SANJAY AGRAWAL vs. ADDITIONAL COMMISSIONER OF INCOME TAX

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WPT/141/2019HC ChhattisgarhCGHC01040157201919 December 2019Author: HON'BLE SHRI JUSTICE P. SAM KOSHY12 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the writ petition fails and is dismissed. The Court found that the Assessing Officer had sufficient reasons to believe that income chargeable to tax had escaped assessment. The 'reasons to believe' were based on tangible material discovered during scrutiny, specifically cash transactions exceeding Rs. 87 Lakhs where individual payments were over Rs. 20,000 in a day, which are impermissible under Section 40A(iii) of the Act. The Court noted that the phrase 'reasons to believe' does not require the AO to have ascertained facts by legal evidence; rather, it requires prima facie material to form a belief that income chargeable to tax has escaped assessment. The Court referred to the Supreme Court's decision in *Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd.*, emphasizing that under the substituted Section 147, the existence of the first condition (reason to believe that income has escaped assessment) suffices for jurisdiction. The Court concluded that the proceedings initiated under Section 147 were with sufficient material on record, showing income chargeable to tax that had escaped assessment, and therefore, the action was not bad in law. No issue was expressly left undecided.

What were the facts?

The petitioner, Sanjay Agrawal A Partnership Firm, filed its return for AY 2015-16 on March 29, 2016. Subsequently, a survey under Section 133A of the Income Tax Act, 1961, was conducted, leading to the impounding of incriminating materials. The Assessing Officer (AO) assessed the total income at Rs. 4,23,99,241 against the returned income of Rs. 2,53,93,897, prompting a notice under Section 148 for reassessment. The petitioner sought reasons, which were provided, and then raised objections. The AO rejected these objections, leading to the present writ petition challenging the reassessment proceedings initiated by a notice dated May 6, 2019, issued by the Additional Commissioner of Income Tax, Range-1, Raipur, and the Assistant Commissioner of Income Tax, Circle 1 (1), Raipur.

What were the issues?

1. Whether the notice under Section 148 of the Income Tax Act, 1961, initiating reassessment proceedings is barred by limitation, given that the petitioner contends there was no suppression of material facts and all documents were already with the department. 2. Whether the 'reasons to believe' recorded by the department for initiating reassessment are baseless, lacking tangible material, and without any objective finding, especially since no suppression was found during the original assessment under Section 143(iii). Assessee's Contentions: - The reassessment notice is barred by limitation. - There was no suppression of facts by the petitioner, and all relevant documents were available to the department. - The 'reasons to believe' are baseless, vague, and without tangible material. - Reassessment proceedings cannot be initiated based on a change of opinion. - Reliance was placed on cases like *Income Tax Officer Vs. Taxman India Pvt. Ltd.*, *Taxman India Vs. Income Tax Officer*, *Rajbhushan Omprakash Dixit Vs. Dy. Commissioner, Income Tax*, *Marico Ltd. Vs. Assistant Commissioner of Income Tax*, *Commissioner of Income Tax Vs. Banwarilal Banshidhar*, *Commissioner of Income Tax Vs. GK Contractors*, and *Commissioner of Income Tax Vs. Kelvinator of India Ltd.*. Revenue's Contentions: - The 'reasons to believe' clearly indicate sufficient tangible material found during scrutiny, leading to reassessment under Section 147. - Cash transactions exceeding Rs. 87 Lakhs, where individual payments were over Rs. 20,000 in a day to the same person, were not allowed under Section 40A(iii) and had escaped assessment. - These cash payments, including alleged bribes to PWD officers, were not reflected in the books of account, indicating a failure to disclose full and true material. - Reliance was placed on cases like *M/s. Phool Chand Bajrang Lal and Another v. Income Tax Officer and Another*, *Income Tax Officer, Jodhpur v. Purushottam Das Bangur and Another*, *Income Tax Officer, Calcutta v. Selected Dalurband Coal Co. Pvt. Ltd.*, *Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited*, and *Deputy Commissioner of Income Tax and Another v. Zuari Estate Development and Investment Company Limited*.

Which sections of the Income-tax Act were involved?

Section 133A,Section 147,Section 148,Section 40A(iii),Section 143(iii)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 HIGH COURT OF CHHATTISGARH, BILASPUR Writ Petition (T) No. 141 of 2019 Reserved on 27/11/2019 Delivered on 20/12/2019 Sanjay Agrawal A Partnership Firm, 35/36, 1st Floor, Millenium Plaza, G. E. Road Raipur Through Partner Sanjay Agrawal S/o Late Ramavtar Agrawal, 57 Yrs R/o Chaubey Colony, Raipur Chhattisgarh. ---- Petitioner Versus 1. Additional Commissioner Of Income Tax Range-1, Raipur Chhattisgarh. 2. Assistant Commissioner Of Income Tax Circle 1 (1), Raipur Chhattisgarh. ---- Respondents For Petitioner : Shri Sumit Nema, Sr. Advocate along with Shri Raja Sharma, Advocate. For Respondents : Smt. Naushina Ali, Shri Ajay Kumrani and Shri Topilal Bareth, Advocates. Hon'ble Shri Justice P. Sam Koshy

C.A.V. Order

1.

