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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
Per Chandra Poojari, Accountant Member
The appeal by the revenue and cross objection by the assessee are directed against the order of the CIT(Appeals)-13, Bengaluru, dated 9.10.2018 for the assessment year 2008-09.
The revenue has raised the following grounds:-
“1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. The Ld.CIT(A) erred in stating that the Assessing officer has relied upon only the Information received from the Investigation wing without any supporting material to establish the fact that the advance of Rs.2,55,00,000/- was in the nature of Commission/Brokerage or facilitation fee. 3. The Ld CIT(A) erred in not appreciating the fact that the statement recorded U/s 131(1A) on 19¬02-2013, the assessee himself has admitted on Oath before made by the AO in respect of that he has received Rs. 2,55,00,000/- from Shri.G.Krishna and agreed to revise the Return of Income for the AY 2008-09 by declaring net taxable income of Rs.1,93,13,449/- 4. On the facts and in the circumstances of the case the Ld CIT(A) erred in allowing the relief claimed by the assessee, as the assessee has not produced any material evidences to prove that the amount of Rs.2,55,00,000/- was received for development work. 5. The Ld.CIT(A) erred in law in deleting the additions made by the AO without appreciating the fact that during the assessment proceedings, the assessee has filed irrelevant order sheet in City Civil Court to show that the land was under Litigation because of which development work was not completed and the AO has brought exhaustively in the assessment order that neither the main assessee's name Shri.
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 3 of 38 K.G.Krishna nor M/s Asthithva group is mentioned in the document submitted by the assessee. 6. The Ld.CIT(A) erred in law without appreciating the fact that in the Balance sheet attached to Return of Income filed on 17-11-2015 in response to Notice U/s 148 for AY 2008-09, the assessee has shown Rs. 2,55,00,000/- as advance received towards Devagiri Project. However, in the Return of Income filed on 29-09-2011 for the AY 2011-12, the assessee has not shown any advance received amount in the Balance sheet and no mention of any land under dispute is made during the assessment proceedings for the AY 2011-12. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 8. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.” 3. The assessee has raised the following grounds:-
The Appeal of the Revenue is not maintainable in 1. view of the factual defect as regards the date of Communication of the Order 1. appealed against mentioned as 17-03-2016 as against 09-10-2018. The Actual date of Communication has not been mentioned in the Appeal Memorandum as regards the applicability of Limitation of Time since the 2. appeal was filed after 201 days from the date of Appellate Order without filing any application for Condonation of delay if any. The Ground No. 2 of the Revenue's Appeal is liable to be dismissed since the Ld. CIT(A) was justified to hold that the AO did not have any information except information received from the Investigation Wing. 3.
The Ground No.3 of the Revenue's Appeal is liable to be dismissed since the statement recorded u/s. 131(1A) on 19-02-2013 was not maintainable in law 4. and the same was against to the Instructions of the CBDT.
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 4 of 38
The Ground No.4 of the Revenue's Appeal is not maintainable since the Ld. CIT(A) has satisfied as to the evidence produced as regards receipt of 5. Rs.2,50,00,000/- was related to Contractual Development Work. The Ground No.5 of the Revenue's Appeal is not maintainable since the Ld. CIT(A) has satisfied about the evidence produced relating to the payment made 6. by Sri. K.G. Krishna on the advice of former owners of the land M/s. Asthithva Group. The Ground No.6 of the Revenue's Appeal is not maintainable since the Ld. CIT(A) has passed the Appellate Order on merits of the case considering the 7. totality of the circumstances. Without prejudice to the above grounds the Respondent submits that prima-facie the Assessment Order dtd:11-08-2016 passed u/s. 143(3) r.w.s 147 was without jurisdiction since the respondent's case was a Search related case of Sri. K.G. 8. Krishna as such the Assessment ought to have been made u/s. 153C r.w.s 153A of the Act. The Respondent craves leave to add, alter, amend and delete any of the grounds 9. at the time of hearing.
