
TaxTMI 
2004 (3) TMI 22
X X X X Extracts X X X X
X X X X Extracts X X X X
....e under section 143(2) of the Act. In response thereto, all material documents with necessary information together with relevant evidence in support of the claim of depreciation in "tin packaging unit" at 25 per cent, was tendered to the Assessing Officer, respondent No.1 to complete the assessment of the petitioner-assessee. The said respondent No.1, after careful scrutiny of documents with other evidence completed the assessment and passed an order of assessment under section 143(3) of the Act, in which the claim for depreciation at 25 per cent, with respect to the "Tin Packaging Unit" of the assessee was allowed. On March 21, 2001, respondent No. 2, the Commissioner of Income-tax finding the order of assessment prejudicial to the interests of the Revenue invoked revisional powers and issued notice under section 263 of the Act, and, after hearing the parties to the said proceedings, passed an order holding that "tin packaging unit" of the assessee was commissioned and trial runs were made during the months of November and December, 1996 as per the third annual report of the assessee, as such the "tin packaging unit" was put to use only after September, 1996. Consequently, the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of India through this petition. On being noticed, the respondents appeared through their counsel and disclosed reasons recorded under section 147 prior to the issuance of notice under section 148, which read as under: "Notice under section 147 read with section 148 was issued on March 28, 2003 to you by the then Assessing Officer. The reasons for reopening the assessment are as follows: The depreciation of Rs. 53,93,833 at 25 per cent, on addition to plant and machinery during the year was allowed to the assessee. It is seen that the machinery was put to use during November and December. Therefore, depreciation was to be allowed at 50 per cent, of the allowable depreciation. The aforesaid resulted in escapement of income by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of the income." After receipt of the aforesaid reasons, the prayer of the petitioner to amend the petition was allowed so as to enable it to challenge the validity of the reasons recorded in support of notice under section 148. Now the petitioner is challenging the notice issued under section 148 based on the following submissions. Subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t notice issued under section 148 read with section 147 including reasons recorded in support thereof are ab initio null and void. Mr. Pandit, at the cost of repetition, reiterated that in the initial assessment proceedings, the petitioner/assessee had filed all material documents in support of its contention that "tin packaging unit" was ready for trial production in the beginning of August 1995. He further pointed out from para. 4 of the petition that the certificate of the chartered engineer and copy of bill of purchase were filed during the course of assessment proceedings. It was also pointed out from para. 5 of the petition that from time to time the petitioner and his representative appeared before respondent No. 1 with all material particulars and details along with the relevant documents necessary for determining the claim of depreciation with respect to the tin packaging unit of the assessee and the Assessing Officer, respondent No. 1, after due scrutiny of documents completed the assessment and allowed the petitioner's claim for depreciation at 25 per cent. On the canvass of these undisputed facts, he submits that there was no failure on the part of the assessee to disc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssioner of Income-tax under section 263 does not have any effect on the powers of the Assessing Officer to invoke the provisions of sections 147 and 148 of the Act. Both powers are independent. They can be exercised independently considering the facts and circumstances of each case. He placed reliance on the judgment of the Madhya Pradesh High Court in the case of CIT v. Gulam Rasool [1997] 225 ITR 904 (MP) and CIT v. Kanubhai Engineers (P.) Ltd. [2000] 241 ITR 665 (Cal). Mr. Desai, thus, contends that the notice issued under section 148 is legal and valid and it complies with the requirements of section 147. In the circumstances, Mr. Desai submits that the petition is liable to be dismissed. Statutory provisions: Before proceeding to consider the rival contentions, it would be profitable to review relevant statutory provisions applicable to the facts of the present case. "147. Income escaping assessment. - It the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has esc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. 263. Revision of orders prejudicial to Revenue. - (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e facts and circumstances of the case, the Assessing Officer is denuded of his powers under sections 147 and 148 of the Act when the order setting aside the assessment with order of remand has become final and conclusive and the assessment proceedings pursuant to such order passed under section 263 are pending with the Assessing Officer for assessment in accordance with law? (2) Whether, in the facts and circumstances of the case, can it be said that there was a failure on the part of the petitioner/assessee to fully and truly disclose all the material facts necessary for determination of claim of depreciation on "Tin Packaging Unit" of the petitioner? Consideration: As to issue No. 1: This issue relates to the powers of the Assessing Officer to issue notice under section 148 