TaxTMI 
TaxTMI 
2024 (9) TMI 484
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....RBI under the Foreign Exchange Management Act, 1999. The assessee undertakes the sale and purchase of foreign currency and makes a profit only on the basis of the commission it earns. 5. The assessee filed income tax returns for the Assessment Year 2018-2019 disclosing the total taxable income of Rs. 3,50,100/- (Rupees Three Lakhs Fifty Thousand One Hundred Only). Respondent No. 2 issued notice under Section 143 (2) of the Act to the assessee for complete scrutiny on 22.09.2019. The assessee also received notice under Section 142 (1) of the Act on 10.12.2020 calling upon the assessee to submit various documents and to answer various questions concerning the transactions. In the annexure to the notice under Section 142 (1), it was mentioned that the complete scrutiny was initiated, major issue being high risk transactions. The assessee inter alia was called upon to explain the nature of source of cash deposits aggregating to an amount of Rs. 52,55,50,000/- (Rupees Fifty Two Crores Fifty Five Lakhs Fifty Thousand Only). 6. The assessee submitted all the details and answered all the queries vide communication dated 10.02.2021. The assessee relied upon a cash flow statement, regi....
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....carried out is in the nature of change of opinion and/or review. Respondent No. 2 could not have taken resort to GP/NP ratio and in any case the approach adopted of going by GP/NP ratio was misconceived. The detailed reply filed by the assessee to the notice was not given any consideration or dealt with. The reference to absence of KYC never formed part of show cause notice under Section 148A (b) of the Act and therefore, the same cannot form part of the impugned order. The requirement of KYC does not qualify as 'information" under Explanation 1 to Section 148 of the Act. SUBMISSIONS OF THE RESPONDENTS 10. Ms Razaq while arguing in support of the impugned order vehemently opposed the petition submitting thus: - (i) The assessee company carries on the business of Forex Dealer and this business activity pertains to buying and selling of foreign currencies. The assessment proceedings under Section 143 (3) read with Section 144B of the Act in respect of the petitioner/assessee were completed vide order dated 12.05.2021. The scope of scrutiny which is found at Para 3.1 of the order dated 12.05.2021 reveals suspicious transactions. The report highlighted the transactio....
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....made with unknown persons. Our attention is drawn to paragraphs 223 to 337 of the compilation submitted. No further or supporting documents as asked for by the department in the notice under Section 148A (b) were produced by the assessee. Reliance is placed on the RBI Master Circular No. 10/2014-15 dated 1^st July 2014, that AMCs may accept payment in cash up to Rs. 50,000/- against sale of foreign exchange for travel abroad (for private visit or for any other purpose). Wherever the sale of foreign exchange exceeds the amount equivalent to Rs. 50,000/- the payment must be received only by a crossed cheque drawn on the applicant's bank account or crossed cheque drawn on the bank account of the firm/company. Reliance is also placed on Guideline 6, which are conditions for sales against reconversion of Indian currency. The guidelines mandate the need for carrying out transactions in excess of Rs. 50,000/- via banking channels. The assessee has carried out huge cash transactions in money exchange and has deposited such cash in its accounts. The assessee did not produce the details of customers from whom cash was received for the purpose of money exchange either at the time of the s....
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....for the Assessment Year in question. The impugned order is well within the framework of law and jurisdiction. The issue of change of opinion would also not arise as demonstrably from the record, the question of genuineness or identity of parties and/or the cash deposits made and consequently NP/GP ratio was never the subject matter of the scrutiny assessment nor was it examined at any earlier stage. 15. The assessee would have full, fair and detailed opportunity to produce all and every evidence/s in support of its contentions that the NP/GP ratio is correct and/or that the cash deposits are made by genuine customers with all documents which were not produced by it during the assessment proceedings. The assessee would also have an alternate statutory remedy and after due process of reassessment, if the assessee is aggrieved by the reassessment order. In view of the facts and circumstances of the present case, and as per settled judicial pronouncements, the present case is not one which the reopening be interdicted by judicial intervention under Article 226 of the Constitution of India. CONSIDERATIONS 16. Heard learned counsel. Perused the memo of the petition and various d....
