TaxTMI 
TaxTMI 
2009 (9) TMI 27
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....especially Honing and Induction Heating Equipments which are used by automobile and other such industries, and has a registered office at C-37, Panki Industrial Area, Kanpur Nagar. 3. The petitioner submitted a return of income for the assessment year 2000-01 disclosing his income of Rs. 34,21,360/- The return was accompanied by a final balance sheet, profit and loss account and the Tax Audit Report along with other documents. The returns were dully processed under Section 143(1)(a) of the Income Tax Act (in short "the Act") vide intimation dated 17.1.01 and refund of Rs. 2,77,716/- was granted in favour of the assessee/petitioner. Subsequently, the case of the petitioner was picked up for scrutiny assessment and the Assessing Officer issued questionnaire on 6.2.01 which was dully replied and the Assessing Officer assessed the income of the petitioner under Section 143 (3) of the Act vide his order dated 21.3.01 determining the income tax of the assessee at Rs. 37,42,540/- and the refund which was originally granted for an amount of Rs. 2,77,716/- was reduced to Rs. 1,50,403. 4. Subsequent thereto, notice dated 10.7.03 was issued by the Assessing Officer under Section 148 of ....
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.... Counsel has also taken through the provisions of Section 147 as it stood prior to April 1, 1989 and after April 1, 1989, and had tried to impress upon this Court that in view of the amended provisions of Section 147, the scope of section 147 has been widened and the initiation of reassessment proceedings in the present case is permissible, where it is found that certain items of the income have not been subjected to assessment. 8. Heard Sri V. B. Upadhayay, learned Senior Advocate assisted by Sri Rithik Upadhya, learned counsel for the petitioners and Sri Dhananjay Awasthi, learned Standing Counsel appearing on behalf of the Department and perused the record. 9. Before adjudicating the controversy involved in the matter, it would be useful to refer to reasons recorded by the Assessing Officer while issuing the notice under Section 148 of the Act, which are reproduced hereinbelow; "Reasons recorded for issue of notice U/s 148. Dt. 10.7.03- The assessment in this case was completed u/s 143(3) of the Income tax Act, 1961 on 21.3.01. at a total income of Rs. 37,42,540/-. A perusal of balance sheet shows that prior period adjustments amounting ....
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....n in the respective financial year to which it relates. Thus according to the Assessing Officer Rs. 5,41,850/- was not allowable deduction for assessment year 2000-01 and the other reason assigned was that the petitioner has not provided for interest of Rs. 8,34,720/- on corporate deposit in respect of loan advanced to M/s Track Parts India Ltd., although the said interest was regularly provided in the earlier years. As a result, an income of Rs. 8,34,720/- further escaped assessment and on the basis of the aforesaid facts, the reason to believe was formed by the Assessing Officer, that total income of Rs. 13,76,570 had escaped assessment and required reassessment as per section 147. 11. At this juncture, it will be useful to refer to amended section 147 which reads as follows; "147. Income escaping assessment- 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 section 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....
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....assessment under Section 143 (3) of the Act, the Assessing Officer did not discuss in the assessment order about the "Prior period of adjustment" amounting to Rs. 5,41,850/-and also did not deal with the actual interest of Rs. 8,34,720/- in respect of Inter-Corporate deposit. Therefore, there was no application of mind of the Assessing Officer about the aforesaid subject. 13. Learned counsel for the petitioner has heavily relied upon the Full Bench decision of Delhi High Court in the case of Commissioner of Income Tax Vs. Kelvinator of India Ltd. (DELHI) [F.B.] V 256 ITR Page 1 wherein it has been observed by the said Court as follows; "We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 ....
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....ed from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; (4) Where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law." 15. The aforesaid decision in the case of Kalyanji Mavji & Co. Vs. Commissioner of Income-Tax, West Bengal II (supra) came up for consideration before a three Judges Bench of the Apex Court in Indian and Eastern Newspaper Society Vs. Commissioner of Income-Tax, New Delhi (1979) 119 ITR 996, wherein it was held as follows; "Now, in the case before us, the Income Tax officer had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Re....
