TaxTMI 
TaxTMI 
2021 (2) TMI 105
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....he following details may be stated as under; Assessment Year 2012-13 Assessment History 143(1) Date of notice under section 148 Beyond four years 3. It appears from the materials on record that the writ applicant is one of the partners in a partnership firm running in the name and style of "M/s. Shree Khodiyar Developers". The said partnership firm purchased two immovable properties (Block Nos.533 and 534 respectively, situated at Moje Palaswada, Dabhoi, District: Baroda) vide the sale deeds dated 30th May, 2011 for the total sale consideration of Rs. 30,01,548/- and Rs. 53,25,452/- respectively. The writ applicant herein is a signatory to the said conveyance deed in his capacity as a partner of the firm. 4. It is not in dispute that the sale consideration for the purchase of the two immovable properties, referred to above, was paid from the account of the partnership firm. 5. It appears that the partnership firm had not filed its return of income for the A.Y.2012-13. 6. The Income Tax Department thought fit to issue notice under Section 148 of the Act, 1961 to the writ applicant in his individual capacity proposing to reopen the assessment for the A.Y....
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.... no assessment was made and the only requirement to initiate proceeding u/s.147 is reason to believe which has been recorded above. (refer paragraph 6). It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment at stipulated u/s.2(40) of the Act was made and the return of income was only processed u/s.143(1) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. This case is within four years from the end of the assessment year under consideration. Hence, necessary sanction to issue the notice u/s. 148 has been obtained separately from joint commissioner of income tax as per the provisions of section 151 of the Act. Or In this case more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from Principle Commissioner of Income Tax as per the provisions of sectio....
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.... please note our following objections: a. The reason for reopening inter-alia stated vide para 2 that "Brief details of information collected/received by the AO; in this case the information was received from the ITO Ward-1(2)(4), Vadodara vide letter No.BRD/ITO/Wd. 1(2)(4) inf./2018-19 dated 18.02.2019 that assessee along with five others, has purchased two immovable property situated at Block No.533 and 534 Moje Palaswada, Dabhoi, Dist: Baroda for a consideration of Rs. 30,01,548/- and Rs. 53,25,452/- respectively". In this respect, I would like to inform you that I have not purchased the immovable property bearing Block No.534/1 moje Palaswada for total purchase consideration of Rs. 53,25,452/- and Block No.533 Moje Palaswada for total purchase consideration of Rs. 30,01,548/- vide registered sale deed no.1169 of 2011 and 1170 of 2011 respectively dated 30.05.2011 but the immovable property have been purchased by the M/s.Shree Khodiyar Developers. The purchase consideration was paid by the firm M/s. Shree Khodiyar Developers. Copy of the sale deeds and bank statements of M/s. Shree Khodiyar Developers are hereby enclosed for your verification. It seems....
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....nt of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence. Thus the reason recorded is totally erroneous and invalid reason and is not in terms of Section 147 of the Act. c. I have filed my return of income for the A.Y. 2012-13 dated 19.03.2013 vide E-filing Acknowledgment Number 580507250190313 disclosing fully and truly all material facts necessary for his assessment. I have also suo motu informed the Income Tax Officer, Ward-2, Mehsana that the immovable property of the subject matter was not purchased by me but it is purchased by the M/s. Shree Khodiyar Developers vide letter dated 19.03.2019. Copy of the acknowledged letter is enclosed herewith. It seems that no cognizance has been taken of the letter submitted by me. When return has been filed disclosing fully and truly all material facts and letter explaining the things has already submitted. I am totally surprised to receive notice u/s.148 on the basis of purchase of immovable property. The reopening of an assessment after the lapse of many year is a serious matter. I can't see any genuine reason to reope....
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.... the assessee Shri Manish Rameshwarprasad Gaur has not contended in front of the Ld. CIT(A), the genuineness of addition is confirmed. Further in the para (b.1.) of the assessment order of the said assessee, the AO has mentioned that Firm has not submitted its return of income for the year under consideration, so the investment remain unexplained. In this case the reopening is as per the provisions of the I.T. Act, 1961 is applicable. 2.2 Para (B)(b) the assessee has raised issued of to inquire the matter independently of information received and to satisfy himself. In this it is to state that the information was already made available to the office and in return no any capital gain was disclosed for the A.Y.2012-13. 2.3 In relation to para B(c) it is to state that as per the I.T. Act, 1961 the cases can be reopened for not more six years, have elapsed from the end of the relevant assessment year. Therefore, it is stated that the case is reopened as per the provisions of the I.T. Act, 1961 and it is within the time allowed. 2.4 In relation to Para B(d) of the letter dated 03.07.2019, it is to state that in this case the law is enforceable as per ....
