TaxTMI 
TaxTMI 
2024 (1) TMI 1042
X X X X Extracts X X X X
X X X X Extracts X X X X
....nable or is bad in law, is again confronting us in the present batch of appeals. The Income Tax Appellate Tribunal, Cochin Bench, Cochin ('Tribunal' hereinafter) had decided in favour of the assessee by setting aside the orders of reassessment. However, the High Court of Kerala in appeals filed by the revenue under Section 260A of the Act has reversed the findings of the Tribunal by deciding the appeals preferred by the revenue in its favour. 2. Aggrieved by the aforesaid orders passed by the High Court of Kerala (briefly "the High Court" hereinafter), the assessee had preferred special leave petitions to appeal before this Court and on leave being granted, civil appeals have been registered. 3. We have heard Mr. Raghenth Basant, learned counsel for the appellant/assessee (which would be referred to either as the appellant or as the assessee) and Mr. Shyam Gopal, learned counsel for the respondent/revenue (again, would be referred to either as the respondent or as the revenue). 4. A brief narration of facts is necessary. 5. For the sake of convenience, we may refer to civil appeal Nos. 8580, 8581 and 8582 of 2011 (M/s Mangalam Publications, Kottayam Vs. Commissioner of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....figures but found that there was a deficiency of Rs. 29,17,931.00 in the incoming and outgoing statement which the assessee could not explain. Accordingly, this amount was added to the total income of the assessee. Further, the assessee could not produce proper vouchers in respect of a number of items of expenditure. Accordingly, an addition of Rs. 1,50,000.00 was made to the total income of the assessee vide the assessment order dated 29.01.2022 passed under Section 143 (3) of the Act. 10. For the assessment year 1992-1993 also, the assessee filed the return of income on 07.12.1992 showing a loss of Rs. 10,50,000.00. However, a revised return was filed subsequently on 28.01.1993 showing loss of Rs. 44,75,212.00. Like the earlier years, assessee did not maintain books of account and did not file the balance sheet for the same reason. However, the assessee disclosed total sale proceeds of the weeklies at Rs. 7,16,95,530.00 and also advertisement receipts to the extent of Rs. 40 lakhs. The profit was estimated at Rs. 41,63,500.00 before allowing depreciation. 10.1. On scrutiny of the performance certificate issued by the Audit Bureau of Circulation, the assessing officer observ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the reassessment proceedings. The assessing officer took cognizance of the profit and loss account and the balance sheet filed by the assessee before the South Indian Bank on the basis of which assessment of income for the assessment years 1988 - 1989 and 1989 - 1990 were completed. Objection of the assessee that the aforesaid balance sheet was prepared only for the purpose of obtaining loan from the South Indian Bank and therefore could not be relied upon for income tax assessment was brushed aside. The reassessment was made on the basis of the accounts submitted to the South Indian Bank. By the reassessment order dated 21.03.2002 passed under Section 144/147 of the Act, the assessing officer quantified the total income of the assessee at Rs. 29,66,910.00 whereafter order was passed allocating income among the partners. 13. Likewise, for the assessment year 1991-1992, the assessing officer passed reassessment order dated 21.03.2002 under Section 144/147 of the Act determining total income at Rs. 13,91,700.00. Following the same, allocation of income was also made amongst the partners. 14. In so far assessment year 1992-1993 is concerned, the assessing officer passed the rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on Section 139(9)(f) of the Act and thereafter held that the assessee had not furnished the details as per the aforesaid provisions and therefore fell short of the requirements specified therein. Vide the common appellate order dated 26.02.2004, CIT(A) held that, as the assessee had failed to disclose all material facts necessary to make assessments, therefore it could not be said that the reassessment proceedings were barred by limitation in terms of the proviso to Section 147. The other two grounds raised by the assessee were also repelled by the first appellate authority. Thereafter, CIT(A) made a detailed examination of the factual aspect whereafter it proposed enhancement of the quantum of escaped income. Following the same, CIT(A) enhanced the assessment by fixing the unexplained income at Rs. 1,44,02,560.00 for the assessment years 1987-88 to 1993-94 which was thereafter apportioned in respect of the relevant three assessment years. The pro-rata allotment of escaped income for the three assessment years as directed by CIT(A) are as follows: Sr. No. Assessment year Escaped income 1. 1990-91 Rs. 24,98,755.00 2. 1991-92 Rs. 23,01,204.00 3. 