The facts of the case are that there was a search u/s. 132 of the Income-tax Act, 1961 [“the Act”] conducted on 15.11.2012 in the case of Sri K.G. Krishna and Others. In the course of search, it was found that K G Krishna had purchased land about 180 acres situated at Lakshmipura Village, Devanahalli Taluk, Bangalore. It was also observed by the search team that the purchaser of land Mr. K.G. Krishna apart from sale consideration paid to the Vendor, has also paid some amount as facilitation fee, compensation, brokerage and commission to various personnel including the present assessee, who was found to be one of the facilitator in the land transaction and thereby the present assessee received Rs.2.55 crores during the previous year relevant to AY 2008-09. Receipt of the said amount was admitted by the assessee vide letter dated 19.2.2013 addressed to DDIT(Inv), Unit 1(2), Bangalore and assessee has confirmed the same in a sworn statement recorded u/s. 131(1A) dated 19.2.2013 recorded by DDIT(Inv),Unit 1(2), Bangalore. It was also noted by the AO that assessee has failed to file return of income for the AY 2008-09 and to
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 5 of 38 examine the income chargeable to tax that has escaped assessment, the case was reopened u/s. 147 of the Act after obtaining necessary approval from the JCIT, Range 2, Bangalore.
Thereafter notice us/. 148 was issued to assessee on 14.11.2014 and served on assessee on 20.11.2014. In response to the said notice, the assessee has filed return of income on 17.11.2015 declaring income of Rs.12,01,470. The AO has stated that the assessee has confirmed receipt of Rs.2.55 crores from K.G. Krishna towards facilitator fee and has claimed expenditure of Rs.61,86,551 and the assessee was asked to provide documents in support of such expenses claimed by the assessee.
However, the assessee while filing the return of income has not shown this receipt of Rs.2.55 crores as income of assessee, instead it was shown in the balance sheet as advance received from Devagiri Project which is a liability in the balance sheet. The AO treated this amount of Rs.2.55 crores as income of the assessee since the assessee has not produced any material evidence to prove that Rs.2.55 crores was received for development work as advance. Further, in the original return filed on 29.9.2011 for the AY 2011-12, the assessee has not shown any advance received in its balance sheet and no mention of any land under dispute was made during the assessment proceedings for the AY 2011-12. Against this, the assessee went in appeal before the CIT(Appeals).
The CIT(Appeals) observed that the AO has mentioned that the information was received from DDIT (Inv)Unit 1(2), Bangalore and upon such information, the AO formed belief that the amount of Rs.2.55 crores said to have been paid by K.G. Krishna to assessee escaped income chargeable to tax for the AY 2008-09. The AO is entitled to initiate reassessment proceedings u/s. 148 irrespective source of information. The only requirement of law is that whether there was sufficient material
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 6 of 38 evidence for the AO for formation of the belief as to the escapement of income chargeable to tax. In this case, it is undisputed fact that information gathered in the course of search conducted in the case of K.G. Krishna was forwarded to AO for necessary action in the matter in accordance with law. Thus the AO on the basis of information received by him from DDIT (Inv)Unit 1(2), Bangalore, has initiated reassessment proceedings by issue of notice u/s. 148, after formation of belief that income chargeable to tax escaped assessment. Therefore he confirmed the reopening of assessment.
The assessee also challenged before the CIT(Appeals) that assessment should have been completed u/s. 153C r.w.s. 153A of the Act. In this case assessment was completed u/s. 147 r.w.s. 153C which is bad in law. The CIT(Appeals) observed that assessment was reopened on the basis of material found during the course of search which was not belonging to the assessee, as such he confirmed the reopening of assessment u/s. 147 of the Act.
Regarding the merits of the addition of Rs.2.55 crores, the CIT(Appeals) observed that the AO has relied only on the information received from Investigation Wing Rs.2.55 crores without any conclusive evidence and further in the assessment order the AO has placed reliance on the statement of assessee recorded on 19.12.2013 without any material evidence to show receipt of Rs.2.55 crores was in the nature of income chargeable to tax. According to the CIT(A), the statement of assessee itself was not sufficient and more so such a statement was recorded against the CBDT Instruction that such team was not entitled to seek any disclosure in the guise of voluntary disclosure without any supporting material evidence. He was of the opinion that the amount of Rs.2.55 crores was received as advance for execution of development work of land
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 7 of 38 measuring about 180 acres purchased by the buyer, K.G. Krishna. The assessee claimed expenses of Rs.75,78,255 being the expenses incurred in the execution of development work alone, but the AO had misunderstood such expenses. According to the CIT(A), the said amount of Rs.2.55 crores was received by the assessee on various dates and it is only an advance for executing the development work of and as per mutual agreement between the parties, therefore it cannot be assessed in the hands of assessee. Further it was observed that the statement recorded by the DDIT (Inv)Unit 1(2), Bangalore, is contrary to the judgment of the Supreme Court in the case of CIT v. Khader Khan, 352 ITR 480 (SC) and it cannot be the basis for such addition. He also observed that the search team has not initiated any proceedings even on the statement recorded by them for a period of two years and later enquiry was forwarded to AO of present assessee, who has passed the assessment on the basis of presumption that an amount of Rs.2.55 crores represented income of assessee being facilitation fee for which no evidence was mentioned in the assessment order. The development work was commenced by the assessee and a sum of Rs.75,78,255 was incurred as per the details mentioned in the assessment order itself which fact established that there was an agreement for development work between the assessee and Astitva group of concerns on whose instructions the ultimate buyer of the land K.G. Krishna has made the payment. It was further observed that the development work could not be done in view of pending litigation in OS No.198/2009 which was pending before the City Civil Court. The subject matter of suit was in respect of ownership of property. The assessee was not made a necessary part to the suit since he was not having any ownership rights over the disputed land. The assessee was only concerned with the development work as a contractor. Therefore, he observed that the assessee was not a necessary party to litigation. According to the CIT(A), the amount of Rs.2.55 crores is advance received
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 8 of 38 for Devagiri project from the ultimate buyer K.G. Krishna. It has been shown as receivable advance in the assessee’s balance sheet filed with the authorities. Accordingly, he deleted the addition. Against these findings, the revenue is in appeal before us and the assessee has filed Cross Objections against the reopening of assessment.