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....se squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Mavji's case. Proposition (2) may be briefly summarised as permitting action even on a "mere change of opinion". This is what has been doubted in the IENS case (supra) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji Mavji & Co. (supra). This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on "information" in the shape of some light thrown on aspects of facts or law which the I.T.O. had not earlier been conscious of. To give a couple of illustrations, suppose an I.T.O., in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently he finds, in the forest of papers filed in connection with the assessment, several instances....
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....en to have been overruled by Kalyanji Mavji (supra). The second paragraph from the judgment in the IENS case earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the ITO realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas, [1986] 21 S.T.C.326 (SC). Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law: "The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, ho....
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....by the Delhi High Court in the said case for the following reasons; (i) Firstly, as we have noticed hereinbefore that the proposition laid down in the case of Kalyanji Mavji (supra) was not completely overruled in the case of Indian Eastern Newspaper Society (supra) wherein the proposition No. 2 as laid down in the Kalyanji Mavji (supra) was only disapproved not the other propositions particularly the proposition No. 4, as extracted earlier, was not disapproved. (ii) Secondly, in the case of Kelvinator of India Ltd. (supra), the later decision of a three Judges Bench of the Apex court in A. L. A. Firm (supra) was not considered wherein the implication and effect of the decision in Indian Eastern Newspaper Society (supra) & Kalyanji Mavji &Co. (supra) were considered and explained and it was categorically held that the decision in Indian Eastern Newspaper Society has not cast any doubt on the other three propositions No. 1, 3 & 4 laid down in Kalyanji Mavji's case. (iii) Thirdly, where the assessment order has been passed and certain items of income were not at all discussed and it escaped the notice of the assessing officer as a result of which, the r....
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....sessment. 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 taxable income and the tax payable thereon, i.e., while....
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....capement of income leave no scope for an argument that they are not cases of income having escaped assessment. If the Assessing Officer prima facie finds or discovers that the case falls in any of the clauses of Explanation 2, then those cases will be deemed cases of income that has escaped assessment and without anything more beyond such finding or discovery, he can initiate the proceedings under section 147 of the Act. On a proper interpretation of section 147 of the Act, it would appear that the power to make assessment or reassessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings...................... As noted above, the provisions of section 147 require that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justific....
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.... "We are unable to accept the extreme proposition that nothing that can be found in the record of the assessment, which itself would show escape of assessment or under-assessment, can be viewed as information which led to the belief that there has been escape from assessment or under-assessment. Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it is brought to this notice by another assessee or even by a subordinate or a superior officer, that would appear to be information disclosed to the Income-tax Officer. if the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what is seen by another in the record is `information' what is seen by the Income-tax Officer himself is not information to him. In the latter case he just informs himself. It will be information in his possession within the meaning of section 34. In such cases of obvious mistakes apparent on the face ....
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....ertain deeming provisions where in any of the circumstances stated above, income is deemed to have escaped assessment giving jurisdiction to the Assessing Officer to act under Section 147 (See, VXL India Ltd. Vs. Assistant CIT (1995) 215 ITR 295 and Birla VXL Ltd. Vs. Assistant CIT (1996) 217 ITR 1 (Gujarat). 32. "Explanation 1 to proviso to section 147 is explicit and clear on the point. The Explanation gives a quietus to contention that where account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence could be discovered by the Assessing Officer. Nor will the assessee be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The position remains that so far as the primary facts are concerned, it is the assessee's duty to disclose all of them- including particular entries in account books, particular portions of documents, and documents, and other evidence which could have been discovered by the assessing a....
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....922 and observed as follows:- The next question that remains to be considered is in regard to the other conditions prescribed by section 34(1)(b). When can income be said to have escaped assessment? ........We see no justification for holding that case of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case when a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment. The appellant's attempt to put a very narrow and artificial limitation on the meaning of the word "escape" in section 34(1)(b) cannot therefore succeed." (emphasis supplied) 38. We are further fortified in our view by a decision of the Division Bench of this Court in Shyam Bansal Vs. Assistant Commissioner of Income-Tax [2008] 296 ITR page 25 (All.) wherein this Court has held as follows; "The essential requirement for initiating reassessment proceeding under section 147, read with section 148 is that the assessing....