TaxTMI 
TaxTMI 
2006 (6) TMI 134
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.... in invoking the provisions of section 147 of the Income-tax Act, 1961. 2. That in respect of the facts and circumstances of the case the learned CIT(A) has erred by not holding that the assessment proceedings are null and void on the basis that the notice under section 148 was issued without any jurisdiction." 3. The facts of the case are that the assessee filed the return of income for the assessment year 1994-95 on 31-10-1994 declaring therein Nil income after claiming deduction under section 80-IA amounting to Rs. 30,44,436/-. The assessee also filed the returns of income for the assessment years 1995-96 and 1996-97 on 22-10-1996 and 30-10-1996 declaring therein income of Rs. 1,310/- and Rs. 7,00,860/- respectively after claiming deductions under section 80-IA amounting to Rs. 54,82,688/- and Rs. 4,39,388/- respectively. These returns were processed under section 143(1)(a). Notices under section 143(2) were not issued for any of these assessment years. However, subsequently, the Assessing Officer initiated reassessment proceedings under section 147 on the ground that in order to verify the correctness of the claims of the assessee for deductions under section 80-IA,....
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....ify that a valid manufacturing activity was being carried out from the said premises. Therefore, it was submitted that no reliance could be made on her statement for the purpose of initiating the reassessment proceedings. The Assessing Officer also wrongly relied on the statement of Sh. Pawan Raina in spite of the fact that he was never resided at the premises used by the assessee from 1993 to 1996, when the business was being carried out. He rented out the part of the premises only after the assessee had closed down the business. The Assessing Officer failed to take notice of the fact that the assessee had obtained clearance from Ministry of Industries, Government of India, New Delhi, for the purpose of manufacturing activity carried out by the assessee at Jammu. It was also submitted that the unit was inspected by the officials of the Customs & Central Excise at regular intervals and the proper excise duty had also been paid on the items manufactured. The assessee had also furnished proof for import of raw-material and export of finished goods from Jammu in support of the contention that the assessee had indeed carried on manufacturing activities at the said premises. However, th....
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....ssee was asked to produce books of account yet it stated that the assessee had only maintained computerized accounts. The Ld. CIT(A) considered the rival contentions and came to the conclusion that reassessment proceedings were validly initiated in this case. The reasons given in his consolidated order are briefly as under : (i) The claim of the assessee that reassessment proceedings have been initiated without any material was not correct because before initiating such proceedings, the Assessing Officer had recorded the detailed reasons for initiating such action which also inter alia mentioned that he had visited site/place of business and found that no manufacturing activity was carried on by the assessee. (ii) Since the notices under section 148 had been issued within a period of four years from the end of the assessment years concerned and the returns were processed under section 143(1)(a) only, there was no requirement for the Assessing Officer to establishment that income chargeable to tax had escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. (iii) Since the....
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....t supplied to the assessee. It was only at the intervention of the Bench that copies of the reasons recorded have been made available and copies of the statements of Smt. Raj Kishori Mattu, Sh. Pawan Raina and Sh. M.L. Sarup, have been made available. He submitted that the assessee had filed the return of income for the assessment year 1994-95 on 31-10-1994 and returns for the assessment years 1995-96 and 1996-97 on 22-10-1996 and 31-10-1996 respectively. He submitted that these returns were processed under section 143(1)(a). He submitted that time-limit for issue of notices under section 143(2) for the assessment year 1994-95 was 31-10-1995 and for the assessment years 1995-96 and 1996-97 on 31-10-1997. He submitted that these notices had not been issued by the Assessing Officer within time prescribed under the Act. This shows that the Assessing Officer was satisfied with the correctness of the claim of the assessee for deduction under section 80-IA. He submitted that for the purpose of initiating the reassessment proceedings under section 147, there must be definite information or material available with the Assessing Officer which should enable him to form a 'reason to believe' ....
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....ry 1996, no return for the subsequent assessment years was filed. He further drew our attention to a copy of the statement of Sh. Pawan Raina recorded on 12-3-1997. He submitted that Sh. Pawan Raina stated that he was a migrant engineer and started living at the place since February 1996. He submitted that nowhere the Assessing Officer has mentioned the section under which such statement was recorded, the place and the name of the person in whose presence such statement was recorded. He further stated that even the name of the Officer who recorded the statement is not mentioned. It is not known whether the statement was recorded by an Assessing Officer or his Inspector. He further stated that the assessee carried on the business at the premises from the years 1993-94 to 1995-96 and closed down the business in February 1996. Sh. Pawan Raina shifted to Jammu and started residing at the said premises since February 1996 when the business of the assessee had already been closed. He further stated that how could he state whether any business activity was being carried on at the said premises from the years 1993 to February 1996 when he was not even residing at Jammu. He further stated t....