Revenue’s appeal (ITA No.910/Bang/2019)
All the grounds in the revenue’s appeal is with regard to deletion of addition made by the AO in respect of receipt of Rs.2.55 crores by the assessee from K.G. Krishna as facilitation fee / commission / brokerage.
The ld. DR submitted that the assessee received the sum from K.G. Krishna who was the Purchaser of the property on behalf of whom the assessee rendered various services to various properties in and around Bangalore and received Rs.2.55 crores as brokerage/commission which was not disclosed to the department. This information came to the knowledge of the department in the course of search action on K.G. Krishna on 5.11.2012 on information from DDIT(Inv), Unit 1(2), Bangalore. This information was passed to the AO of assessee and consequent assessment order was passed on the approval of Jt.CIT, Range 2, Bangalore. The assessee filed letter dated 19.2.2013 about the receipt of the amount addressed to DDIT(Inv), Unit 1(2), Bangalore and confirmed the same by sworn statement recorded u/s. 131(1A) on 19.2.2013 and he drew our attention to the contents of the same. According to the ld. DR, even when the there is such a substantial evidence, the CIT(Appeals) could not have deleted the addition observing that the same was disclosed to the department in the balance sheet. He submitted that it was not disclosed in the original balance sheet and it was only reflected in the revised balance sheet attached to the revised return of income. As such, addition has to be sustained.
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 9 of 38 12. On the other hand, the ld. AR relied on the order of the CIT(Appeals).
We have heard both the parties and perused the material on record. The ld. AR submitted that there is no material in the hands of AO other than the statement of assessee recorded on 19.2.2013 and according to him, it was only advance received by the assessee from K.G. Krishna towards Devagiri project. It was duly reflected in the balance sheet and it cannot be considered as income of assessee. Further it was submitted that the AO formed the opinion on the basis of assumption that advance made of Rs.2.55 crores represented facilitation fee for which no evidence is mentioned in the assessment order. The assessee has actually incurred an amount of Rs.75,78,255 towards development work which could not be done in view of pending litigation in OS No.198/2009 before the City Civil Court in the assessment year under consideration. Further, there was an agreement of development work between the assessee and Astitva group of concerns, on whose instructions, the ultimate buyer of the land, K.G. Krishna has made these payments. As rightly pointed out by the assessee, the development work could not be done in view of the pending litigation before the City Civil Court in OS 198/2009. The transaction took place in the FY 2007-08 and the said suit was in respect of ownership of the property and the assessee is having no ownership rights over the disputed land, but he was only concerned with the development work as a contractor. Accordingly, the assessee was not a party to the litigation. The amount so received of Rs.2.55 cores is only for carrying out the development work in terms of the agreement between the parties and it was duly shown in the balance sheet filed with the authorities, as such it cannot be considered as commission or brokerage paid to assessee. It was received by the assessee as an agent to carry out the work entrusted to the assessee by Astitva group of companies and it cannot be taxed in
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 10 of 38 the hands of assessee as income. Being so, the CIT(Appeals) was justified in deleting the addition on this count.
