TaxTMI 
TaxTMI 
2002 (4) TMI 37
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....ft of all unnecessary details may be noticed: The assessment year under reference is 1987-88. The relevant previous year is July 1, 1985, to June 30, 1986. The assessee maintained guest houses in Delhi, Bombay and Faridabad, wherefor it incurred the following expenses: ------------------------------------------------------- Particulars Amount (Rs.) ------------------------------------------------------- 1. Rent 1,76,000 2. Expenses 91,485 -------------- 2,67,485 3. Depreciation 66,441 -------------- 3,33,926 --------------------------------------------------------- A return of income declaring income of Rs.1,62,890 was filed on June 29, 1987, by the assessee wherewith computation of income, annual report, tax audit report, etc., were also filed. As it did not claim deduction for the expenses as enumerated hereinbefore, a revised return was filed on October 5, 1989, along with a letter of the same date, wherein it was contended that rent for a sum of Rs.1,76,000 and depreciation for a sum of Rs.66,441 should be allowed in terms of sections 30 and 32 of the Act. The said contention was raised relying on or on the basis of a decision of the Bombay High Court in CIT ....
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....sing Officer purported to have relied upon the order of the Commissioner of Income-tax (Appeals) for the assessment year 1986-87, which was passed on July 27, 1990, although the assessment was reopened on April 20, 1990. The contention of the assessee is that the Assessing Officer could not have taken recourse thereto, particularly, having regard to the fact that the Income-tax Appellate Tribunal (in short "the Tribunal"), on appeal, had allowed similar expenses for the assessment year 1986-87. The assessee preferred an appeal against the order of reassessment dated September 24, 1990, whereupon the Commissioner (Appeals) by an order dated August 23, 1991, quashed the reassessment proceedings holding that the assessee had disclosed all the facts. It was held that no new fact or material was available with the Assessing Officer, which would come within the purview of the expression "information". It was held that it was a mere change of opinion on the part of the Assessing Officer and as such the reassessment proceedings could not have been validly initiated. On further appeal the Tribunal upheld the aforementioned decision of the Commissioner (Appeals). It also held that the amen....
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....Guj) and Bawa Abhai Singh v. Deputy CIT [20021 253 ITR 83 (Delhi). Mr. Jolly would submit that Circular No. 549, dated October 31, 1989, issued by the Central Board of Direct Taxes (in short "the CBDT"), cannot be taken note of for the purpose of construction of section 147 of the Act, inasmuch as, a circular cannot override the statutory provisions. Mr. Jolly, in this connection, has drawn our attention to a decision of the apex court in Union of India v. Suresh C. Baskey, AIR 1996 SC 849 [1996] 11 SCC 701. Dr. Debi Prasad Pal, learned senior counsel appearing on behalf of the assessee, on the other hand, would contend that the expression "reason to believe" contained in section 147 of the Income-tax Act denotes that the same must be based on a change of fact or subsequent information or new law. Income escaping assessment, learned counsel would contend, must be founded upon or in consequence of any information which must come into the possession of the Assessing Officer after completion of the original assessment. Dr. Pal would contend that Circular No. 549, dated October 31, 1989, issued by the Central Board of Direct Taxes would clearly show that section 147 of the Act was ....
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....ssive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section: Provided that-- (i) the Income-tax Officer shall not issue a notice under this sub-section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; (ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be; and (iii) where the assessment made or....
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....9, reads as follows: "147. If 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 escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all mate....
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....ntained in clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so. (ii) The requirements in the old provisions that the Income-tax Officer should have 'reason to believe' or 'information in possession' before taking action to assess or reassess the income escaping assessment, have been dispensed with. (iii) The existing legal interpretation that once an assessment has been reopened, any other income that has escaped assessment and comes to the notice of the Assessing Officer subsequently during the course of proceedings under this section can also be included in the assessment, has been incorporated in the new section itself. (iv) A proviso to the new section provides that an assessment, which has been completed under section 143(3) or 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part ....
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....m a bare perusal of the provisions contained in section 147 of the said Act, as it stood up to March 31, 1989, it is evident that to confer jurisdiction under section 147(a) of the Act two conditions were required to be satisfied, viz., (1) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; and (2) he must also have a reason to believe that such escapement occurred by reason of either; (a) omission or failure on the part of the assessee to make a return of his income under section 139 or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The aforementioned requirements of law must be held to be conditions precedent for invoking jurisdiction of the Assessing Officer to reopen the assessment under section 147 of the said Act. It is trite that both the conditions aforementioned are cumulative. It is also a well-settled principle of law that, in the event it is found that any of the said two conditions is not fulfilled the notice issued by the Assessing Officer would be wholly without jurisdiction. The expression "reason to believe" finds plac....
