TaxTMI 
TaxTMI 
2021 (10) TMI 500
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....e or facilitation fee. 3. The Ld CIT(A) erred in not appreciating the fact that the statement recorded U/s 131(1A) on 19¬02-2013, the assessee himself has admitted on Oath before made by the AO in respect of that he has received Rs. 2,55,00,000/- from Shri.G.Krishna and agreed to revise the Return of Income for the AY 2008-09 by declaring net taxable income of Rs. 1,93,13,449/- 4. On the facts and in the circumstances of the case the Ld CIT(A) erred in allowing the relief claimed by the assessee, as the assessee has not produced any material evidences to prove that the amount of Rs. 2,55,00,000/- was received for development work. 5. The Ld.CIT(A) erred in law in deleting the additions made by the AO without appreciating the fact that during the assessment proceedings, the assessee has filed irrelevant order sheet in City Civil Court to show that the land was under Litigation because of which development work was not completed and the AO has brought exhaustively in the assessment order that neither the main assessee's name Shri. K.G.Krishna nor M/s Asthithva group is mentioned in the document submitted by the assessee. 6. The Ld.CIT(A) er....
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....ssed the Appellate Order on merits of the case considering the totality of the circumstances. 8. Without prejudice to the above grounds the Respondent submits that prima-facie the Assessment Order dtd:11-08-2016 passed u/s. 143(3) r.w.s 147 was without jurisdiction since the respondent's case was a Search related case of Sri. K.G. Krishna as such the Assessment ought to have been made u/s. 153C r.w.s 153A of the Act. 9. The Respondent craves leave to add, alter, amend and delete any of the grounds at the time of hearing. 4. The facts of the case are that there was a search u/s. 132 of the Income-tax Act, 1961 ["the Act"] conducted on 15.11.2012 in the case of Sri K.G. Krishna and Others. In the course of search, it was found that K G Krishna had purchased land about 180 acres situated at Lakshmipura Village, Devanahalli Taluk, Bangalore. It was also observed by the search team that the purchaser of land Mr. K.G. Krishna apart from sale consideration paid to the Vendor, has also paid some amount as facilitation fee, compensation, brokerage and commission to various personnel including the present assessee, who was found to be one of the facilitator in the land tra....
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.... was sufficient material evidence for the AO for formation of the belief as to the escapement of income chargeable to tax. In this case, it is undisputed fact that information gathered in the course of search conducted in the case of K.G. Krishna was forwarded to AO for necessary action in the matter in accordance with law. Thus the AO on the basis of information received by him from DDIT (Inv)Unit 1(2), Bangalore, has initiated reassessment proceedings by issue of notice u/s. 148, after formation of belief that income chargeable to tax escaped assessment. Therefore he confirmed the reopening of assessment. 8. The assessee also challenged before the CIT(Appeals) that assessment should have been completed u/s. 153C r.w.s. 153A of the Act. In this case assessment was completed u/s. 147 r.w.s. 153C which is bad in law. The CIT(Appeals) observed that assessment was reopened on the basis of material found during the course of search which was not belonging to the assessee, as such he confirmed the reopening of assessment u/s. 147 of the Act. 9. Regarding the merits of the addition of Rs. 2.55 crores, the CIT(Appeals) observed that the AO has relied only on the information received....
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....t was in respect of ownership of property. The assessee was not made a necessary part to the suit since he was not having any ownership rights over the disputed land. The assessee was only concerned with the development work as a contractor. Therefore, he observed that the assessee was not a necessary party to litigation. According to the CIT(A), the amount of Rs. 2.55 crores is advance received for Devagiri project from the ultimate buyer K.G. Krishna. It has been shown as receivable advance in the assessee's balance sheet filed with the authorities. Accordingly, he deleted the addition. Against these findings, the revenue is in appeal before us and the assessee has filed Cross Objections against the reopening of assessment. Revenue's appeal (ITA No.910/Bang/2019) 10. All the grounds in the revenue's appeal is with regard to deletion of addition made by the AO in respect of receipt of Rs. 2.55 crores by the assessee from K.G. Krishna as facilitation fee / commission / brokerage. 11. The ld. DR submitted that the assessee received the sum from K.G. Krishna who was the Purchaser of the property on behalf of whom the assessee rendered various services to various properties i....