Cross Objection (CO No.19/Bang/2019)
Now we take up the Cross Objections of the assessee which goes to the root of the matter. Ground No.1 is with regard to maintainability of the revenue’s appeal as regards communication of the order appealed against mentioned as 17.3.2016 as against 9.10.2018. This was only a typographical error mentioned in Col. 36. It was clarified at the time of hearing that the actual date of communication of the order appealed against was served to the concerned revenue authorities only on 9.10.2018. As such, this ground of the CO is dismissed.
Ground No.2 of the CO is as regards delay in filing the revenue’s appeal. Since the date of communication of the order appealed against was on 9.10.2018, there was no delay in filing the revenue’s appeal. Hence, this ground is also dismissed.
Ground No.3 of the CO is that the AO did not have any information, except information received from the Investigation Wing for reopening the assessment.
We have heard both the parties on the issue. At the time of reopening the assessment, there is no necessity of having conclusive evidence regarding the escapement of income and if the AO is having only prima facie material to suggest escapement of income, he can reopen and conclude the assessment by issue of notice u/s. 148. In this case, there was information available with the AO which was forwarded by the search team on conducting the search in the case of K.G. Krishna. That information suggested that K.G. Krishna has paid a sum of Rs.2.55 crores as facilitation fee.
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 11 of 38 18. It was further submitted that vide letter dated 26.09.2014 the ACIT, Circle-2(1), Bangalore has communicated the recorded reasons. Section 147 of the Act states that “if 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….” , Hence the basic requirement for initiating proceedings u/s. 147 is that the AO should have “reason to believe that any income chargeable to tax has escaped assessment”.
The ld. AR submitted that a perusal of the reasons recorded do not state what is the amount of income chargeable to tax that as escaped assessment in my hands. According to the AO, based on the information received by the department, the assessee received Rs.2.55 crores as facilitation fee. The same has not been admitted as income in the return of income filed before the tax authorities. Hence income chargeable to tax has escaped assessment for the AY 2008-09. The assessee did not admit of the alleged amount as income. It was submitted that the alleged information did not meet with the requirements of section 147 compliance with which is necessary for assuming jurisdiction under the said section.
It was further submitted that a perusal of the above reasons recorded would show that the amount of income that is chargeable to tax that has escaped assessment has not been quantified. In such a scenario, it should be ascertained as to how much of the transactions pertain to the assessee as his income. Moreover, merely entering into transactions would not mean that income is earned. The reasons recorded do not state whether the transactions are income bearing transactions or not.
The ld. AR submitted that the expression ‘reason to believe’ cannot be a mere conjecture or surmise. The reason for formation of belief for initiating assessment u/s 147 must have a rational connection or relevant
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 12 of 38 bearing on the formation of belief. The existence or otherwise of such a belief on the part of the AO, is the very foundation for him to assume jurisdiction u/s 147. In the present case, it is established that the AO did not have any ‘reason to believe’ as judicially interpreted by various courts. So the initiation of proceedings u/s 147 is bad in law.
The Hon’ble Supreme Court in Sheo Nath Singh v. Appellate 22. Asstt. CIT [1971] 82 ITR 147 (SC) observed as under:-
"There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstances evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court." 23. A three-Judge Bench of the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219 held as under:-
"Again the expression "reason to believe" in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it different, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law (see Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District 1, Calcutta)."
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 13 of 38 24. In Ganga Saran & Sons (P.) Ltd. v. Income-tax Officer [1981] 130 ITR 1 (SC), the Hon’ble Supreme Court observed as under:-
“The important words in section 147(a) are “has reason to belief” and these words are strong than the words “is satisfied”. The belief entertained by the Income-tax 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. The Court of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income-tax Officer in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on fact and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid.” 25. The Hon’ble Gauhati High Court in Assam Co. Ltd. v. Union Of India [2006] 150 TAXMAN 571 [GAU.] held as under:-
“The litmus test as is decipherable from the consistent judicial pronouncements on this facet of the lis, therefore, is the existence, relevance and rationale of the reason on which the Assessing Officer proceeds to act under Section 147 and the bearing it has on the process of formation of the belief that income has escaped assessment. If either of these two essentials is absent, the proposed action would be ex facie unauthorized. Not only the reason has to be one, which is relevant and recognized in law, the same has to have a rational and logical link with the belief that there has been an escapement of taxable income. The belief has to have its roots in the reasons and obviously has to be genuine and bona fide and not merely a pretence. The subjective satisfaction metamorphing into the
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 14 of 38 belief has to be guided by objectivity based on existing relevant reasons acknowledged and recognized by law. A tangible and bona fide legal necessity to scuttle tax avoidance is the essence of the power and no roving enquiry on vague-hunches or indeterminate and impertinent consideration is envisaged.” 26. The entire law as to what would constitute "reason to believe" was summed up by the Hon’ble Supreme Court in ITO v Lakhmani Mewal Das [1976] 103 ITR 437. The following principles were laid down:-
(a) The powers of the Assessing Officer to reopen an assessment, though wide, are not plenary. (b) The words of the statute are "reason to believe" and not "reason to suspect". (c) The reopening of an assessment after the lapse of many years is a serious matter. Since the finality of a judicial or quasi- judicial proceedings are sought to be disturbed, it is essential that before taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence.