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....t the Department seeks to reopen the assessment broadly on the ground that in the case of one of the partners of the partnership firm, the investments were found to be not satisfactorily explained. The writ applicant, being a co-partner, has also not been able to explain the investments during the year under consideration. It is submitted that the notice under Section 148 is not sustainable in law as the properties in question were purchased by the partnership firm wherein the writ applicant is one of the partners. The writ applicant, in his individual capacity, is not the purchaser of the two immovable properties. 11. It is argued that the condition precedent for resorting to reopening is that there must be "escapement of income chargeable to tax". In the absence of escapement of any income chargeable to tax, it is not open for the Department to reopen the case of the assessee. 12. The learned senior counsel would submit that the Department has failed to appreciate the following:- "The writ applicant has not purchased the properties in question. Rather, such properties were purchased by the partnership firm namely M/s. Khodiyar Developers", wherein the writ....
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.... notice under Section 148 read with section 147 of the Act has been issued. It is argued that in the event if the final assessment order is passed, then the assessee can always prefer an appeal against such order before the CIT (A) and, thereafter, before the Appellate Tribunal. Ms. Bhatt took the Court through the averments made in the affidavit-in-reply upon which due reliance has been placed on behalf of the Revenue. "4. The facts are that in this case an information was received from the ITO, Ward (1)(2)(4), Vadodara vide letter dated 18.2.2019; in relation to the properties purchased by the six co-owners i.e. Shri Nisharahmed Vajir Pathan, Shri Manish R. Gaur, Shri Manoj H. Patel, Shri Manish Mulchand Patel, Shri Hashitkumar D. Bhatt and Shri Ganpat Amrutlal Patel at Block Nos.533, 534 mouje Palaswada, Dabhoi, Dist: Vadodara of Rs. 39,01,548/- and Rs. 53,25,452/- respectively. The assessee had also paid stamp duty and registration charges of Rs. 4,86,060/-. 5. It is submitted that the case of one of the partner Shri Manish Rameshbhai Gaur was selected under the CASS for A.Y.2012-13 and addition of Rs. 14,68,843/- was made for unexplained investment of the sai....
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....ssessment stage. Even the information received which was the tangible material was not available at the time of original assessment. 10. It is submitted that the contention of the petitioner that there is no escapement of income chargeable to tax since the property in question were purchased by partnership firm wherein the petitioner is partner is without any basis. As the firm has not filed its return of income, there is no evidence to show that the property was purchased by firm. Moreover, the order of CIT(A) in the case of co-owner is the tangible material in the hands of AO to form a reasonable belief that income chargeable to tax has escaped assessment. 11. The contention of the petitioner that there is no reason to believe that income chargeable to tax has escaped assessment is not correct. As stated in the earlier para, assessment framed in case of one of the co-owners which has been upheld by the order of CIT(A) supported by the fact that no return has been filed by the partnership firm, is the tangible material to form belief that income chargeable to tax has escaped assessment. 12. It is submitted that the contention of the petitioner that reope....
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..... It is submitted that M/s. Khodiyar Developers is partnership firm consisting of five partners. Out of these ive partners in case of partner of M/s.Shri Manish Rameshwarprasad Gaur and Shri Ganpatbhai Amthabhai Patel reassessment proceedings were initiated. The additions u/s.69 of the Act were made as unexplained investment in both the cases and CIT(A) has confirmed the addition made by the AO. In other three partners reassessment proceedings were not initiated. Details of assessment proceedings in relation to all five partners of M/s.Khodiyar Developers is annexed hereto and marked as Annexure-R.1. 3. It is submitted that income chargeable to tax has escaped assessment. No scrutiny was done at the original assessment stage. Moreover in absence of return filed by the firm, verification was not done at the original assessment stage. Therefore, if the Hon'ble Court is of the opinion that the notice under Section 148 ought to have been issued to the firm and not to the partners then it is submission of the respondent that in view of Section 150 o the Act, findings/directions may be issued so that appropriate proceedings under the provisions of the Act can be initiated ag....
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....rred or gathered from the records. The Assessing Officer is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others upto his sleeves to be disclosed before the Court if his action is ever challenged in a court of law. (ii) At the time of the commencement of the reassessment proceedings, the Assessing Officer has to see whether there is prima facie material, on the basis of which, the department would be justified in reopening the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. (iii) The validity of the reopening of the assessment shall have to be determined with reference to the reasons recorded for reopening of the assessment. (iv) The basic requirement of law for reopening and assessment is application of mind by the Assessing Officer, to the materials produced prior to the reopening of the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied-a postmortem exercise of analysing the materials produced subsequent to the reopening w....