1992-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt orders could not be sustained on the basis of the balance sheet filed by the assessee before the South Indian Bank because in an earlier appeal of the assessee itself, CIT(A) had held that such balance sheet and profit and loss account furnished to the bank were not reliable. The original assessments were completed under Section 143(3) of the Act. Therefore, it was not possible to hold that the assessee had not furnished necessary details for completing the assessments at the time of original assessment. In such circumstances, Tribunal held that the case of the assessee squarely fell within the four corners of the proviso to Section 147. Consequently, the reassessments were held to be barred by limitation, thus without jurisdiction. While allowing the appeals of the assessee, Tribunal dismissed the cross objections filed by the revenue. 18. Against the aforesaid common order of the Tribunal, the respondent preferred three appeals before the High Court under Section 260A of the Act, being IT Appeal Nos. 400, 557 and 558 of 2009 for the assessment years 1990-91, 1991-92 and 1992-93 respectively. All the three appeals were allowed by the High Court vide the common order dated 12....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y and therefore set aside the reopening of assessment. Though the Tribunal concurred with the view of CIT(A), the department filed an appeal before the High Court. The assessing officer had compared the balance of the partners in their capital account in the firm in the said balance sheet (filed before the bank) with capital in the balance sheet filed for the assessment year 1993 - 1994 and thereafter determined the probable escapement of income which is fully justified and rightly upheld by the High Court. 20.3. Respondent has contended that in the original assessments the assessing officer had made the assessments on the basis of limited information furnished by the assessee. The assessing officer made the reassessments on the basis of the increase in the capital in the balance sheets between the years ending 31.03.1989 and 31.03.1993. Respondent has denied that the reassessments were made on the basis of change of opinion. An audited balance sheet for the period ending 31.12.1984 was available with the department. Thereafter, no audited or unaudited balance sheets were furnished on the ground that books of account could not be maintained. However, an audited balance sheet for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the succeeding accounting years. Nonetheless, appellant maintained primary books of account and used to prepare profit and loss accounts. It also used to prepare a statement of source and application of funds in support of the income returned by it in the returns of income. Being a member of the Audit Bureau of Circulation, appellant was also required to maintain exhaustive details regarding printing and sale of newspaper and other periodicals published by it. 21.2. Learned counsel submits that returns were filed by the appellant for the three assessment years in question. Those returns were supported by profit and loss accounts and statements showing the source and application of funds. Assessments for the three assessment years were carried out and completed under Section 143 (3) of the Act after making additions and providing for certain disallowances. He submits that for the assessment year 1993-1994, the appellant had maintained complete set of books of account, audited profit and loss account and balance sheet which were duly filed before the assessing officer. Following assessment proceedings, assessing officer passed the assessment order for the assessment year 1993 -....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt has erred in holding that even in the absence of the entire books of accounts, the assessee had not furnished the documents and particulars required under Section 139 (9) (f) of the Act. According to the High Court since the original assessment was completed without the books of account and the details under Section 139 (9) (f) being furnished, therefore, the assessee had not disclosed fully and truly all material facts necessary for completion of assessment. Learned counsel submits that for non-furnishing of particulars under Section 139 (9) (f) the original assessment would be rendered invalid. However, the assessing officer did not adopt the aforesaid course of action but instead proceeded to complete the assessments under Section 143 (3) of the Act. In the circumstances, he submits that non furnishing of details under Section 139 (9) (f) cannot lead to any inference that material facts had not been disclosed so as to justify reopening of assessments that too eight to ten years after expiry of the relevant assessment years. 21.6. Learned counsel asserts that even though the assessee was not maintaining regular books of accounts, all relevant details necessary for making t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessing officer had only reviewed the original assessments on the basis of a fresh application of mind to the same set of facts. Therefore, it is a clear case of change of opinion leading to reassessment proceedings which is not permissible in law as held by this Court in CIT, Delhi Vs. Kelvinator of India Limited, (2010) 2 SCC 723. He therefore submits that the order of the High Court is liable to be set aside and that of the Tribunal restored. 