TaxTMI 
TaxTMI 
TaxTMI 
2009 (11) TMI 35
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....ing an income of Rs.12,80,258/- as interest earned in the activity of money lending, under the head 'business' and after claiming admissible expenses and set off as against brought forward losses. 4. However, the second respondent issued a notice dated 7-7-2008 under section 148 of the Income Tax Act,1961 and called for various details. The petitioner filed objections and requested the respondent to furnish reasons for reopening the assessment. By a letter dated 30-7-2009, the second respondent furnished reasons. It was pointed out by the second respondent in that letter that in the return filed by the petitioner, the expenditure unconnected with the earning of interest was found to have been claimed and that brought forward business loss was wrongly set off against income from other sources, contrary to the provisions of section 72. 5. By a letter dated 27-8-2009, the petitioner filed objections to the reasoning given by the second respondent and requested the second respondent to drop further proceedings. But by a reply dated 31-8-2009, the second respondent rejected the request and held that the initiati....
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....ence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority by pursuing an investigation on the basis of what had been disclosed. However the Apex court also made it clear that once all primary facts are disclosed, it is not necessary for the assessee to render any more assistance by telling the assessing authority what inferences, whether of facts or of law could be drawn. 8. In the next decision, CIT vs. A.Raman & co (AIR 1968 SC 49), the Apex court held in paragraph 6 -- (i) that the court, in exercise of its powers, can ascertain whether the ITO had in his possession, any information and (ii) that the court may also determine whether from such information, the ITO may have reason to believe that income chargeable to tax had escaped assessment. But the jurisdiction of the court extends no further. The Supreme court made it clear that it is for the ITO and not this court, to decide whether on the information in his possession, he should commence a proceeding for assessment or re-assessment and that the ITO alone is entrusted with the power to administer the Ac....
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....ITO can assume jurisdiction to issue notice under section 147 (a), 2 distinct conditions are to be fulfilled namely (i) that he must have reason to believe that the income of the assessee had escaped assessment and (ii) that he must have reason to believe that such escapement was by reason of omission or failure on the part of the assessee to disclose truly and fully all material facts, necessary for the assessment. The Apex court also pointed out that the belief entertained by the ITO must not be arbitrary or irrational, but must be based on reasons which are relevant and material. 13. In Indian Oil Corporation vs. I.T.O. {(1986) 3 SCC 409}, the Supreme court indicated that section 147 (a) postulates a duty on every assessee, firstly to disclose facts; secondly, those which are material; thirdly, the disclosure must be full and fourthly, true. What facts are material and necessary for assessment, will differ from case to case. 14. Referring to the scope of operation of clauses (a) and (b) of section 147, the Supreme court held in Niranjan and Co. Pvt. Ltd vs. C.I.T {(1986) Supp. SCC 272} that reopening under section 147 can only be made after completed ....
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....ere not included. The reason for reopening was that such non-inclusion resulted in undervaluation of inventories and understatement of profits. When a challenge was made, the Supreme Court rejected it on the ground that the Court could only see whether there was prima facie some material on the basis of which the assessment could be reopened and that the sufficiency or correctness of the material cannot be considered. The Court made it clear that it would be open to the assessee to prove the assumption of the Assessing Officer to be erroneous and that there were no new facts, while participating in the proceedings. 18. Indicating the procedure to be followed in cases where a notice under section 148 is issued, the Supreme Court held in GKN Driveshafts (India) Ltd Vs. Income Tax Officer {(2003) 259 ITR 19} that when a notice under section 148 is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notice. The assessing officer is then obliged to furnish reasons, after receipt of which, the noticee can file objections. Thereafter, the assessing officer is bound to pass a speaking order disposing of the objections.&....
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.... which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) 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, deduction, allowance or relief in the return; (c) Where an assessment has been made, but (i) such income has been assessed at too low a rate ; or (ii) income chargeable to tax has been underassessed; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." 20. Section 147 underwent a substantial change, first by the Direct Tax Laws (Amendment) Act, 1987 (Act 4 of 1988) and later by other amendments. Prior to the amendment in 1988, section 147 contained clauses (a) and (b) and Explanations 1 and 2. After amendment, clauses (a) and (b) have been deleted and Explanation 2 has taken a new shape. The Explanation 2, as it stands today, creates a deeming fiction in 3 types of situations namely (i) when no ....
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....from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." 22. After the aforesaid amendment under Act 4 of 1988, yet another amendment was made by Direct Tax Laws (Amendment) Act, 1989 and the words "for reasons to be recorded by him in writing, is of the opinion", appearing in the first line of Section 147, was substituted by the words "has reason to believe". Thus a substantial change has been made to Section 147 by the amendments of the years 1988 and 1989. 23. In the Statement of Objects and Reasons accompanying the Direct Tax Laws (Amendment) Bill, 1987 (which became Act 4 of 1988), it was indicated in paragraph-2(i) that in view of the proposed amendment, no assessment order would generally be required to be passed, once the acknowledgement of return of income was issued and that however if a return of income is scrutinised, the process of investigation will be initiated. 24. In the Notes on Clauses, explaining in detail, the provisions of the Bill, it was stated, in relation to the proposed amendments to Sections 147 and 148, as follows:- &n....
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.... assessment:- (i) Where no return of income has been furnished by an assessee, although his total income is above the taxable limit; (ii) Where a return of income has been furnished but no assessment has been made, and the assessee is found to have understand his income or claimed excessive loss, deduction, etc., in the return; and (iii) Where an assessment has been made, but income chargeable to tax has been underassessed or assessed at too low a rate or any excessive loss or relief or depreciation allowance or any other allowance under the Act has been allowed. The existing provisions of sub-section (1) of section 148 provide that a notice issued under this section shall tantamount to a notice issued under sub-section (2) of section 139. The existing sub-section (2) provides that before issuing a notice under this section, the Income Tax Officer will record his reasons for doing so. In the new section 148, reference to sub-section (2) of section 139 is to be removed as that sub-section is being deleted. Sub-section (2) of the section is to be deleted, as the requirement of recording reasons is incorporated in section 147 itself. The new section 148, therefore, provides that ....
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....or the petitioner relied upon two decisions, one, of the Division Bench of the Delhi High Court and another, of the Division Bench of this Court. In KLM Royal Dutch Airlines vs. Assistant Director of Income Tax {2007 (292) ITR 49}, relied upon by the learned counsel, a notice under Section 148 was issued on the ground that the income earned by rendering technical services cannot be claimed by the Airlines, as covered by Article 8 of the Double Taxation Avoidance Agreement. The Division Bench of the Delhi High Court found that the assessee had filed a return under Section 139 on 31.10.2002 and that since no order of assessment had been finalised by the Assessing Officer, there was no scope for initiating proceedings for "re-assessment". The focus of the Delhi High Court was on the word "re-assessment", in the light of the fact that in that case, an inquiry had been initiated after scrutiny by the Assessing Officer. Though the Division Bench of the Delhi High Court, relying upon a Full Bench decision of the very same Court in CIT vs. Kelvinator of India Ltd {2002 (256) ITR 1} also held that the amendment to Section 147 with effect from 1.4.1989 had not altered the position in so far ....