TaxTMI 
TaxTMI 
2021 (10) TMI 500
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....eciating 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) erred in law without appreciating the fact that in the Balance sheet attached to Return o....
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....rounds 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 transaction and thereby the present assessee received Rs. 2.55 crores during the previous year relevant to AY 2008-09. Receipt of the said amoun....
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....sputed 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 from Investigation Wing Rs. 2.55 crores without any conclusive evidence and further in the assessment order the AO has placed reliance on the statemen....
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.... 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 in and around Bangalore and received Rs. 2.55 crores as brokerage/commission which was not disclosed to the department. This information came to the knowledge....
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....y 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 clarified at the time of hearing that the actual date of communication of the order appealed against was served to the concerned revenue authorities only on 9.10.2018. As su....
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....e 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 Singh v. Appellate Asstt. CIT [1971] 82 ITR 147 (SC) observed as under:- "There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of a....
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....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, the same has to have a rational and logical link with the belief that there has been an escapement of taxable income. The belief has to have its roots in the reasons and obviously has to be genuine and bona fide and n....
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.... 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 section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, inde....
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....ated 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 Officer must have "reason to believe" that income chargeable to tax has escaped assessment, is sound. It is true that no assessment order is passed when the return is merely processed under Section 143(1) and an intimation to that effect is sent to the assessee. However, it has been rec....
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....ing 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 Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made u/s. 143(3) cannot apply where only an intimation was....
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....e 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 fiction of cases where income chargeable to tax has escaped assessment. Clause (b) deals with a situation "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, ....
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....ntext, 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" does not mean a purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith, it cannot merely be pretence. In addition, suspicion, gossip or rumour would not form the basis for such belief." 37. In Rambagh Palace Hotels Pvt Ltd Vs DCIT 2013-TIOL-45-HC-DELIT, the Hon'ble Delhi High C....
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....(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 the original return was merely processed under section 143(1) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment. He also has to record reasons under section 148(2) for reopening the earlier assessment made under section 143(1). All that has been excluded is that the assessee, in whose....
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....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. Reassessment proceedings initiated on the directions given by the CIT would be invalid [CIT v. T. R. Rajkumari [1973] 96 ITR 78 (Mad.): TC 51R 430].The requisite belief u/s. 147 must be that of the ITO concerned and not of any other officer. If the ITO does not form, his own belief but merely act at the behest of any superior authority, it must be held that the assumpti....
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....) 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 particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now sell-settled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352/ 45 Taxman 213 (Pat.), it was held: "Where the As....
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....ion 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 proceedings. 48. The Department's special leave petition against the judgment of the Rajasthan High Court reported in 313 ITR 231 (supra) whereby the High Court held that initiation of reassessment proceedings based upon the opinion of the Assessing Officer of the lessor at Mumbai was "borrowed satisfaction" and was not sufficient reason to believe that income had escaped assessment proceedings under section 147 has ....
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....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 reasons recorded do not indicate any tangible material which has led to a reasonable belief that income has escaped assessment. As held by this court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar 268 ITR 332 = (2004- TIOL-72-HC-MUM-IT), the reasons for reopening as recorded must be clear and not suffer from any vagueness so to keep the assessee guessing for the reasons. It is the reasons which provide the link between the evidence and ....
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....e, 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. Ground Nos.4 to 7 of the CO do no not require any adjudication in view of our findings in the revenue's appeal. 62. By ground No.8 of the CO, the assessee challenges the reopening of assessment on the reason that assessment was reopened consequent to search action in the case of K.G. Krishna K.G. Krishna u/s. 148, it should be reopened u/s. 153C of the Act. It was submitted by the ld. AR that assessment was reopened on the basis of information obtained from ....
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....arched 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 than the searched person found during the course of search. 64. We have heard both the parties. In this case, assessment was reopened consequent to information received from DDIT (Inv)Unit 1(2), Bangalore, about the assessee upon a search conducted u/s. 132 of the Act in the case of K.G. Krishna. The information received was said to be that the purchaser of lands K.G. Krishna has apart from the sale consideration paid to the land owner, a sum of Rs. 2.55 crores w....
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.... 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, as per the provisions of section 153C as it stood on 1.6.2015, the assessee's case cannot be reopened u/s. 153C of the Act and on the basis of information gathered through DDIT (Inv)Unit 1(2), Bangalore, the assessment of present assessee could be reopened only u/s. 147/148 of the Act and this is subject to our findings in ground No.3 in CO. This ground of objection by the assessee is dismissed. 67. The next argument of the ld. AR of the assessee is that notice u/s....