22. Mr. Shyam Gopal, learned counsel for the respondent at the outset submits that there is no merit at all in the civil appeals, and therefore, the civil appeals should be dismissed. 22.1. Adverting to Section 145 (1) of the Act, he submits that income from the profits of business shall be computed in accordance with the cash or mercantile or any other system of accounting regularly employed by the assessee. Since the business income had to be computed by following the method of accounting adopted by the assessee and based on the books of accounts so maintained, the assessee was required to produce the books of accounts but when the books of accounts were not available, at least to furnish the particulars in terms of Section 139 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act which deals with the time limit for issuance of notice under Section 148 of the Act. Post amendment with effect from 01.04.1989, he submits that under Section 149 (1) (b) (iii), the limitation is, if seven years but not more than ten years had elapsed from the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year. In the instant case, the quantum of escaped assessment is admittedly in excess of rupees fifty thousand. Therefore, the notices issued under Section 148 of the Act on 29.03.2000 for the three assessment years of 1990 - 1991, 1991 - 1992 and 1992 - 1993 were well within the limitation period. 22.7. Learned counsel has referred to the decision of this Court in Calcutta Discount Company Limited Vs. Income Tax Officer, (1961) 41 ITR 1991 and submits that the duty of disclosing all the primary facts relevant to assessment before the assessing authority lies on the assessee. Only when all the primary facts are disclosed, the burden would shift to the assessing authority. 22.8. Asserting that the order of the High Court is fully justified, learned co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be treated as defective. 24.2. Thus, Section 139 places an obligation upon every person to furnish voluntarily a return of his total income if such income during the relevant previous year had exceeded the maximum amount which is not chargeable to income tax. Under sub-section (9), if there are defects in the return which are not rectified within the stipulated period after being intimated by the assessing officer, the return of income would be treated as an invalid return. Of course, it would not be treated as defective and consequently invalid if in a case, such as, under clause (f) where regular books of account are not maintained but the return of income is accompanied by a statement indicating the amounts of turnover etc. 25. Section 142 deals with enquiry before assessment. As per sub-section (1), the assessing officer may issue notice upon an assessee who has made a return seeking details of such accounts, information or documents etc. which may be necessary for the purpose of making an assessment. Sub-section (2) empowers the assessing officer to make such enquiry as he considers necessary for obtaining full information and sub-section (3) requires the assessing offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee to make a return under Section 139 for any assessment year to the Income Tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year). 28.1. This provision was amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01.04.1989. Post such amendment, Section 147 read as under: 147. Income escaping assessment.-If the assessing officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aping 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 Sections 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 under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year). 28.4. Thus, Section 147 as it stood at the relevant point of time provides that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or re-assess such income and such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under Section 147. 29. Section 148 says that before making an assessment, re- assessment etc. under Section 147, the assessing officer is required to issue and serve a notice on the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... tax had been under-assessed. The second condition was that he must have also reason to believe that such under-assessment had occurred by reason of either (i) omission or failure on the part of the assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. It was emphasized that both these were conditions precedent to be satisfied before the income tax officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years but within the period of eight years from the end of the year in question. The words used in the expression "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year" would postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment