THE COMMISSIONER OF INCOME TAX III vs. SFIL STOCK BROKING LTD.

Whether Reporters of local papers may be allowed to see the judgment ?

To be referred to the Reporter or not ?

Whether the judgment should be reported in Digest ? BADAR DURREZ AHMED, J (ORAL) 1. This appeal by the revenue is directed against the order dated 17.12.2008 passed in ITA No. 4991/Del/2004 by the Income Tax Appellate Tribunal in respect of the assessment year 1998-1999.

The only issue before us is with regard to the validity of the proceedings under Section 147 of the Income Tax Act, 1961 (hereinafter referred to as „the said Act‟). The facts are that the assessee in his original return of income filed on 30.11.1998 had shown a long term capital gain of 2010:DHC:2334-DB

Subsequently, the reasons for issuance of the notice under Section 148 were provided to the assessee and the said reasons, as recorded, were as under:-

Thereafter, during the re-assessment proceedings, the Assessing Officer made an addition of Rs 20,70,000/- by holding that the assessee could not explain the source of the entries. Being aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who confirmed the order passed by the Assessing Officer. Thereafter, the appellant preferred a second appeal before the Income Tax Appellate Tribunal in which an additional ground with regard to the assumption of jurisdiction on the part of the Assessing Officer under Section 147/148 of the said Act was taken. It is on this additional ground that the Income Tax Appellate Tribunal has agreed with the assessee‟s submission and quashed the entire re-assessment proceeding.

The Tribunal, following the decision of this Court in the case of CIT v. Atul Jain: 299 ITR 383 (Del), held that the facts of the present case were virtually identical to those of Atul Jain (supra) and that, because the Hi h C t i th f At l J i ( ) h d h d th di 2010:DHC:2334-DB

The learned counsel for the appellant/ revenue contended that the Tribunal had erred in following the decision in the case of Atul Jain (supra) inasmuch as the reasons recorded in Atul Jain (supra) were different from the reasons recorded in the present case. He submitted that the so-called reasons recorded in Atul Jain (supra) were clearly held by this Court to be vague and scanty and not to be any reasons at all. However, in the present case, there was clear information which was available with the Assessing Officer on this basis of which he could form a belief and it is also submitted by the learned counsel for the appellant that the Assessing Officer did form a belief and, therefore, invoking the decision of the Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd : (2007) 291 ITR 500 (SC), he submitted that the Tribunal had erred. He submitted that a substantial question did arise for the consideration of this Court. In particular, the learned counsel for the appellant / revenue relied upon the following portion of the Supreme Court decision in Rajesh Jhaveri (supra):- “16. 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 2010:DHC:2334-DB

On the other hand, the learned counsel for the respondent/ assessee placed reliance on the decision of this Court in the case of Atul Jain (supra) as also on several other decisions of this Court including that in the case of Jay Bharat Maruti Ltd. v. CIT: 223 CTR 269 (Del) and CIT v. Batra Bhatta Company: 174 Taxman 444 (Del). The learned counsel for the assessee/ respondent also submitted that the decision of the Supreme Court in the case of Rajesh Jhaveri (supra) was also clear in stating that there must be a belief which must be arrived at by the Assessing Officer and that there must be some material before the Assessing Officer so as to arrive at such a belief in order that the expression “reason to believe” is triggered. He submitted that in the present case, if one were to examine the reasons recorded prior to issuance of the notice under Section 148, there is only an 2010:DHC:2334-DB

After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent / assessee. We find that the Supreme Court in Rajesh Jhaveri (supra) made it absolutely clear that before an Assessing Officer issues a notice under Section 148, thereby re- opening the assessment under Section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri (supra) did not say that it was not necessary for the 2010:DHC:2334-DB

In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice under Section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income Tax to initiate proceedings under Section 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons:- “Thus, I have sufficient information in my possession to issue notice u/s 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above.”

From the above, it is clear that the Assessing Officer referred to the information and the two directions as „reasons‟ on the basis of which he was proceeding to issue notice under Section 148. We are afraid that these cannot be the reasons for proceeding under Section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at b li f th t th b i f th t i l hi h h h d b f hi i 2010:DHC:2334-DB