The ld. AR submitted that the reasons to believe must have a rational connection with 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 AO and the formation is belief regarding escapement of income. The fact that the words "definite information" which were there in section 34 of the Act of 1922 before 1948, are not there in section 147 of the 1961 Act would not lead to the conclusion that action can now be taken for reopening an assessment even if the information is wholly vague, indefinite, far-fetched or remote. From
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 15 of 38 perusal of the reasons recorded, he submitted that the reasons recorded cannot lead one to form a belief that income chargeable to tax has escaped assessment. The observations of the Hon’ble Supreme Court in Income- tax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) on this proposition are reproduced below:-
“As stated earlier, the reasons for the formation of the belief must have a rational connection with 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 Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income- tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.”. 28. In Commissioner of Income-tax v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC), the Hon’ble Supreme Court held as under:
“There should, in our opinion, be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 16 of 38
predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact.” 29. A Constitution Bench of the Hon’ble Supreme Court in M. Ct. Muthiah v. CIT AIR 1956 SC 269, considered the expressions "reason to believe" and distinguished the same from "reason to suspect" comparing the provisions with the un-amended provisions of section 34(1) of the Income-tax Act, 1922 and held that after amendment, the expressions "reason to believe" had to be based as a consequence of "definite information" which came into possession of the Revenue. However, there must be some material in possession of the Revenue on the basis of which an objective opinion can be formed that the person concerned has undisclosed amount for the purpose of the Act.
It is submitted that there is no nexus between the material coming to the notice of the AO and the formation of his belief that there has been escapement of income. The assessee has received that amount only as an agent. Hence, the very basis for assuming jurisdiction is not factually correct, no reasonable belief can be formed based on such incorrect facts.
Without prejudice to the above, it is submitted that the AO should have reason to believe that income chargeable to tax has escaped assessment. The learned Assessing Officer has to determine ‘income chargeable to tax’. This presupposes that the material based on which he forms reason to believe that income chargeable to tax which has escaped assessment should enable computation of income that has escaped assessment. The AO has not stated as to how the entries in the searched person represent income of assessee. Under such circumstances, it cannot be alleged that income chargeable to tax has escaped assessment.
It has not been stated as to what is the material that is available based on which the present AO i.e., ITO, Ward 3(2)(3) has reason to
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 17 of 38 believe that income chargeable to tax has escaped assessment If the ITO, Ward 3(2)(3) did not have a copy of the seized material, it is not understood as to what material was in the possession of the Department for initiating assessment u/s 147. Hence, initiation of assessment u/s 147 without tangible material in possession is liable to be quashed. Reliance was placed on the following decisions:-
• In Commissioner of Income-tax-V v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (DELHI), the Hon’ble Delhi High Court held as under:- “We think that the point taken on behalf of the assessee that even an assessment made under Section 143(1) of the Act can be reopened under Section 147 only subject to fulfillment of the conditions precedent, which include the condition that the Assessing Officer must have "reason to believe" that income chargeable to tax has escaped assessment, is sound. It is true that no assessment order is passed when the return is merely processed under Section 143(1) and an intimation to that effect is sent to the assessee. However, it has been recognised by the Supreme Court itself in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P). Ltd. [2007] 291 ITR 500/ 161 Taxman 316, a decision that was relied upon by the revenue, that even where proceedings under Section 147 are sought to be taken with reference to an intimation framed earlier under Section 143(1), the ingredients of Section 147 have to be fulfilled; the ingredient is that there should exist "reason to believe" that income chargeable to tax has escaped assessment. This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under Section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the Section.