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....he FY 2007-08 and the said suit was in respect of ownership of the property and the assessee is having no ownership rights over the disputed land, but he was only concerned with the development work as a contractor. Accordingly, the assessee was not a party to the litigation. The amount so received of Rs. 2.55 cores is only for carrying out the development work in terms of the agreement between the parties and it was duly shown in the balance sheet filed with the authorities, as such it cannot be considered as commission or brokerage paid to assessee. It was received by the assessee as an agent to carry out the work entrusted to the assessee by Astitva group of companies and it cannot be taxed in the hands of assessee as income. Being so, the CIT(Appeals) was justified in deleting the addition on this count. Cross Objection (CO No.19/Bang/2019) 14. Now we take up the Cross Objections of the assessee which goes to the root of the matter. Ground No.1 is with regard to maintainability of the revenue's appeal as regards communication of the order appealed against mentioned as 17.3.2016 as against 9.10.2018. This was only a typographical error mentioned in Col. 36. It was clarifie....
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....pliance with which is necessary for assuming jurisdiction under the said section. 20. It was further submitted that a perusal of the above reasons recorded would show that the amount of income that is chargeable to tax that has escaped assessment has not been quantified. In such a scenario, it should be ascertained as to how much of the transactions pertain to the assessee as his income. Moreover, merely entering into transactions would not mean that income is earned. The reasons recorded do not state whether the transactions are income bearing transactions or not. 21. The ld. AR submitted that the expression 'reason to believe' cannot be a mere conjecture or surmise. The reason for formation of belief for initiating assessment u/s 147 must have a rational connection or relevant bearing on the formation of belief. The existence or otherwise of such a belief on the part of the AO, is the very foundation for him to assume jurisdiction u/s 147. In the present case, it is established that the AO did not have any 'reason to believe' as judicially interpreted by various courts. So the initiation of proceedings u/s 147 is bad in law. 22. The Hon'ble Supreme Court in Sheo Nath Sin....
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....is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on fact and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid." 25. The Hon'ble Gauhati High Court in Assam Co. Ltd. v. Union Of India [2006] 150 TAXMAN 571 [GAU.] held as under:- "The litmus test as is decipherable from the consistent judicial pronouncements on this facet of the lis, therefore, is the existence, relevance and rationale of the reason on which the Assessing Officer proceeds to act under Section 147 and the bearing it has on the process of formation of the belief that income has escaped assessment. If either of these two essentials is absent, the proposed action would be ex facie unauthorized. Not only the reason has to be one, which is relevant and recognized in law, th....
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....e Court in Incometax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) on this proposition are reproduced below:- "As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in ....
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....putation of income that has escaped assessment. The AO has not stated as to how the entries in the searched person represent income of assessee. Under such circumstances, it cannot be alleged that income chargeable to tax has escaped assessment. 32. It has not been stated as to what is the material that is available based on which the present AO i.e., ITO, Ward 3(2)(3) has reason to believe that income chargeable to tax has escaped assessment If the ITO, Ward 3(2)(3) did not have a copy of the seized material, it is not understood as to what material was in the possession of the Department for initiating assessment u/s 147. Hence, initiation of assessment u/s 147 without tangible material in possession is liable to be quashed. Reliance was placed on the following decisions:- * In Commissioner of Income-tax-V v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (DELHI), the Hon'ble Delhi High Court held as under:- "We think that the point taken on behalf of the assessee that even an assessment made under Section 143(1) of the Act can be reopened under Section 147 only subject to fulfillment of the conditions precedent, which include the condition that the Assessing Of....
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....ression "for reasons to be recorded by him in writing". But there were representations against the proposal and bowing to them the original expression was restored. This aspect of the matter has been brought out by the Supreme Court in Kelvinator of India Ltd. (supra).................. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, the ld. AR submitted that the meaning of the expression has to be understood in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation u/s. 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-avis Section 143(1) and S....