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....angible material and the formation of the belief or the reason to believe that the income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment, formed part of the original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression "tangible material" does not mean the material alien to the original record. (xiii) The order, disposing of objections or any counter affidavit filed during the writ proceedings before the Court cannot be substituted for the "reasons to believe. (xiv) The decision to reopen the assessment on the basis of the report of the Investigation Wing cannot always be condemned or dubbed as a fishing or roving inquiry. The expression "reason to believe" appearing in Section 147 suggests that if the Income Tax Officer acts as a reasonable and prudent man on the basis of the information secured by him that there is a case for reopening, then Section 147 can well be pressed into service and the assessments be reopened. ....
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....the information. There may be good and substantial reasons for such anonymous disclosure, but the real thing to be looked into is the nature of the information disclosed, whether it is a mere gossip, suspicion or rumour. If it is none of these, but a discovery of fresh facts or of new and important matters not present at the time of the assessment, which appears to be credible to an honest and rational mind leading to a scrutiny of facts indicating incorrect allowance of the expense, such disclosure would constitute information as contemplated in clause (b) of Section 147. (xx) The reasons recorded or the material available on record must have nexus to the subjective opinion formed by the A.O. regarding the escapement of the income but then, while recording the reasons for the belief formed, the A.O. is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the A.O had cause or justification to know or suppose that the income had escaped assessment [vide Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra)]. It is also well settled that the sufficiency and adequacy of the reasons which have led to the formation of a belief by t....
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....ined by the writ applicant in his individual return filed by him in the ITR Form:-ITR-4 for A.Y.201-13. The Assessing Officer, thereafter, proceeds on the footing that in the case of a co-partner, the assessment was reopened and an appeal before the CIT(A) is pending against the assessment order. In such circumstances, referred to above, the Assessing Officer, ultimately, concludes that the writ applicant had failed to fully and truly disclose his investment of his share in the two properties in his individual return of income. 27. It is also the case of the Revenue that the partnership firm had failed to file its return for the relevant assessment year. Of course, in this regard, the Department thought fit not to initiate any proceedings against the partnership firm including any criminal prosecution. 28. A lot was argued on behalf of the Revenue as regards the rights and liabilities of a partnership firm and also as regards the legal status of a partnership firm. We may give a fair idea in this regard by referring to few judgments. 29. In Addanki Narayanappa v. Bhaskara Krishnappa , 1966 AIR 1300, the Supreme Court, while considering a question of similar nature, held as....
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....ssets within the meaning of Section 2(47) of the Income-tax Act, 1961. There is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution." 31. The Madras High Court had an occasion to consider a question of similar nature while dealing with Section 5(1)(iv) of the Wealth-tax Act, 1957, in R. Venkatavaradha Reddiar R. v. CWT, [1995] 214 ITR 76. In that decision, this court after considering all the decisions on this aspect, culled out the legal principles in the following manner (page 90) : "(1) a firm has no legal existence and as such it cannot hold any property ; (2) it is the partners, who own the partnership property as such; (3) partners alone should have the benefit of the exemption under Section 5(1)(iv), when their individual assessments are taken up to the extent of their respective shares in the net wealth of the partnership firm ; (4) the mere fact that a partner cannot claim to be entitled to any portion of the property owned by a firm as exclusively belonging to him will not completely disentitle him from seekin....
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....partnership assets are distributed among the partners, there will be no transfers of the property of the firm in favour of the partners so as to attract the provisions of the Income-tax Act, for capital gains. The decisions are CIT v. Bankey Lal Vidya , CIT v. Dewas Cine Corporation . These two decisions clearly show that in general law, the firm cannot be treated as the owner of the shares in Kalinga Tubes Ltd. But, for the purpose of the Income-tax Act, the firm has been made a legal entity just as a person, as a firm is included in the definition of the term 'person' under the Income-tax Act. The firm is a separate entity for the purpose of assessment and, therefore, a firm will be entitled to the exemption under Section 85. Whatever that be, we are not concerned with that now, and we do not wish to express any opinion on that matter. As far as the individuals who make up the partners of the firm are concerned, we have no doubt that the properties, which are called the assets of the firm, really vest in the partners of the firm. This has also been said by the Supreme Court in the decision in Narayanappa v. Bhaskara Krishnnappa, ." 34 . In K.I. Viswam....