…………..There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show "reason to believe". The fact that the intimation issued under Section 143(1)
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 18 of 38 cannot be equated to an "assessment", a position which has been elaborated by the Supreme Court in the judgment cited above, cannot in our opinion lead to the conclusion that the requirements of Section 147 can be dispensed with when the finality of an intimation under Section 143(1) is sought to be disturbed. We are at pains to point out this position, which seems fairly obvious to us, because of the argument frequently advanced before us on behalf of the Revenue in other cases as well, under the misconception, if we may say so with respect, that an intimation under Section 143(1) can be disturbed on any ground which appeals to the Assessing Officer. The consequence of countenancing such an argument could be grave. The expression "reason to believe" has come to attain a certain signification and content, nourished over a long period of years by judicial refinement painstakingly embarked upon by great judges in the past. The expression has been judicially interpreted in a particular manner. When Section 147 was recast with effect from 1st April, 1989, the legislature sought to replace the expression "reason to believe" with the expression "for reasons to be recorded by him in writing". But there were representations against the proposal and bowing to them the original expression was restored. This aspect of the matter has been brought out by the Supreme Court in Kelvinator of India Ltd. (supra)……………… Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, the ld. AR submitted that the meaning of the expression has to be understood in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation u/s. 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-a- vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 19 of 38 of the expression when it is applied to the reopening of an assessment earlier made u/s. 143(3) cannot apply where only an intimation was issued earlier u/s. 143(1). It would in effect place an assessee in whose case the return was processed u/s. 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. ………………In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 33. The ld. AR submitted that in the present case the reasons disclose that the AO reached the belief that there was escapement of income after he accepted the return u/s. 143(1) without scrutiny, and nothing more. This
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 20 of 38 is nothing but a review of the earlier proceedings and an abuse of power by the AO, both strongly deprecated by the Supreme Court in Kelvinator of India Ltd. 321 ITR 561 (SC). The reasons recorded by the AO in the present case confirms the apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-a-vis an intimation issued u/s. 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the AO subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147.
In Prashant S. Joshi v. Income-tax Officer, Ward 19(2)(4) [2010] 189 TAXMAN 1 (BOM.), the Hon’ble Bombay High Court held as under:-
“For all these reasons, it is evident that there was absolutely no basis for the first respondent to form a belief that any income chargeable to tax has escaped assessment within the meaning of the substantive provisions of section 147. Explanation (2) to section 147 creates a deeming fiction of cases where income chargeable to tax has escaped assessment. Clause (b) deals with a situation "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return." For the purpose of clause (b) to Explanation (2), the Assessing Officer must notice that the assessee has understated his income or has claimed excessive loss, deduction, allowance or relief in the return. The taking of such notice must be consistent with the provisions of the applicable law. The act of taking notice cannot be at the arbitrary whim or caprice of the Assessing Officer and must be based on a reasonable foundation. The sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua non for a valid exercise of power. In the present case, having regard to the law laid down by the Supreme Court it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment. The reasons which have been recorded could never have led a prudent person to form an opinion that income
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 21 of 38 had escaped assessment within the meaning of section 147. In these circumstances, the petition shall have to be allowed by setting aside the notice under section 148.” 35. In the above case, no assessment had been carried out u/s 143(3) or 144 of the Act. Only intimation u/s 143(1) had been issued as in the present case.
The Hon’ble Tribunal in Grey Worldwide (India) Private Limited Vs. Asst Commissioner Of Income Tax 2011-TIOL-291-ITAT-MUM held as under:- “13. The expression ‘reason to believe' still continues to be part of main section 147. There is no distinction at all between the assessment deemed to be completed under section 143(1) and the assessment completed under section 143(3) of the Income Tax Act. The Hon'ble Bombay High Court in the case of Prashant S. Joshi vs. ITO 324 ITR 154(Bom) = (2010-TIOL-146-HC-MUM- IT) after considering the decision of the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. 291 ITR 500 (SC) = (2007-TIOL-95-SC-IT) has held that even when an intimation is issued u/s. 143(1) of the Act, the validity of initiation of reassessment proceedings has to satisfy the test of existence of “reason to believe” that income chargeable to tax has escaped assessment. The law regarding existence of reason to believe is by now well settled. Belief of the Assessing Officer should not be arbitrary or irrational, but based on relevant and specific information or material. In this context, it is also important to note that there should be a direct nexus or live-link between the material coming to the notice of the Assessing Officer and the formation of his belief that there has been escapement of income of the assessee. The important words under section 147 are “has reason to believe” and these words are stronger than the words “is 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. In this context it may also be noted that the Courts have got powers to examine whether the reasons are relevant and have a bearing on the matter, in regard to which, the Assessing Officer is required to entertain the belief,
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 22 of 38 before he issues notice under section 147. Besides, the expression “reason to believe” does not mean a purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith, it cannot merely be pretence. In addition, suspicion, gossip or rumour would not form the basis for such belief.”