Challenge in the present writ petition is the notice dated 06.05.2019 issued by the Respondent No.

3.

Vide the said notice, the respondents have initiated proceedings for reassessment as per Section 147 of the Income Tax Act, 1961 (in short, the Act).

2.

Brief facts of the case is that, for the assessment year, 2015-16, the petitioner had submitted their return electronically on 29.03.2016. However, subsequently, it is said that some survey was conducted as per Section 133 (A) of the IT Act. In the course of survey, the respondents found that there were many incriminating materials and documents which were impounded. In the course of scrutiny, the Assessment Officer (in short, AO)

2 assessed total income of the petitioner at Rs.4,23,99,241/- as against the returned income of Rs.2,53,93,897/-. It is for this reason that notice under Section 148 of the Act was served upon the petitioner. Thereafter, the petitioner vide letter dated 05.06.2019 sought reasons from the respondents in respect of “Reasons to believe that some income of the assessee has escaped assessment”. The Department later on provided the the transaction made were in cash exceeding Rs.20,000/- in a day on the same person which is otherwise not allowed under Section 40(A)(iii) of the Act. It is this transaction made in cash transaction

5 of an amount of more than Rs. 87 Lakhs which has escaped assessment and which were detected only in the course of scrutiny and thereafter the proceeding has been initiated.

11.

The counsel for the Department referred to Annexure P/6 wherein in the course of providing reasons to believe, it has been reflected that there were various cash payments made by the petitioner. What is also apparent and surprising is that a large number of cash payments have been made showing payments of bribe/illegal gratification to the officers in the PWD department and such payments made from unexplained source are not reflected in the books of account, which led to such income escaping assessment and which has necesiated issuance of the order of reassessment. According to the counsel for the department, all these facts are sufficient to draw a prima facie strong case of the assessee not disclosing full and true material during the regular assessment.

12.

The counsel for the respondents relied upon the judgments passed in the case of “M/s. Phool Chand Bajrang Lal and Another v. Income Tax Officer and Another”1993(4)SCC 77, “Income Tax Officer, Jodhpur v. Purushottam Das Bangur and Another” 1997(3)SCC 253, “Income Tax Officer, Calcutta v. Selected Dalurband Coal Co. Pvt. Ltd.” 1997(10)SCC 68, “Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited” 2008 (14) SCC 208, and “Deputy Commissioner of Income Tax and Another v. Zuari Estate Development and Investment Company Limited” 2015 (15)SCC 248. 6

13.

Given the said facts, now if we come to the findings of the Assessing Officer or the reasons recorded by the Assessing Officer, it would clearly reveal that as per the Assessing Officer, an amount of more than Rs.87 Lakhs has escaped assessment and that this amount of more than Rs.87 Lakhs were payments made in cash towards expenditure exceeding more than Rs.20,000/- in a day, which otherwise is impermissible under the I.T. Act. The said reasons were thereafter placed before the Principal Commissioner, who in turn has given sanction for the same.

14.

From the plain reading of the aforesaid provision of law, what is clearly reflected is that there has to be subjective satisfaction of the officer concerned to the reasons assigned by the Assessing Officer.

15.

A plain reading of Section 147 of the Act, what stands revealed is that, the requirement for reopening of assessment is of the Assessing Officer finding “Any income chargeable to Tax” having escaped assessment. The term any income, in the opinion of this court, would also include the informations provided by the assessee to the department and it could also be an information not submitted by the assessee, or had suppressed it. Nowhere under the provisions of Section 147, either in the main section nor under the proviso clause, so also neither under the explanations provided under this section, is there a bar for the department to initiate reassessment if the documents/records has already been submitted to the department at the time of assessment being made. Neither does the said provision anywhere envisages that once if the books of account has been scrutinized, the same

7 cannot be scrutinized again for the purpose of initiating a proceeding under Section 147 of the Act. The documents having been submitted to the Assessing Officer at the first instance and the Assessing Officer having skipped/missed the said transaction from being assessed or having been overlooked, the same would not bar the department from initiating proceedings under Section 147 of the Act in case if the department finds at a later stage certain transaction which have escaped assessment.

16.

The only condition which is required under Section 147 of the Act for reopening assessment is that, the Assessing Officer should have reasons to believe that certain income chargeable to tax had escaped assessment. Such belief has to be to the subjective satisfaction of the Assessing Officer and the Act does not prescribe a precondition of the material not having been disclosed in the course of assessment at the first instance.