though what facts are material and necessary for assessment would differ from case to case. On the above basis, this Court came to the conclusion that while the duty of the assessee is to disclose fully and truly all primary facts, it does not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income Tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income Tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income Tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment....... 34. This Court in the case of Srikrishna Private Limited (supra) emphasized that what is required of an asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... schematic interpretation to the words "reason to believe", otherwise Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. 35.1. This Court also referred to Circular No. 549 dated 31.10.1989 of the Central Board of Direct Taxes (CBDT) to allay the apprehension that omission of the expression "reason to believe" from Section 147 and its substitution by the word "opinion" would give arbitrary powers to the assessing officer to reopen past assessments on mere change of opinion and pointed out that in 1989 Section 147 was once again amended to reintroduce the expression "has reason to believe" in place of the expression "for reasons to be recorded by him in writing, is of the opinion". This Court thereafter explained as under: 6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Depar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see for AY 1989-90 obtained from the South Indian Bank, the capital of the assessee is as under:- Fixed capital of partners. Rs. 20,50,000/- Investment allowance. Rs. 41,47,873/- Current a/c of partners. Rs. 44,28,597/- Total Rs. 1,06,26,470/- The B/S/P & L a/c for the intervening period is not available. But the balance sheet/P&L a/c for AY 1993- 94 shows increase in capital which is as under: Fixed capital of partners. Rs. 20,50,000/- Investment allowance. Rs. 40,02,614/- Current a/c of partners. Rs. 1,65,25,455/- Total Rs. 2,25,78,069/- The difference of Rs. 1,19,51,599/- is obviously the profit of the assessee during the AY 1990-91 to 1993-94. The profit of AY 1993-94 as per the accounts is Rs. 5,08,548/-. If this is excluded, the profit for the three years i.e. 1990-91, 1991-92 and AY 1992-93 is Rs. 1,14,43,051/-. The profit will be more, if the drawings during the period of the partners are included. The drawings and taxes paid is: drawings taxes paid 1990-91 Rs. 20,30,584/- Rs. 2,48,287/- 1991-92 Rs. 18,87,648/- 1992-93 Rs. 29,12,038/- Rs. 2,72,212/- 1993-94....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt years under consideration on the ground that books of account and other materials/documents of the assessee were seized by the department in the course of search and seizure operation which were not yet returned to the assessee. In the absence of such books etc., it became difficult for the assessee to maintain year-wise regular books of account etc. However, regular books of account and profit and loss account were filed by the assessee along with the return of income for the assessment year 1993-94. What the assessing officer did was to cull out the figures discernible from the balance sheet for the assessment year 1989-90 obtained from the South Indian Bank and compared the same with the balance sheet submitted by the assessee before the assessing officer for the assessment year 1993-94 and thereafter arrived at the aforesaid conclusion. 40. It may be mentioned that the assessee had filed its regular balance sheet as on 31.12.1985 while filing the return of income for the assessment year 1986-87. The next balance sheet filed was as on 31.03.1993 for the assessment year 1993-94. No balance sheet was filed in the interregnum as according to the assessee, it could not maintai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....outh Indian Bank for obtaining credit which was discarded by the CIT(A) in an earlier appellate proceeding of the assessee itself, the assessing officer upon a comparison of the same with a subsequent balance sheet of the assessee for the assessment year 1993-94 which was filed by the assessee and was on record, erroneously concluded that there was escapement of income and initiated reassessment proceedings. 42. We may also mention that while framing the initial assessment orders of the assessee for the three assessment years in question, the assessing officer had made an independent analysis of the incomings and outgoings of the assessee for the relevant previous years and thereafter had passed the assessment orders under Section 143(3) of the Act. We have already taken note of the fact that an assessment order under Section 143(3) is preceded by notice, enquiry and hearing under Section 142(1), (2) and (3) as well as under Section 143(2). If that be the position and when the assessee had not made any false declaration, it was nothing but a subsequent subjective analysis of the assessing officer that income of the assessee for the three assessment years was much higher than wha....