In Rambagh Palace Hotels Pvt Ltd Vs DCIT 2013-TIOL-45-HC-DEL- IT, the Hon’ble Delhi High Court held as under:-
“Even so, it is necessary that the assessing officer must have “reasons to believe” that income chargeable to tax had escaped assessment. There must be tangible material before him on the basis of which he could form the belief, bona fide and in good faith, that there was escapement of income. The material must have a live link or nexus with the formation of the belief. The belief cannot be a mere pretence. These are the most basic and indispensable requirements for the validity of the notice under Section 148” 38. The Third Member in M/s. Telco Dadajee Dhackjee Ltd. Vs. The DCIT, Circle 2(3) 2012-TIOL-532-ITAT-MUM-TM held as under:-
“section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that the reassessment notice issued under section 148 in a case where the original assessment was made under section 143(1) cannot be challenged on the ground of a mere change of opinion, still it is open to an assessee to challenge the notice on the ground that there is no reason to believe that income chargeable to tax has escaped assessment. The reason to believe must have a live link with the formation of the belief that income chargeable to tax had escaped assessment when the return was processed and accepted under section 143(1). To hold that in every case where a return was processed and accepted under section 143(1) the Assessing Officer will be free to reopen the same under section 148 even in the absence of a live link between the reasons recorded and the formation of belief would be to make the conditions of section 147 and section 148 otiose as regards notices reopening issued in
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 23 of 38 cases where the return was originally processed under section 143(1). There is no exclusion in section 147 to the effect that where the return was earlier processed under section 143(1) it is not necessary for the Assessing Officer to hold or entertain a belief that income chargeable to tax had escaped assessment for the reasons recorded by him. Therefore, the condition that the Assessing Officer must have reason to believe and the further condition that those reasons must have a live link with the formation of the belief is applicable equally to cases where the return was processed under section 143(1) as also to cases where the return was examined and an assessment was made by a speaking order under section 143(3). The only distinction recognized in section 147 between the two is where it is provided by the proviso that where the earlier assessment was made under section 143(3), no action for reopening the assessment can be taken after the expiry of four years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment because of the failure on the part of the assessee to file a return or to disclose fully and truly all material facts necessary for the assessment. Such an exception has not been provided for in a case where the return has been processed under section 143(1) in which case the proviso will have no application. If it is correct that an intimation under section 143(1) as well as an assessment order under section 143(3) are both amenable to section 147, it should also be conceded that even in a case where the original return was merely processed under section 143(1) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment. He also has to record reasons under section 148(2) for reopening the earlier assessment made under section 143(1). All that has been excluded is that the assessee, in whose case the return was first processed under section 143(1), cannot challenge the notice of reopening on the ground that it is prompted by a mere change of opinion. Only to this limited extent there is a disability on the part of the assessee to challenge the notice of reopening in a case where his return was earlier processed under section 143(1) of the Act. ……………..the notice of reopening issued in a case where the return was first processed under section 143(1) is open to challenge on all grounds available to the assessee, including the ground that there was no reason to believe that income
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 24 of 38 chargeable to tax had escaped assessment or that the materials before the Assessing Officer had no live link or nexus with the formation of such belief or that the reasons are based on gossip or rumour or were a mere pretence. This is made clear by the observations of the Court at page 512 of the report where it was held that “so long as the ingredients of section 147 are fulfilled” the Assessing Officer can reopen the proceedings even where intimation under section 143(1) had been issued. Thus fulfillment of the conditions of section 147, including the one that there should be “reason to believe”, is essential for the validity of the notice under section 148. It is while expounding the words “reason to believe” that the Supreme Court in the later judgment in CIT vs. Kelvinator of India Ltd. (supra) held that there should be “tangible material” to come to the conclusion that income had escaped assessment. Thus, in my humble understanding of both the judgments, while resorting to section 147 even in a case where only an intimation had been issued under section 143(1)(a) it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment.”
Reliance is also placed on following decisions wherein it has been held that the proceedings initiated under section 147 are liable to be quashed on the ground that there was no tangible material before the Assessing Officer, even though no assessment u/s 143(3) or 144 had been made before.
