THE COMMISSIONER OF INCOME TAX vs. TBS PUBLISHERS AND DISTRIBUTORS,CALICUT
What did the High Court hold?
The High Court held that the Tribunal's decision confirming the CIT(Appeal)'s order was not tenable or sustainable. The Court relied on the Supreme Court's decision in *Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.*, which states that only the subjective satisfaction of the AO that income chargeable to tax has escaped assessment is required for reopening under Section 147. This does not mean the grounds for reopening must by themselves lead to an assessment. During reassessment, all escaped income can be brought to tax, and the AO is not restricted to the initial grounds. The Court found the reasons recorded by the AO to be sufficient to justify his belief that income had escaped assessment, irrespective of whether additions could be sustained with specific reference to those grounds. Consequently, the appeal was allowed, the orders of the Tribunal and the first appellate authority were reversed, and the matter was remanded to the first appellate authority for consideration on merits.
What were the facts?
The assessee, M/s. TBS Publishers and Distributors, Kozhikode, filed a return for assessment year 1996-1997 disclosing nil income, which was processed under Section 143(1)(a). Subsequently, the Assessing Officer (AO) issued a notice under Section 148 on January 31, 1997, proposing to reopen the assessment. The reasons for reopening included the assessee claiming TDS credit for rent of Rs. 2,46,180/- without offering rental income and the AO's belief that sundry creditors of Rs. 62,03,601/- included non-existent liabilities. The reassessment resulted in additions, including Rs. 7,07,008/- under sundry creditors, and a total tax and interest demand of Rs. 18,09,870/-. The CIT(Appeal) cancelled the reassessment, holding the grounds for reopening were non-existent. The Tribunal confirmed this order. The Revenue filed an appeal before the High Court.
What were the issues?
1. Whether the Tribunal was justified in confirming the order of the CIT(Appeal) cancelling the reassessment completed under Section 147 of the Income Tax Act for the assessment year 1996-1997. Assessee's Contention: The CIT(Appeal) held that the grounds for reopening were non-existent because no rental income was assessed, despite TDS credit being claimed, and the AO lacked material to conclude that sundry creditors included non-existent liabilities. The Tribunal confirmed this view. Revenue's Contention: The Revenue argued, relying on *Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.* (2007) 291 ITR 500 (SC), that the AO's subjective satisfaction that income chargeable to tax had escaped assessment was sufficient for reopening under Section 147. The AO is not confined to the specific grounds of reopening and can bring all escaped income to tax during reassessment. The reasons recorded by the AO were sufficient to justify his belief that income had escaped assessment.
Which sections of the Income-tax Act were involved?
Section 147,Section 148,Section 143(1)(a),Section 143(2),Section 143(3),Section 234A,Section 234B
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the Revenue is whether the Tribunal was justified in confirming the order of the C.I.T.(Appeal) cancelling the reassessment completed under Section 147 of the Income Tax Act in the case of the respondent for the year 1996-1997.
We have heard Senior counsel appearing for the appellant and Sri.P.Balakrishnan, counsel appearing for the respondent.
The assessee filed the return on 29.11.1996 disclosing the total income as nil. Return of income was processed under Section 143(1) (a) and intimation was sent on 20.1.1997. However, on 31.1.1997 itself the Assessing Officer issued notice under Section 148 proposing to reopen the assessment for the reason that the Assessing Officer was of the belief that taxable income has escaped assessment within the meaning of Section 147 of the Income Tax Act. The reason for reopening as recorded in the C.I.T.(Appeal)'s order is extracted
2 hereunder: "The return of income was filed on 29.11.1996 disclosing total income of Rs.Nil. The return of income was processed under 143(1)(a) accepting the return of income and disallowing credit for TDS as the relevant income was not offered for assessment. According to the certificate of TDS filed along with the return of income, the assessee was paid rent amounting to Rs.2,46,180/- from State Bank of Mysore, Calicut Branch. This amount has not been included in the total income of the assessee. Balance sheet shows sundry creditors at Rs.62,03,601/-. The details have not been furnished. Enquiries reveal that the list included non- existent liabilities due to omission to record rebates, commissions, discounts and also the payments. Such amounts are assessable as cessation of liability. I have therefore, reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Income-tax Act. Issue Notice u/s.148." In the revised assessment even though no rental income was assessed from house property, among other things disallowance of sundry creditors is to the extent of Rs.7,07,008/-. In fact, as against the nil income returned by the assessee, the total tax and interest payable under Section 234A and 234B was worked out by the Assessing Officer at Rs.18,09,870/-.
The appeal filed before the C.I.T.(Appeal) was allowed vacating the revised assessment for the reason that the grounds stated
3 for reopening were non-existent because in the first place, no income from house property was assessed even though claim of TDS without disclosing income under this head was the ground for reopening. Besides this, the C.I.T.(Appeal) held that the Assessing Officer had no material to hold that liability towards sundry creditors covered non- existent liabilities as well. Since the re-assessment was cancelled on this ground, the first appellate authority did not go into the merits of the case. The other grounds raised were against additions made in the reassessment. In second appeal filed by the department, the Tribunal confirmed the order of C.I.T. (Appeal) against which this appeal is filed.
Senior counsel relied on decision in ASSISTANT COMMISSIONER OF INCOME-TAX V. RAJESH JHAVERI STOCK BROKERS P. LTD. reported in (2007) 291 ITR 500 where the Supreme Court stated that what is required for reopening assessment under Section 147 is only the subjective satisfaction of the Assessing Officer that income chargeable to tax has escaped assessment. This does not necessarily follow that the reason for 4 reopening should by itself lead to assessment of any income. In other words, in the course of reassessment all escaped income could be brought to tax and the Assessing Officer is not bound to confine to the grounds on which reopening is made. In this case assessee claimed credit based on TDS Certificate on rent, but without disclosing income under the head "income from house property". Further, the Assessing Officer doubted genuineness of claim under sundry creditors because he was of the opinion that non-existent liabilities due to omission to record rebates, commissions, discounts and also the payments are included under the claim of sundry creditors. In fact, it is seen in the reassessment that there was substantial addition of above Rs.7 lakhs under this head in the reassessment. Going by the judgment of the Supreme Court, we do not think the decision of the C.I.T.(Appeal) confirmed by the Tribunal is tenable or sustainable. Even though counsel for the assessee contended that the Assessing Officer could have issued notice under Section 143(2) and made a regular assessment under Section 143(3), we do not think such a recourse open to the Assessing Officer stands in his way of reopening the assessment under 5 Section 147, if he has reason to believe that income has escaped assessment. We find that the reasons recorded by the officer are sufficient to justify his belief that income has escaped assessment, no matter whether any addition could be sustained in the assessment with specific reference to the grounds of reopening. We, therefore, allow
the appeal by reversing the order of the Tribunal and that of the first appellate authority and remand the matter to the first appellate authority for considering the appeal on merits. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms
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