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.... the belief that there was escapement of income after he accepted the return u/s. 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the AO, both strongly deprecated by the Supreme Court in Kelvinator of India Ltd. 321 ITR 561 (SC). The reasons recorded by the AO in the present case confirms the apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-a-vis an intimation issued u/s. 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the AO subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147. 34. In Prashant S. Joshi v. Income-tax Officer, Ward 19(2)(4) [2010] 189 TAXMAN 1 (BOM.), the Hon'ble Bombay High Court held as under:- "For all these reasons, it is evident that there was absolutely no basis for the first respondent to form a belief that any income chargeable to tax has escaped assessment within the meaning of the substantive provisions of section 147. Explanation (2) to section 147 creates a deeming f....
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....has to satisfy the test of existence of "reason to believe" that income chargeable to tax has escaped assessment. The law regarding existence of reason to believe is by now well settled. Belief of the Assessing Officer should not be arbitrary or irrational, but based on relevant and specific information or material. In this context, it is also important to note that there should be a direct nexus or live-link between the material coming to the notice of the Assessing Officer and the formation of his belief that there has been escapement of income of the assessee. The important words under section 147 are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons, which are relevant and material. In this context it may also be noted that the Courts have got powers to examine whether the reasons are relevant and have a bearing on the matter, in regard to which, the Assessing Officer is required to entertain the belief, before he issues notice under section 147. Besides, the expression "reason to believe" doe....
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....ssessing Officer must have reason to believe and the further condition that those reasons must have a live link with the formation of the belief is applicable equally to cases where the return was processed under section 143(1) as also to cases where the return was examined and an assessment was made by a speaking order under section 143(3). The only distinction recognized in section 147 between the two is where it is provided by the proviso that where the earlier assessment was made under section 143(3), no action for reopening the assessment can be taken after the expiry of four years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment because of the failure on the part of the assessee to file a return or to disclose fully and truly all material facts necessary for the assessment. Such an exception has not been provided for in a case where the return has been processed under section 143(1) in which case the proviso will have no application. If it is correct that an intimation under section 143(1) as well as an assessment order under section 143(3) are both amenable to section 147, it should also be conceded that even in a case where....
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....efore the Assessing Officer, even though no assessment u/s 143(3) or 144 had been made before. * Indivest Pte. Ltd., Singapore v. Additional Director of Incometax- 3(1), Mumbai [2012] 206 TAXMAN 351 (BOM.) * Inductotherm (India) Pvt. Ltd vs. DCIT (Guj.) 2012-TIOL-667- HC-AHM-IT 40. It is to be noted that the 'reason to believe' contemplated in section 147 should be that of the Assessing Officer. The AO has to apply his mind independently to the material based on which the belief is sought to be formed. If based upon his examination, he has reason to believe that income chargeable to tax has escaped assessment, then he can initiate proceedings u/s 147. The AO cannot merely rely on the report of some other income-tax authority and issue notice u/s 148 that he has reason to believe that income chargeable to tax has escaped assessment. Hence, the initiation of proceedings u/s 147 is not valid. 41. The Tribunal in Assistant Commissioner of Income-tax, Vapi Circle v. Resham Petrotech Ltd. [2012] 136 ITD 185 (AHD.) held as under: "The ITO himself should form the reasonable belief that income has escaped assessment and then only he can reopen an assessment.....
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....of the Assessing Officer for escapement of income. In the absence of the fulfilment of the requirements of section 147 of the Income-tax Act for initiation of the reassessment proceedings in the above cases, we are of the view that the Assessing Officer instead of complying with the requirements of law merely was swayed by the direction of the learned Commissioner of Income-tax (Appeals) in the appellate order dated December 11, 2003. Considering the above discussions, we are of the view that these are not the fit cases for initiation of the reassessment proceedings because the Assessing Officer failed to make out a case within the four corners of the provisions of section 147 of the Income-tax Act." 43. The Hon'ble Delhi High Court in Commissioner of Income-tax v. SPL'S Siddhartha Ltd. [2012] 345 ITR 223 (DELHI) held as under:- "8. Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any pa....