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.... assessment, then surely he can be accused of having failed to disclose fully and truly all the material facts for the purpose of his assessment. It is a trite law by now commencing from the decision of the Supreme Court rendered in the case of Calcutta Discount Co. Ltd. vs. ITO, (1961) 41 ITR 191 that it is always the duty of an assessee to disclose fully and truly all primary facts, but not inferential facts, which are necessary and relevant for the purpose of making the assessment by the Assessing Officer. But, as stated above, the nature of disclosure that the assessee is obliged to do so by the statute will necessarily depend upon the nature of information or disclosure that the assessee is obliged to do so by the statute. In the instant case, originally, the assessee filed his return in Form ITR-4 wherein the disclosure of investment is not requires to be disclosed as writ applicant had disclosed his income on presumptive basis under Section 44AD of the Act and his assessment was completed accordingly for the relevant assessment year. We are of the view that the writ applicant was was not obliged to furnish any information as regards the partnership firm or the investment ....
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....of the opinion that the Information conveyed as per the prescribed form of return of income was complete, correct and sufficient for making the assessment, he could proceed and assess the person filing the return on the basis of such return and at that stage no question, of the assessee furnishing any information other than that required to be furnished in the prescribed form of return, could arise. It, therefore, follows that if the assessee discloses true and full information which he is required to supply in the prescribed form of return no question of his failing to disclose any other particulars of his income at that stage could arise. Then the next stage in the process of making an assessment upon a person was where a return is filed by him in the prescribed form but the ITO felt that the information conveyed by such person in the prescribed return form was inadequate and required further inquiry and verification for the purpose of making assessment, the ITO then acts by issuing notices, requiring the assessee to produce such evidence, material, particulars or information either upon his direction under Section 142(1) or under Section 143(2) directing the assessee to produ....
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....on the assessee to disclose to the ITO in his return information relating to income of any other person by law taxable in his hands. " 39. It was then held by the Supreme Court in the said case that the Assessing Officer cannot resort to Section 34(1)(a) of the 1922 Act and reopen the assessment. This judgment of the Supreme Court was followed by the Hon'ble Calcutta High Court in the cases of Radheshyam Ladia v. ITO [1971] 82 ITR247and also Madanlal Maheswart v. ITO[1973] 87 ITR 295. 40. The aforesaid observations made by the Supreme Court clearly make out that while filing a return an assessee is not bound or obliged to disclose any information in relation to any fact other than what is required to be supplied and furnished by him in the various columns of the prescribed form of return of income or which he is bound under the provisions of the Act to furnish even though that fact may otherwise be relevant for the purpose of his assessment. For the simple reason that such information has not been furnished in the return it would not mean that the assessee had failed or omitted to disclose fully and truly all material facts which are necessary for the purpose of his asses....
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....s for imposition of penalty on an assessee if it is found, inter alia, that the assessee has concealed the particulars of 'his income'. The question is what is the scope and content of the words 'his income' occurring in this penal provision. Do they refer only to the income of the assessee himself or do they also take in the income of others which is liable to be included in the computation of the total income of the assessee by reason of the relevant provisions of the Act, such as Section 64, Subsection (1), Clauses (I) and (iii) ? The answer to this question obviously depends upon as to what is 'his income' which the assessee is liable to disclose for the purpose of assessment, for, concealment can only be of that which one is bound to disclose and yet fails to do so. Section 139 provides for filing of a return of income by an assessee and Subsection (1) of this section lays down that every person whose total income during the previous year exceeds the maximum amount which is not chargeable to income tax, shall furnish a return of his income in the prescribed form and verified in the prescribed manner, and setting forth such other particulars as may be prescribed. The return of ....
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....disclose in the return submitted by him, all amounts representing the shares of the spouse and minor child in the profits of the partnership firm in which he is a partner, since they form part of his total income chargeable to tax. The words 'his income' in Section 139, Subsection (1), must include every item of income which goes to make up his total income assessable under the Act. The amounts representing the shares of the spouse and minor child in the profits of the partnership firm would be part of 'his income' for the purpose of assessment to tax and would have to be shown in the return of income filed by him. The assessee then contended that the return of income which was required to be filed by her under Section 139, Subsection (1), was a return in the prescribed form and the form of the return prescribed by Rule 12 of the Incometax Rules, 1962, did not contain any column for showing the income of the spouse and minor child which was liable to be included in the total income of the assessee under Section 64, Subsection (1), Clauses (I) and (iii), and there was, therefore, no obligation on the assessee to disclose this income in the returns filed by her. This content....