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....ed as defective unless all the conditions mentioned thereunder are fulfilled. Clause (f) says that where regular books of account are not maintained by the assessee but the return is accompanied by a statement indicating the amounts of turnover or gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed and also disclosing the amounts of total sundry debtors, sundry creditors, stock in trade and cash balance as at the end of the previous year, such a return shall not 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 n....
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....-section (2) of Section 143, the assessing officer after taking into account all relevant materials and after giving the assessee an opportunity of being heard make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. 28. This brings us to the pivotal section i.e. Section 147. Prior to the Direct Tax Laws (Amendment) Act, 1987, Section 147 read as under: 147. Income escaping assessment.-lf (a) the Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee 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 14....
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.... the assessing officer. It was pointed out by the representationists that the meaning of the expression "reason to believe" was explained in a number of judgments and was well settled. Omission of such an expression from Section 147 would give arbitrary powers to the assessing officer to reopen past assessments. To allay such apprehensions, Parliament enacted the Direct Tax Laws (Amendment) Act, 1989 again amending Section 147 by re-introducing the expression "reason to believe". Section 147 after the amendment carried out by the Direct Tax Laws (Amendment) Act, 1989 reads as under: "147. Income escaping assessment.-lf 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 ....
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....the judgments cited at the bar. First and foremost is the decision of a constitution bench of this Court in Calcutta Discount Company Limited(supra). That was a case under Section 34 of the Indian Income Tax Act, 1922 which is in pari-materia to Section 147 of the Act. The constitution bench explained the purport of Section 34 of the Indian Income Tax Act, 1922 and highlighted two conditions which would have to be satisfied before issuing a notice to reopen an assessment beyond four years but within eight years (as was the then limitation). The first condition was that the income tax officer must have reason to believe that income, profits or gains chargeable to income 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 art of the assessee to disclose full 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 juri....
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.... the above context, Supreme Court has held as under: 25. .....He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income Tax Officer, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to 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 requisit....
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....e of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. Fulfilment of the above two conditions alone conferred jurisdiction on the assessing officer to make a re-assessment. But with effect from 01.04.1989, the above two conditions have been given a go-by in Section 147 and only one condition has remained, viz, that where the assessing officer has reason to believe that income has escaped assessment, that would be enough to confer jurisdiction on the assessing officer to reopen the assessment. Therefore, post 01.04.1989, power to reopen assessment is much wider. However, this Court cautioned that one needs to give a 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" wo....
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....made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. (emphasis supplied) 18. The principle is well settled by the Supreme Court that a mere change of opinion cannot be a basis for reopening completed assessments and would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. The principle will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment. 19. It is material to refer to Anshul Jain Vs Principal Commissioner of Income Tax (2022) 143 Taxmann.com 38 (SC), relied upon heavily by Ms Razaq. The Supreme Court rejected the assessee's appeal against the judgment of the Punjab & Haryana High Court inter alia holding as follows:- "1. What is challenged before the High Cou....
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....ction. For rectification of errors statutory remedy has been provided. In the light of aforesaid settled proposition of law, we find that there is no reason to warrant interference by this Court in exercise of the jurisdiction under Article 226/227 of the Constitution of India at this intermediate stage when the proceedings initiated are yet to be concluded by a statutory authority. Hence the writ petition stands dismissed. 21. In Export Credit Guarantee Corporation of India Vs Additional Commissioner of Income Tax (2013) 30 taxmann.com 211 (Bombay), this Court held that tangible information need not be new or from an external source. The following are the relevant observations which read thus:- "To hold that the Assessing Officer must be deemed to have accepted what he has plainly overlooked or ignored in the assessment order would be to stretch the interpretation of Section 147 to a point where the provision would cease to have meaning and content. Such an exercise of excision by judicial interpretation is impermissible. When an assessment is sought to be reopened within a period of four years of the end of the relevant assessment year, the test to be applied....
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....followed by the assessee. During the year in question, there was a change in accounting policy as a result of which the provision for estimated recovery in respect of claims paid and outstanding for recovery for a period of three years or more as on the balance-sheet date has been estimated at Rs.100/- for each claim in substitution of the individual assessment/estimate made earlier. The assessee has stated that the change in policy has the effect of the existing provision for estimated recovery being written off by about Rs.20 crores to the revenue account and reducing the profit of the accounting year consequently. Evidently the Assessing Officer had not considered paragraph 6.1 of the Notes forming part of the accounts. At this stage, it would be necessary for the Court to record that we have not been called upon to decide as to whether any addition to the income would have to be made on that ground since that is a matter which has to be decided after the assessment is reopened. All that is relevant at this stage is whether there is reason to believe on the part of the Assessing Officer that income had escaped assessment. The answer is in the affirmative. It would not be appropr....
