TaxTMI 
TaxTMI 
2024 (4) TMI 711
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....oceedings were concluded thereupon. No scrutiny assessment was made under Section 143(3) of the Act. Later, the petitioner has been served with the impugned re-assessment notice dated 27.10.2014. In response thereto the petitioner filed its reply on 31.10.2014 and prayed to be supplied 'reasons to believe' to initiate the re-assessment proceedings. Those were supplied vide letter dated 26.11.2014. They read as below:- "The third report on illegal mining of Iron and manganese ores in the State of Goa by the honourable Justice M.B. Shah commission of enquiry was submitted in October, 2013. Justice Shah commission conducted thorough factual enquiry as per the given mandate and among other findings has also found out that there has been large-scale under invoicing of the export price in the State of Goa. The findings of the commission is mentioned on page 52 of the above-mentioned report are quoted below- "it appears that under invoicing of the export price in the State of Goa is apparent. The export price fixed by some companies are beyond imagination, when compared with the cost of production (rupees 250/- per metric ton) royalty, cost of transportation, loading and unloadin....
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....ved any amount over and above the invoice amount, it was objected that the re-assessment proceedings had been proposed on imagined facts. 5. The above objections raised by the petitioner on 09.01.2015 were rejected by the order dated 22.07.2015. In that it has been observed as below:- "From the outstation, it is clear that the notice U/s 148 has been issued as per law after recording reason to believe and following all the conditions raised by the law as discussed above. There is absolutely no bar that the case has to be taken in scrutiny U/ s 143(2) and not U/s 148/147 as the assessment in both cases is completed U/s 143(3). The issue was judicially analyzed in Chandi Ram Vs. (ITO) (1996)/87 Taxman 418 (Raj)., the Court observed that," ...........so far as the question as to whether the phraseology used in the repealed section and in the amended section is concerned, I am of the view that there was no vested right in an assessee not to pay the correct tax. The provisions of assessments are needed for determination of current liability of the tax in accordance of law which should be on the basis of correct income and if there is any escapement than the ITO has ....
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.... In the instant case few facts should be mentioned here to establish that the A.O (undersigned) is well within the ambit of law in issuing notice U/s 148- - The ITR filed by the assessee was not subjected to Scrutiny Assessment U/s 143(3) rather it was only processed U/s 143(1) which allows only checking of tax calculation and arithmetic error etc. - The issue of export price was never examined. In fact no other issue pertaining to assessment year 2011-12 was examined because the case was not selected through Computer Aided Selection System (CASS) and hence, not subjected to scrutiny assessment. - This is the first time that the case of the assessee for A.Y. 2011-12 is proposed to be examined. - Mere processing of return U/s 143(1) does not mean that the ITR of the assessee has been accepted after examination. - As established by numerous judgments of Hon'ble Supreme Court and various Hon'ble High Courts, the non-examination of case U/s 143(3) does not inhibit, in anyway, the scope of re-opening the case by issuing notice U/s 148. The judgment cited are ACIT Vs. Rajesh Jhewari Stocks Broker Pvt. Ltd., (Supreme Court), Mahanagar....
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....s by different Companies. (vii) The commission also calculated the under invoicing on the basis of difference of more than Rs. 100 in Price. (viii) The report of commission has given clear findings regarding under invoicing i.e. "Further 2352 consignments of iron- ore fines were exported during 2006 to 2011 by the various exporters. The computation of under invoicing has been carried out as discussed in this chapter and it is noted that in 1084 consignments there are under invoicing of 30% more from that base price. 46% of the total export consignments of fines were observed under invoicing. The list of such consignment is enclosed as annexure VI." (ix) The findings of the Commission has been mentioned at page-238 of the report and are being reproduced below. It is worth mentioning here that the commission has mentioned the FOB rate per WMT (in INR) and has still held the under invoicing to be at 55%- serial number ship-ping bill date name, and address of exporter FE content % Quantity exported (WMT) FOB value (rupees) FOB rate per WMT (rupess) Country to which exported % Of under Invoicing as compared to average sale ....
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....of the petitioner. Here, he would submit, there is neither such presumption available in law (either under the Act or any other law), nor there is any accepted business practice or accounting standard as may support that presumption drawn by the assessing authority. Thus, it is his submission, the "belief" entertained by the assessing authority as to escapement of income at the hands of petitioner for the Assessment Year 2011-12 is not supported by any "reason". In fact, the "belief" alone exists without any "tangible material" as may have given rise to any "reason" to form such "belief". 10. Then, it has been submitted, that the Report is only an opinion as to certain facts. It is not a definite adjudication of any dispute. Even then the report itself does not seek to reach a definite conclusion as to the fact that the petitioner had received any amount over and above the invoice amount, against Iron Ore exported by it. Rather, it assumes existence of such fact. Still, the assessing authority has sucummed to the suspicion raised by the Report and has conjecturally believed that in face of the conclusions recorded in the Report, income has escaped at the hands of the petitioner.....