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....ese statements, which were recorded before 31-3-1997 for initiating the reassessment proceedings, he could have simply issued notices under section 143(2) for the assessment years 1995-96 and 1996-97 for which the time was available with the Assessing Officer till 31-10-1997. There was no need for him to resort to provisions of section 147. This only shows that the Assessing Officer cooked up the evidence and taken shelter behind the so-called statements for initiating the reassessment proceedings which were illegal and void ab initio. He also relied on the following judgments : (i) Gehna v. Union of India [2003] 132 Taxman 592 (Raj.) Where it was held that since the petitioner has already sought reasons from the concerned authorities, it is expected from them to supply the reasons for issuing notice under section 148 to the petitioner within a reasonable time. Since the above procedure has not been followed by the Assessing Officer, the respondents are now directed to supply reasons for issuing notice. (ii) Kamal Singh Rampuria v. ITO [1997] 11 SCC 285 (SC) Where it was held that when all the relevant materials were produced by the assessee duri....
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....ld that although under Explanation 2 to section 147, grant of excess relief could be a ground for reopening the part of the assessee to disclose fully and truly all material facts, concluded assessments cannot be reopened. In the event, there is no material whatsoever on the record to show that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. So the deeming provision contained in Explanation 2 to section 147 has no application. (viii) Mercury Travels Ltd. v. Dy. CIT [2002] 258 ITR 533 (Cal.) In this case, it was observed that at the time of submission of the original returns, as per the requirements of the law, the assessee submitted certificates from the chartered accountant in the prescribed forms claiming exemptions. Thus, the primary facts were before the Assessing Officer when he made the assessments under sub-section (3) of section 143 and it was not open to him to invoke the provisions of section 147 of the said Act to reopen the assessment because he might have omitted to notice certain facts by oversight. For change of opinion, the provisions of section 147 of the said Act can....
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....egard to the inference which he should draw from the primary facts." (xii) CIT v. Suresh Kumar [2005] 275 ITR 253 (Punj. & Har.) In this case, the Hon'ble Punj. & Har. High Court referred the judgment of Grover Nursing Home v. ITO [2001] 248 ITR 493 and observed that "even though the report of the Department valuer cannot be made the sole basis for section 147 read with section 148 because the Valuation Report is based on estimate which is matter of opinion." (xiii) RRB Securities Ltd. v. Joint CIT [2004] 141 Taxman 49 (Delhi) (Mag.) Where it was held that reassessment proceedings could not be initiated for further verification of income shown in the return or otherwise, and that could be done by issuing notice under section 143(2) of the Act. Thus, the assessee has stated that assessments reopened merely on the basis of statement of Shri Pawan Raina was illegal, invalid and void ab initio. 7. The Ld. Sr. DR Sh. Darshan Singh, on the other hand, relied on the orders of the authorities below and submitted that the Assessing Officer correctly initiated reassessment proceedings on the basis of statement recorded and personal visit made by Asse....
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.... Explanation 2 - For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) and (b) ** ** ** (c) where an assessment has been made, but - (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; 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." A bare reading of the above provisions of the Act show that the Assessing Officer can initiate reassessment proceedings, if he has, 'reason to believe' that any income chargeable to tax has escaped assessment for any assessment year subject to the provisions of sections 148 to 153 of the Act. In such a case the Assessing Officer is empowered to assess or reassess such income. Such escapement of income could be due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Such escapement of income could also be without any omission or fail....
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....son to believe" does not mean "reason to suspect". The reasons for the formation of the belief contemplated under section 147 necessary for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee. The Apex Court further observed that it was not every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again this issue was considered by the Hon'ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1, where the Apex Court observed that expression "reason to believe" was stronger than the word 'satisfied'. The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. If there is no rational and intelligible nexus betwe....