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....and 148 of the Act to reopen an assessment is classified into two :- (a) Reopening of assessment within a period of 4 years from the end of the relevant assessment year and (b) Reopening of assessment beyond a period of 4 years from the end of the relevant assessment year. 13. The common jurisdictional requirement for reopening of assessment both within and beyond a period of 4 years has to be on the basis of reason to believe that income chargeable to tax has escaped assessment and the reason for issuing a notice to reopen are recorded before issuing a notice. However, there is one additional jurisdictional requirement to be satisfied while seeking to reopen the assessment beyond the period of 4 years from the end of the relevant assessment year viz. that there must have been a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. Thus the primary requirement to reopen any assessment is a reason to believe that income chargeable to tax has escaped assessment. However, as observed by the Supreme Court in the case of CIT vs. Kelvinator India Limited 320 ITR 56....
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....essing officer to establish beyond doubt that income indeed has escaped assessment." 23. In the present case, the assessee filed income tax returns for the Assessment Year 2018-2019 disclosing the total taxable income of Rs. 3,50,100/- on 24.09.2018. Notice was issued under Section 143 (2) of the Act for completing scrutiny on 22.09.2019. A notice was also received by the assessee under Section 142 (1) of the Act on 10.12.2020 calling upon the assessee to submit various documents and to answer various questions concerning the transactions. In the Annexure to the notice under Section 142 (1) of the Act, it was specifically mentioned that complete scrutiny was initiated, major issue being high risk transactions. The assessee was called upon to explain the nature of source of cash deposits aggregating to an amount of Rs. 52,55,50,000/- (Rupees Fifty Two Crores Fifty Five Lakhs Fifty Thousand Only). The assessee submitted all details and answered all queries by communication dated 10.02.2021. From the response, it is seen that the assessee enclosed cash flow statement, register of sale of foreign currency, daily summary and balance book, register of purchase of foreign currency for ....
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....ccounts of the assessee appear to be on account of unauthorized transaction of forex which are made without requisite KY C of the forex purchasing party." 26. The order thus proceeds on the footing that the assessee declared its net profit as 0.05% of the turnover whereas in this line of business as per the details of the GP/NP ratio of other forex dealers in Goa, the average gross profit in this business is seen to be around 0.50% of the turnover. It is pertinent to note that in terms of Section 143 (2) of the Act, a complete scrutiny was done by the Assessing Officer. In terms of Section 143 (2) of the Act, the Assessing Officer has to ensure that the assessee has not stated the income or not computed excessive loss or not underpaid the tax in any manner. The Assessing Officer in terms of Section 143 (1) of the Act has right to reject incorrect claim, disallow loss claim, disallow expenditure, disallow deduction, and do addition of income. In fact, vide Assessment Order dated 12.05.2021, the Assessing Officer added the income of Rs. 91,800/-. In terms of Section 142 (1) of the Act, the Assessing Officer can call for any and every information that is necessary for inquiry befor....
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....thorized transactions of forex which are made without requisite KYC of the forex purchasing party. The Annexure to the notice states that "cash deposits made in various bank accounts by the assessee company during the Financial Year 2017-18 (Assessment Year 2018-19) of Rs. 65,41,72,500/-". We find that this information of cash deposits made in various bank accounts to the tune of Rs. 65,41,72,500/- was already available with the Assessing Officer when the assessment was concluded. Not only that but by the Assessment order dated 12.05.2021, the Assessing Officer added the income of Rs.91 ,800/-. All the relevant registers indicating the cash deposits were placed before the Assessing Officer. In the order under clause (d) of Section 148A, it is mentioned that these cash deposits are made without requisite KYC of the forex purchasing party. The learned counsel for the Revenue was at pains to submit that the assessee was obliged to make a true and complete disclosure including the details of the KYC which the assessee failed to do. In our view, before concluding the assessment, the Assessing Officer could have called for the KYC document if there was any doubt in his mind that large ca....