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....Having heard learned counsel for the parties and having perused the record, in the first place it is undisputed between the parties that the present re-assessment proceeding has arisen under the unamended law i.e. the law that was in force upto 31.03.2021. Under the law as it then existed, no re-assessment proceedings could ever be initiated except against a valid "reason to believe" recorded by the assessing authority. 15. Second, even in a no assessment case, re-assessment could rise only after such "reason to believe" had been recorded in writing before issuance of notice under Section 148 of the Act. Thus, recording of "reasons to believe" in writing was a sine qua non for valid assumption of jurisdiction to re-assess an assesse. 16. As to what amounts to a "reason to believe," the law has remained settled over long decades. In S Ganga Saran and Sons (P) Ltd. Vs. ITO (1981) 3 SCC 143, in the context of the then existing Section 147(a) of the Act, yet, in the context of initiation of reassessment proceedings upon recording of "reasons to believe", it was established in law that those words were stronger than "is satisfied"; the "belief" must be based on "reasons" that are ....
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....he belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Assessing Officer in starting proceedings under section 147 is open to challenge in a court of law as held in S. Narayanappa v. CIT, [1967] 63 ITR 219 (SC); Kantamani Venkata Narayana and Sons v. First Additional ITO, [1967] 63 ITR 638 (SC); Madhya Pradesh Industries Ltd. v. ITO, [1970] 77 ITR 268 (SC); Sowdagar Ahmed Khan v. ITO, [1968] 70 ITR 79 (SC); ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC); ITO v. Nawab Mir Barkat Ali Khan Bahadur, [1974] 97 ITR 239 (SC); CST v. Bhagwan Industries (P.) Ltd.,[1973] 31 STC 293 (SC) and State of Punjab v. Balbir Singh, (1994) 3 SCC 299. 12. The formation of the required opinion and belief by the Assessing Officer is a condition precedent. Without such formation, he will not have jurisdiction to initiate proceedings under section 147. The fulfilment of this condition is not a mere formality but it is mandatory. The failure to fulfil that condition would vitiate the entire proceedings as held by the apex court in the case of Johri Lal....
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.... 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, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pre....
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....d legal consequences. To possess legal significance for that purpose, it must be enacted or declared by competent authority. The legal sanction vivifying it imparts to it its force and validity and binding nature. Law may be statutory law or, what is popularly described as, judge-made law. In the former case, it proceeds from enactment having its source in competent legislative authority. Judge-made law emanates from a declaration or exposition of the content of a legal principle or the interpretation of a statute, and may in particular cases extend to a definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi-judicial authority empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested....
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....ation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer." 20. It is here that we have to test, if relevant/ tangible material exists and if valid "reason" has arisen on application of mind to such material, by the assessing authority as may have led to the formation of his belief that income had escaped assessment at the hands of the petitioner. 21. What the assessing authority was required to record were reasons qua his belief that income had escaped assessment. For initiation of reassessment proceedings, there must exist "tangible material" indicating some income had arisen either on accrual or actual/ cash basis and that it has escaped assessment. Merely because the invoices issued by the petitioner were below the international price, it could never be alleged that there was any income on accrual basis as the petitioner earned no legal right to receive any higher amount. Therefore, we have to examine if there exists any material indicating receipt of any income on actual/ cash basis, over and above the invoice price. 22. The entire opinion of the Commission and the recital made in the "reasons to believe" recorded by ....
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....eopen the assessment. 2. Civil appeal is, accordingly, dismissed. No order as to costs." 25. An opinion expressed by an expert howsoever, revered and respected remains only an opinion. In the context of the Report relied by learned counsel for the revenue, it was wholly subjective. The only fact that was considered and found in existence by the Commission was of the invoice price disclosed by the petitioner being lower than the prevailing international price of that commodity. No other fact was gone into or brought out in the Report to suggest that the invoice price was deliberately suppressed or that actual consideration received was more. The vital fact of value/ price realized by the petitioner against the invoice issued, was neither gone into nor any definite opinion was expressed thereto. In any case, no material was discovered by the Commission, as may support that "belief". 26. That vital fact fell within the domain of the assessing authority. It is that fact alone which may have given rise to a reason to believe that income had escaped assessment at the hands of the petitioner. Since there is no material in that regard, we find that the present re-assessment ....