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....tion 143(1)(a). The Ld. counsel for the assessee submitted before us that subsequent to assessment year 1996-97, no return of income had been filed because the assessee closed its business in Jammu in February 1996. No return prior to assessment year 1994-95 had also been filed. Section 143(2) of the Act empowers the Assessing Officer to issue a notice in a case where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142 and the Assessing Officer has 'reason to believe' that any claim of loss, exemption, deduction, allowance or relief made in the return was inadmissible. The Assessing Officer is required to issue such notice within a period of one year from the end of the month in which return was filed by the assessee. The time-limit for issue of notice under section 143(2) for the assessment year 1994-95 expired on 30-10-1995 and for the remaining two assessment years on 31-10-1997. Admittedly, in this case, the Assessing Officer did not issue notices under section 143(2) for any of the assessment years. In other words, there were no proceedings pending in this case. Now the Assessing Officer initiated the proceedings under....
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....IA of the Income-tax Act. Hence to bring this income to tax, notice under section 148 is being issued in this case." [Emphasis supplied] A bare reading of the above reasons shows that the basis of the Assessing Officer for initiating reassessment proceedings was as under : (i) The predecessor Assessing Officer visited the premises of the assessee in order to verify the correctness of the contention of the assessee to see whether any business activity was being carried out at the premises. No date of the visit has been mentioned in the reasons either by the predecessor Assessing Officer or by successor Assessing Officer, who initiated the reassessment proceedings. It is also significant to note that when such visits were undertaken, no proceedings under the Act were pending, as the assessee had filed the returns which were processed and notices under section 143(2) had not been issued. (ii) The reasons recorded show that during the visit of the Assessing Officer, he recorded the statement of the person residing at the given address. The name of the person, the date on which statement was recorded and the section under which such statement was recorded have not b....
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....orded under section 132(4) or under section 133A. The other provisions which enables the Assessing Officer to make enquiry is sub-section (2) of section 143/142(1) of the Act. Here also, it is mandatory that the Assessing Officer should have first issued a notice under section 143(2) before embarking upon such enquiry. In the present case, admittedly no notice under section 143(2) had been issued for any of the assessment years. No other proceedings were pending before the Assessing Officer as apart from these assessment years, no other return had been filed by the assessee. It is not the claim of the Revenue that it was a complaint case and, therefore, enquiries were initiated by the Assessing Officer on such basis. There is neither any entry in the order sheet nor any such material has been placed before us. The exercise of powers vested with the Assessing Officer is circumscribed by the provisions of the Act and the Assessing Officer is expected to observe proper procedure and keep in view the requirement of law. The law does not confer unbridled powers on the Assessing Officer to visit the premises of the assessee at any time for verification of the claim which he could have do....
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....d to be valid and legal. 8.6 In the reasons recorded, the Assessing Officer has referred to the statement of Sh. Pawan Raina. However, in para 2, he further mentions "statements", we find that there is statement of Sh. M.L. Saroop recorded on 13-3-1997. Sh. M.L. Saroop was C.A. looking after Sales-tax, Excise and Income-tax matters of the assessee at Jammu. A copy of his statement is also placed before us. This also does not indicate the place at which the statement was recorded and a copy of the summons issued to Sh. Saroop is also not on record. The name of the Officer who recorded the statement has also not been mentioned. Be that as it may, he had stated that the Audit was being done by C. As, at Delhi for which the name and address of the auditors were also given. It is the choice of assessee to whom to engage for Audit work and who should attend to his other matters. Such fact cannot be held against the assessee. Now the very fact that the audit was being done by some other C.A. at Delhi does not lead to the conclusion that no business activity was being carried out at the premises of the assessee. He was specifically asked as to what business was being carried out by the ....
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....nitiating reassessment proceedings for any of these assessment years. Be that as it may, the context in which her statement is recorded and the questions asked are also not known. Moreover, the Assessing Officer has himself observed in the assessment order on page 3 of the assessment order that Smt. Dulari Mattu had not locus standi to certify that a valid manufacturing activity was carried out by the assessee from the said premises. Therefore, no cognizance can be taken of the statement recorded of Smt. Raj Kishori Mattu and in any case how could this be the basis of initiating the reassessment proceedings. 8.8 In fact, there is a grave doubt as to whether the statements were recorded on the dates mentioned therein. We find that notices under section 143(2) for the assessment years 1995-96 and 1996-97 could have been issued up to 31-10-1997. The statements of S/Sh. Pawan Raina and M.L. Saroop were recorded on 12-3-1997 and 13-3-1997 respectively. Thus, the Assessing Officer had sufficient time available with him to issue notices under section 143(2) for these two assessment years rather than initiating the reassessment proceedings. But no such action for issue of notices under ....