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....t the income of the assessee chargeable to tax had escaped assessment but then if properly appreciated all that it comes to is that a set of lease deeds had been appreciated by the Assessing Officer of the lessee at Mumbai, who after appreciating them allowed depreciation and the Assessing Officer here came to the conclusion that the assessee continues to be the owner of the assets and is entitled to depreciation allowance, while the Assessing Officer at Mumbai formed an opinion from the same set of lease deeds that the lessee should be taken to be the owner and has right to depreciation. Thus, the net result which comes to is that simply because after the Assessing Officer here had formed a particular opinion on a particular set of documents simply because the Assessing Officer at Mumbai had formed a different opinion on the same set of documents the action was sought to be initiated here for reassessment which, in our view, has rightly been found by the learned Tribunal that it was a "borrowed satisfaction" under the opinion of the Assessing Officer at Mumbai and has rightly been found to be not sufficient to confer power on the Assessing Officer to initiate reassessment proceedi....
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....e loss or depreciation allowance the income has escaped assessment, the reasons recorded by the Assessing Officer must disclose by what process of reasoning he holds such belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, in our opinion, does not confer jurisdiction on the Assessing Officer to take action under sections 147 and 148 of the Act." 53. In CIT Vs ICICI Bank Ltd 2012-TIOL-512-HC-MUM-IT, the Hon'ble Mumbai High Court held as under:- "As disclosed in the reasons recorded while issuing notice under Section 148 of the Act, in the present case, the impugned notice was based on the ground that the income earned from the non fund based activities of the respondent had been included in the fund based income so as to claim excess deduction under Section 36(1)(viii) of the said Act. The reasons only provide a conclusion and give no material particulars of information obtained during the course of assessment proceedings for the assessment year 1998-99 Therefore the ....
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....on that the receipt represented unexplained income of the assessee. In other words, the AO has just suspicion in his mind and it is trite law that an assessment cannot be reopened merely on the basis of suspicion and initiation of reassessment proceedings u/s. 148 of the Act on the basis of this aspect was invalid in the eye of law. 58. Therefore, considering the facts and circumstances of the case and also by following the precedents discussed above, we are of the considered opinion that the AO reopened the assessment merely on suspicion and surmise, without there being any positive material in his possession to prove that the assessee is the owner of the bank account or having beneficial interest in this bank account. Therefore, we are of the opinion that the reopening of assessments are bad in law, which cannot be sustained. Accordingly, we quash the reassessment. 59. Being so, there is error in reopening the assessment. Thus, this objection of the assessee is allowed. 60. The assessee also argued on the limitation of issue of notice u/s. 148 of the Act as well as on merits of the case. As we have quashed the reassessment itself, we are not going into the same. 61. G....
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....wever, after 1.6.2015, the legislature has categorized two situations. As far as recovery of any money, bullion, jewellery or other valuable article or thing seized or requisitioned belong to a person other than the searched person, then section 153C would be justified. However, with regard to recovery of books of account or documents seized or requisitioned, then if they pertain to other person or information contained therein relate to person other than the searched person, then action u/s. 153C could be taken. The scope of section 153C after 1.6.2015 had been widened viz., if a person at whose premises search was carried out, maintaining certain details in his regular day to day business that contains certain information exhibiting undisclosed income of the person other than the searched person, then action u/s. 153C could be justified. But prior to 1.6.2015, documents which belong to person other than the searched person. There is clear distinction between both the conditions. Subsequent to 1.6.2015, the information embedded in the document is sufficient for taking action u/s. 153C. But prior to 1.6.2015, action u/s. 153C could be taken if document belonged to a person other th....
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....int, it is appropriate to mention the ratio laid down by the Hon'ble Delhi High Court in the case of Pepsi Beverages P. Ltd., 367 ITR 112 (Del) wherein it was explained that under section 153C of the Act, a notice under that section could be issued only after two conditions have been met. First of all, the AO of the searched person would have to arrive at a satisfaction that document or asset seized does not belong to a person searched, but to some other person, and secondly, the seized documents or assets are handed over to the AO having jurisdiction over that person, i.e., person other than the one searched and to whom the seized document or assets are said to belong. 66. In the present case, the basis for reopening the assessment was information received from DDIT (Inv)Unit 1(2), Bangalore, about the payment of Rs. 2.55 crores to the assessee by K.G. Krishna who was searched u/s. 132 of the Act. The search team had not found any assets or documents seized belonging to the present assessee. Since there was no unearthing of document or assets during the course of search u/s. 132 belonging to the present assessee, consequent to search action in the case of K.G. Krishna. Being so....