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....There, the Supreme Court proceeded to hold (at page 629 of 125 ITR): "It was held in this case (Muthiah Chettiar) that even if there were any printed instructions in the form of the return requiring the assessee to disclose the income received by his wife and minor child from a firm in which the assessee was a partner, there was, in the absence in the return of any head under which the income of the wife or minor child could be shown, no obligation on the assessee to disclose this item of income, and the assessee could not be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment within the meaning of Section 34(1)(a) of the Indian Income tax Act, 1922. With the greatest respect to the learned judges who decided this case, we do not think, for reasons already discussed, that this decision lays down the correct law on the subject, and had it not been for the fact that since July 1, 1972, the form of the return prescribed by Rule 12 has been amended and since then, there is a separate column providing that 'income arising to spouse/minor child or any other person as referred to in Chapter V of the Act' should be shown sep....
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....ld was to be treated as the income of the individual under Section 64(4) of the Act and, therefore, such income had escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since such income was not disclosed in the original return, the Income tax Officer initiated reassessment proceedings under Section 147(a) and included the capita gains arising on the transfer of shares and dividend income from the shares in the total income already determined. On appeal, the Assistant Commissioner held that the Income tax Officer had no jurisdiction to reopen the assessment under Section 147(a) of the Act. On revenue's appeal, the tribunal affirmed the order of the Appellant Assistant Commissioner. The Revenue went in appeal before the High Court. The High Court framed the following two substantial questions of law for consideration:" 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was under no obligation to disclose in her return of income, the income of her minor daughter? 2. Whether, on the facts and in the circumsta....
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....961, or any earlier assessment year, it shall be furnished in the appropriate form prescribed in Rule 19 of the Indian Income tax Rules, 1922, and shall be verified in the manner indicated therein; (b) where a return of income relates to the assessment year commencing on April 1, 1962, or April 1, 1963, or April 1, 1964, it shall be furnished in the appropriate form in force immediately before April 1, 1967, and shall be verified in the manner indicated therein." 12. Thus, for the assessment year 196263, the old return form which was considered by the Supreme Court in those decisions remained in force. 13. The return form which has been prescribed by the said Amendment of 1967 Rules, also contains a note which is as follows : "3. If the income of any other person is includible in your total income under the provisions of Section 60, 61, 62, 63 or 64 of the Incometax Act, 1961, such income should also be shown in this return under the appropriate heads." 14. But no separate column has been provided for inclusion of the income under Section 60, 61, 62, 63 or 64 of the Incometax Act, 1961. 15. The rules were amended by the Incometax (Amendm....
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....iew of the principles laid down by the Supreme Court as mentioned hereinbelow, it must be held that there was no omission or failure on the part of the assessee to disclose all her income. 23.Applying the aforesaid principle of law to the facts of the present case, we are of the view that the impugned notice for reopening of the assessment is not sustainable in law." 42.. We are not convinced with the argument canvassed on behalf of the Revenue that once an addition has been made in the hands of one of the partners of the firm and affirmed by the CIT (A), it should necessarily follow with respect to the other partners also. We take notice of the fact that in the case of one of the partners, namely, Shree Hasitkumar Bhatt, the concerned Assessing Officer, after considering the reply filed by him, dropped the reassessment proceedings. In the case of one another partner, namely, Harshitkumar Devendrakumar Bhatt, the inquiry in respect of the very same properties was made by the concerned Assessing Officer vide notice dated 11th March, 2019. Pursuant thereto, the said assessee filed his reply dated 19th March, 2019, pointing out that such properties were purchased by the pa....
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....ny proceedings under the Act by way of appeal, reference or revision" or "by a Court in any proceeding under any other law". Sub-section (2) of Section 150, however, makes it clear that the reassessment permissible under sub-section (1) of section 150 would not be applicable to the Department where the period of limitation for such assessment or reassessment has expired at the time it proposes to be reopened. 46. The plain reading of Section 150 reveals that it deals with a situation where an assessment or re-assessment for a particular year or for a particular person is necessitated by an order passed by an appellate or revisional authority or on a reference. In such cases, it may not be possible for the Revenue to adhere to the time limits prescribed under Section 149, as the order of appeal, reference or revision or by a Court, proceeding under any other law may be passed beyond the period contemplated under section 149. It is for this reason, the legislature has not placed any time limit for making the assessment or re-assessment in such circumstances and for this reason, Section 150 begins with a non-obstante clause. At the same time, it does not mean that the power under S....