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....sessment has resulted from non-disclosure of material facts, cannot therefore be accepted." In Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), a three judge-Bench of the apex court held that although disclosure of a new fact therein may be an information within the meaning of the aforementioned provisions, this opinion of law would not be, as regards a contention on the part of the Revenue that the expression "information" in section 147(b) refers to realisation by the Income-tax Officer that he has committed an error while making the original assessment. The apex court said: "... that he has committed an error when making the original assessment. It is said that, when upon receipt of the audit note the Income-tax Officer discovers or realises that a mistake has been committed in the original assessment, the discovery of the mistake would be 'information' within the meaning of section 147(b). The submission appears to us inconsistent with the terms of section 147(b). Plainly, the statutory provision envisages that the Income-tax Officer must first have information in his possession, and then in consequence of such information he must have reason to believe t....
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....jurisdiction to the Assessing Officer to initiate proceedings under section 147 of the Act. It is also equally well settled that if a notice under section 148 has been issued without the jurisdictional foundation under section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of this court. If 'reason to believe' be available, the writ court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material available. However, the present one is not a case of testing the sufficiency of material available. It is a case of absence of material and hence the absence of jurisdiction in the Assessing Officer to initiate the proceedings under section 147/148 of the Act." Thus, the court held that even under the newly substituted section 147, with effect from April 1, 1989, an assessment could not be reopened on a mere change of opinion. Yet again in Foramer's case [2001] 247 ITR 436, a Division Bench of the Allahabad High Court has held that if a notice under section 147/148 was issued after the coming into force of the amended....
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.... it cannot be said that such income was subjected to an assessment. In the assessment proceedings, the Assessing Officer would ascertain on consideration of all relevant circumstances the amount of tax chargeable to a given taxpayer. The word 'assessment' would mean the ascertainment of the amount of taxable income and of the tax payable thereon. In other words, where there is no ascertaining of the amount of taxable income and the tax payable thereon, it can never be said that such income was assessed. Merely because during the assessment proceedings the relevant material was on record or could have been with due diligence discerned by the Assessing Officer for the purpose of assessing a particular item of income chargeable to tax, it cannot be inferred that the Assessing Officer must necessarily have deliberated over it and taken it out while ascertaining the taxable income or that he had formed any opinion in respect thereof. If looking back it appears to the Assessing Officer (albeit within four years of the end of the relevant assessment year) that a particular item even though reflected on the record was not subjected to assessment and was left out while working out the taxab....
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....Division Bench of this court of which one of us (D.K. Jain J.) is a Member, clearly held: "The crucial expression is 'reason to believe'. The expression predicates that the Assessing Officer must hold a belief... by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. As was observed in Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC), the expression 'reason to believe' is stronger than the expression 'is satisfied'. The belief entertained by the Assessing Officer should not be irrational and arbitrary. To put it differently, it must be reasonable and must be based on reasons which are material. In S. Narayanappa v. CIT [1967] 63 ITR 219, it was noted by the apex court that the expression 'reason to believe' in section 147 does not mean purely a subjective satisfaction on the part of the Assessing Officer, the belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons fo....
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....under the amended provision and can be exercised even after the assessee has disclosed fully and truly all the material facts. To similar view were the conclusions of this court in Rakesh Aggarwal v. Asst. CIT [1997] 225 ITR 496, it is to be noted at this juncture that the twin conditions must be fulfilled if the case is one which is covered by the proviso to section 147 operative with effect from April 1, 1989." It is evident from the afore-extracted portion of the decision that it is not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147 of the Act as was contended by Mr. Jolly. A decision as is well known, is an authority for the proposition that it decides and not what can logically be deduced therefrom. A point not raised nor argued at the Bar cannot be said to be the ratio of the decision. Another aspect of the matter cannot be also lost sight of. The Board has power to issue circulars under section 119 of the said Act. It is trite that circulars which are issued by the Central Board of Direct Taxes are legally binding on the Revenue (see UCO Bank v. CIT [....
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....rs of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement." The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on October 31, 1989. The said circular admittedly is binding on the Revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular. Clause 7.2 as referred to hereinbefore is important. From a perusal of clause 7.2 of the said circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had been carried out, i.e., only with a view to allay fears that the omission of the expression "reason to believe" from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment. The submission of Mr. Jolly to the effect that the said circular cannot be construe....