TaxTMI 
TaxTMI 
2021 (5) TMI 695
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....plicant being individual assessee, filed return of income on 27.07.2012 declaring total income of Rs. 6,05,830/-. The assessee sold 3000 shares of Karma Ispat Limited and earned long term capital gain of Rs. 7,74,541/- and claimed it as 'exempt income' under Section 10(38) of the Act. The return was processed under Section 143(1) of the Act and no scrutiny assessment was made under Section 143 (3) of the Act. (b) The Assessing Officer, reopened the assessment under Section 147 of the Act by issuing impugned notice dated 28.03.2019 under Section 148 of the Act. The writ applicant filed his return of income in response to the notice and requested the respondent to supply the copy of the reasons for reopening and same was supplied vide communication dated 25.04.2019. The writ applicant vide letter dated 25.06.2019 raised objections and the same came to be disposed of by the revenue vide order dated 29.11.2019. (c) The Assessing Officer before issuing the notice has recorded the following reasons for reopening of the assessment:- Reasons for Reopening :- "1. Brief details of the assessee: The assessee is an individual and has filed her return of inco....
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.... the year under consideration. In view of the above, the provisions of clause (a) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a fit case where income chargeable to tax has escaped assessment. 9. 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 will be obtained separately from Principal Commissioner of Income Tax, Jamnagar as per the provisions of section 151 of the Act." 4. The facts of SCA No. 21717/2019:- (a) The writ applicant being individual assessee, filed return of income on 31.07.2012 declaring total income of Rs. 4,24,530/-. The assessee sold 3300 shares of Karma Ispat Limited and earned long term capital gain of Rs. 8,15,579/- and claimed it as 'exempt income' under Section 10(38) of the Act. The return was processed under Section 143(1) of the Act and no scrutiny assessment was made under Section 143 (3) of the Act. (b) The Assessing Officer, reopened the assessment under Section 147 of the Act by issuing impugned notice dated 28.03.2019 under Section 148 of th....
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.... of reason to believe. That income to the tune of Rs. 896940/- has escaped assessment as mentioned in para 6. 8. Applicability of the provision of section 147/151 to the fats of the case: In this case, return of income was filed for the year under consideration but all the material facts have not been disclosed, accordingly, in this case, the only requirement to intimate proceedings u/s. 147 is reason to believe which has been recorded above in paras 6 & 7. It is pertinent to mention here that in this case the assessee has chosen not to disclose all material facts truly and fully during her assessment for the year under consideration. In view of the above, the provisions of clause (a) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a fit case where income chargeable to tax has escaped assessment. 9. 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 will be obtained separately from Principal Commissioner of Income Tax, Jamnagar as per the provisions of section 151 of the Act." ....
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....be quashed and set aside. d. It was submitted that, there is no independent application of mind on the part of the AO while recording the reasons for reopening and that merely placing reliance on the materials provided by the Investigation Wing for recording the reasons is impermissible. In this case, the AO failed to record an independent finding as to how income has escaped assessment on a proper application of mind. e. It was submitted that there was no link between the information received and formation of opinion that the income has escaped assessment. f. It was further submitted that, the affidavit-in-reply filed by the revenue, the revenue seeks to supplement the reasons recorded by the AO which cannot sustainable in law. g. It was submitted that the AO has merely presumed that the transactions entered into by the writ applicant in the scrip in question is a penny stock transaction, which cannot be a legal ground to reopen the assessment for the year under consideration. 9. In view of the aforesaid contentions, the learned counsel submitted that reopening of the assessment is, therefore, without jurisdiction and hence, the impugned noti....
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....uestion falls for our consideration is that, whether the revenue is justified in reopening the assessment for the year under consideration ? 14. It is settled position of law that Section 147 of the Act empowers the AO, if he has reasons to believe that, any income chargeable to tax has escaped assessment, to assess or reassess such income or recompute any allowance. This power is subject to the provisions of Section 148 to 153 of the Act. 15. It is pertinent to note that in the present case, the return of income was processed under Section 143(1) of the Act, and no scrutiny assessment was made under Section 143(3) of the Act and therefore, the proviso to Section 147 of the Act would not apply, in other words, though the reopening of the assessment after expiry of four years from the end of the relevant assessment year, it is not necessary for the AO to show that, there was any failure to disclose fully or truly all material facts necessary for the assessment. When return is processed under Section 143 of the Act and in intimation sent to assessee, it is not an "assessment". Therefore, when reopening is sought of an assessment, the initial return was processed under Section 1....
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....ly that, the company viz. Karma Ispat Ltd., was used to provide accommodation entries to the beneficiaries in the form bogus long term capital gain. In the background facts, the revenue has further clarified that, after receipt of the information, the AO independently applied his mind and verified the data of the assessee and upon his due satisfaction, the AO formed an opinion that, the assessee was one of the beneficiaries in availing the long term capital which is chargeable to tax has escaped assessment. 17.The learned counsel appearing for the writ applicant raised the contention that, the facts mentioned in the affidavit in reply clearly proves that, the respondent seeks to supplement the reasons recorded by the AO, which is not permissible in law. On the other hand, the learned counsel for the revenue would submit that, the attempt on the part of the revenue is to make further clarification of the information received by the AO and it can be permissible in law. We have examined the reasons recorded as indicated above for reopening of the assessment. It appears that, the AO has made reference of the information received from the concerned investigation wing with regard to b....
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....res of the same company was purchased on 29.04.2010 at a total cost of Rs. 76,082/- and the same was sold on 30.06.2011 at the sale consideration of Rs. 8,91,661/-. It further appears that, on the basis of information received from the concerned wing, the AO made independent enquiries and applied his mind and upon due satisfaction to the information and the materials gathered during the enquiries, finally formed a belief that, the income has escaped assessment. At the stage of issuing the notice, the court cannot investigate into adequacy or sufficiency of the reasons. When no scrutiny assessment made under section 143(1) of the Act, the requirement for reopening is only reason to believe. Considering the facts of the present case, the AO has caused of justification that, the alleged transaction of penny stock, claiming amount of long term capital gain has escaped assessment. We may place reliance on the case of Central Prominces Mangnese Ore Company ltd. (191 ITR 662 SC), wherein the Apex Court interpreted the word "reason to believe". It was held that, the word "reason" in the phrase "reason to believe" in Section 147, would means cause or justification. If the assessing officer ....
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....s based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the AO is invested so as to be really in disregard of the statutory condition......." Evidently, the AO purporting to exercise powers under Section 147 of the Act, is not a party who has to not only state but establish before anyone the socalled jurisdictional facts. 22. In Praful Chunilal Patel Vs. M.J.Makwana Vs. CIT, [236 ITR 832], this court while interpreting the term 'reason to believe', held that, the word "reason to believe" cannot mean that the AO should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and, if he likes, from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such i....