17.

The overall reading of Section 147 of the Act would show that wide powers have been given upon the Assessing Officer to reach to the conclusion of there being sufficient reasons to believe that income chargeable to tax had escaped assessment. It could even cover cases where assessee has fully disclosed the material facts. This view of the court stands fortified from the Division Bench judgment of Punjab & Haryana High Court in case of Jawand In case of M/s Phool Chand Bajrang Lal & Anr. Vs. Income Tax Officer and Another, 1993(4)SCC 77, the Supreme Court in paragraph 6, 26 and 27 held as under:

“6. From the plain phraseology of the above Sections of the Act, it appears that two conditions precedent which are required to be satisfied before an Income Tax Officer can acquire jurisdiction to proceed under Clause (a) of Section 147 read with Sections 148 and 149 of the Act, beyond the period of four years but within a period of eight years, from the end of the relevant year, are: (a) that the Income Tax Officer must have reason to believe that the income, profits or gains chargeable to tax had either been under assessed or escaped assessment and (b) that the ITO must have reason to believe that such escapement or under-assessment was occasioned by reason, of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Both these conditions must co-exist in order to confer jurisdiction on the Income Tax Officer. The Income Tax Officer is obliged, before initiating proceedings under Section 148 of the Act to record the reasons for the formation of his belief to reopen the assessment.

26.

We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to 9 be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude.

27.

In our opinion, therefore, in the facts of the present case the Income-tax Officer Azamgarh rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and therefore income chargeable to tax had escaped assessment. He, therefore, correctly invoked the provisions of Sections 147(a) and 148 of the Act. The High Court was, thus, perfectly justified in dismissing the writ petition. There is no merit in this appeal which fails and is dismissed but with no order as to costs.”

19.

Again in case of Income Tax Officer, Calcutta Vs. M/s Selected Dalurband Coal Co. Pvt. Ltd. 1997(10)SCC 68, in paragraph 3 held as under:

“3. It is well settled by various decisions of this Court that the notice under Section 148 read with Section 147 can be issued only where the Income- tax Officer has reason to believe that the income profits or gains chargeable to tax had been under-assessed or escaped assessment and further that such escapement or under assessment was occasioned by reason of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. (We are not concerned with Clause (b) of Section 147 here but only with Clause (a). In other words, there must be relevant material before the assessing officer upon which he must reasonably and rationally form the requisite opinion (belief). The question, therefore, is whether the letter of the Chief Mining Officer aforesaid does not constitute relevant material upon which the Income-tax Officer could have formed the requisite belief? It must be remembered that the formation of belief by the Income-tax Officer is essentially within his subjective satisfaction.” 20. and 21 held as under:

“19. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers.

20.

As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)].

21.

The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material

11 facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.”

21.

Recently a similar issue came up before this court in WPT No.234 of 2018 and other connected writ petitions of similar nature wherein referring to various judgments on the field and relying upon the analogy laid down in the judgments referred in the preceding paragraphs, this court had dismissed the writ petitions. The said judgment of Single Bench was subsequently subjected to challenge in Writ Appeal also being WA No.336 of 2019 and the Division Bench on 29.07.2019 dismissed the Writ Appeal affirming the order passed by the Single Bench.

22.

The phrase “Reasons to Believe” does not mean that the Assessing Officer should have ascertained the facts by legal evidence. All that is required is that, the Assessing Officer should prima facie have some material on the basis of which there should be reasons to believe of certain incomes chargeable to tax escaping assessment. There need not be any concrete evidence or proof available for coming to a final conclusion. It is only an initiation of proceedings of reassessment where the assessee gets a chance to put forth their defence, explanation and justification which would further be scrutinized by the Assessing Officer while reaching to the final conclusion. One should not loose sight of the 12 fact that the final assessment on the conclusion of a proceedings under Section 147 of the Act is also an appealable order wherein also the assessee has a right to agitate or challenge the order passed by the Assessing Officer on a proceeding under Section 147 of the Act.

23.

In view of the aforesaid provisions of law, if we look into the proceedings under challenge, it would clearly reveal that there are sufficient reasons given by the Assessing Officer, which according to him is “Reasons to believe” of an income of more than Rs.87 Lakhs, which are chargeable to tax has escaped assessment and which has come to the notice of Department at a later stage in the course of scrutiny.

24.

Given the said facts and circumstances of the case, this Court has no hesitation to reach to the conclusion that there was sufficient material available before the authority concerned for initiating a proceeding under Section 147 of the I.T. Act and the same cannot be held to be bad in law as the proceedings drawn by the Assessing Officer seems to be with sufficient material in record showing income, which otherwise is chargeable to tax having escaped assessment.

25.

For the aforesaid reasons, the writ petition fails and is accordingly dismissed. (P. Sam Koshy) Judge Ved

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