of the Act, especially, when the revisional authority has already reopened the assessment in exercise of revisional powers under section 263 of the Act and on remand the assessment is pending. In other words, the issue for consideration, in the facts and circumstances of this case, is: can the Assessing Officer invoke the powers to reopen assessment on the premise that the income chargeable to tax has esc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o furnish return of his income within a prescribed period. Section 263 provides for revision of the order prejudicial to the interests of the Revenue; wherein the Commissioner is given power to call for and examine the record of any proceeding under the provisions of the Act and, if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Once revisional power is exercised by the Commissioner and the assessment is set aside and the case is remanded to the Assessing Officer, then, under section 153(2A) of the Act, it is obligatory on the part of the Assessing Officer to complete the assessment proceedings within a period of one year from the end of the financial year in which the order under section 263 is passed. The operation of both these sections is somewhat similar in the sense if the Commissioner under section 263 of the Act finds that the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t be found on reasonable grounds. The words "reason to believe" occurring in section 147 of the Act received judicial recognition over the period of time. The apex court in the case of Sheo Nath Singh v. AAC of I.T. [1971] 82 ITR 147 interpreted the said words in the following terms: "There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section." The apex court, in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, has held that the reason for the formation of belief for reopening of assessment must have a rational connection or relevant bearing on the formation of belief. The essential requirement for initiating reassessment proceedings under section 147 read with section 148 is that the Assessing Officer must have reason to believe that any i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... pending. Thus, it was not open for the Assessing Officer to invoke powers under sections 147 and 148 of the Act. In other words, so long as the assessment proceeding in respect of certain income subsist, the income cannot be said to have escaped assessment. Such proceedings, if initiated, will have to be held as invalid, ab initio void and illegal. It is, thus, clear that the concept of reason to believe comes in the picture if the income chargeable to tax has escaped assessment. So long as the assessment is pending, the assessing authority cannot have any such reason to believe that income chargeable to tax for the assessment year in question has escaped assessment. Income cannot be said to have escaped assessment within the meaning of this section if the assessment proceedings in respect of that income and/or issue are still pending and have not yet culminated in a final order. This question came up for consideration before the Supreme Court in the case of Ghanshyamdas v. Regional Assistant CST [1964] 51 ITR 557. Relying on the decision of the Calcutta High Court in the case of Lachhiram Basantlal, In re [1931] ILR 58 Cal 909; AIR 1931 Cal 545 and of the Judicial Committee in S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... necessarily armed with necessary powers. Up to four years an assessment is open to his unreserved consideration on his formation of the requisite belief. If he has such reason, he has the power, and it is his duty, to reopen the door and demand the amount legally owing. His formation of belief is not a judicial decision, but an administrative decision. It does not determine anything at this initial stage, but the Assessing Officer has a duty to proceed so as to obtain what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or it may come from any source that he considers reliable. His reason is not to be judged by a court by the standard of what the ideal man would think. In this backdrop, if the formation of reasonable belief is not a judicial decision but an administrative decision of the Assessing Officer, can he be allowed to invoke powers under sections 147 and 148 of the Act on the face of the conclusively available judicial verdict of the revisional authority holding that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment. The decision of the Madhya Pradesh High Court in the case of Gulam Rasool [1997] 225 ITR 904 does not support the contention of the Revenue. In that case, notice under section 148 was already issued by the Assessing Officer prior to the issuance of notice under section 263 of the Act. In that case, the Tribunal had held that the Commissioner of Income-tax was not justified in invoking the jurisdiction under section 263 when the Income-tax Officer had already issued notice of reopening the assessment under section 147/148 of the Act. In that context it was held by the Madhya Pradesh High Court that both sections 147/148 and section 263 are for reopening the assessment-one at the level of the Income-tax Officer and the other at the level of the Commissioner of Income-tax. It was further held that both the authorities can invoke their powers after the assessment order, but both are not exclusive of each other. In the present case, the facts are altogether different. Firstly, in the present case, the notice under section 148 has been issued after the order under section 263 was passed. Secondly, the reassessment pursuant to the order under section 263 has not been finalised at th....