• Indivest Pte. Ltd., Singapore v. Additional Director of Income- tax-3(1), Mumbai [2012] 206 TAXMAN 351 (BOM.) • Inductotherm (India) Pvt. Ltd vs. DCIT (Guj.) 2012-TIOL-667- HC-AHM-IT
It is to be noted that the ‘reason to believe’ contemplated in section 147 should be that of the Assessing Officer. The AO has to apply his mind
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 25 of 38 independently to the material based on which the belief is sought to be formed. If based upon his examination, he has reason to believe that income chargeable to tax has escaped assessment, then he can initiate proceedings u/s 147. The AO cannot merely rely on the report of some other income-tax authority and issue notice u/s 148 that he has reason to believe that income chargeable to tax has escaped assessment. Hence, the initiation of proceedings u/s 147 is not valid.
The Tribunal in Assistant Commissioner of Income-tax, Vapi Circle v. Resham Petrotech Ltd. [2012] 136 ITD 185 (AHD.) held as under:
“The ITO himself should form the reasonable belief that income has escaped assessment and then only he can reopen an assessment. Reassessment proceedings initiated on the directions given by the CIT would be invalid [CIT v. T. R. Rajkumari [1973] 96 ITR 78 (Mad.): TC 51R 430].The requisite belief u/s. 147 must be that of the ITO concerned and not of any other officer. If the ITO does not form, his own belief but merely act at the behest of any superior authority, it must be held that the assumption of jurisdiction under section 148 was bad for non- satisfaction of the conditions precedent [Sheo Narain Jaswal & Ors. v. ITO & Ors. [1989] 176 ITR 352 (Pat.); TC 51R 432.. See also Vishal Swamp Agrawilla v. ITO [1976] CTR (Cal.) 296: TC 51R 432A and Chunnilal Onkarmal (Pvt) Ltd., (1983) 349 ITR 380 (MP): TC 51R 435]'…………………….. The reasons for reopening must be recorded by jurisdictional AO because he is keeping all relevant and primary record. The basic requirement of section 147 of the Act is that the AO has reason to believe that any income chargeable to tax has escaped assessment. Such belief must be the belief of jurisdictional AO and not any other AO or authority of the department. Therefore, it is well settled that the AO's jurisdiction to reopen an assessment u/s. 147 depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdiction.”
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 26 of 38 42. The Tribunal in Assistant Commissioner of Income-tax v. Radheshyam Mohanlal Maheshwari [2011] 12 ITR(TRIB.) 429 (AHD.) held as under:-
“reopening of the assessment under section 147 of the Income-tax Act as per its plain language provided in the Act provides prerogative to the Assessing Officer to reopen the assessment if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Even if the learned Commissioner of Income-tax (Appeals) has issued a direction in the appellate order dated December 11, 2003 to reopen the assessments, it is the prerogative of the Assessing Officer to reopen the assessment by satisfying the requirements of the law as mentioned above and shall have to record in writing, the reasons to believe that any income chargeable to tax has escaped assessment for any assessment year. However, the reasons recorded by the Assessing Officer in all the above cases do not find mention such facts and the satisfaction of the Assessing Officer for escapement of income. In the absence of the fulfilment of the requirements of section 147 of the Income-tax Act for initiation of the reassessment proceedings in the above cases, we are of the view that the Assessing Officer instead of complying with the requirements of law merely was swayed by the direction of the learned Commissioner of Income-tax (Appeals) in the appellate order dated December 11, 2003. Considering the above discussions, we are of the view that these are not the fit cases for initiation of the reassessment proceedings because the Assessing Officer failed to make out a case within the four corners of the provisions of section 147 of the Income-tax Act.”
The Hon’ble Delhi High Court in Commissioner of Income-tax v. SPL'S Siddhartha Ltd. [2012] 345 ITR 223 (DELHI) held as under:-
“8. Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other
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circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now sell-settled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352/ 45 Taxman 213 (Pat.), it was held: "Where the Assessing Officer does not himself exercise his jurisdiction under Section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent."
The Apex Court in the case of AnirudhSinhji KaranSinhji Jadeja v. State of Gujarat [1995] 5 SCC 302 has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether.
The Hon’ble Delhi High Court in Mrs.Vinita Jain v. ITO 158 Taxman Magazine 167 held that where Assessing Officer reopened assessee’s assessment merely because DDIT (Inv.) believed that transaction of capital gains shown by assessee was bogus and no separate reason disclosing satisfaction of assessing Officer for formation of belief that income of assessee had escaped assessment had been recorded, notice issued under section 148 was to be quashed and assessment made in pursuance thereof was to be annulled.
The Hon’ble Supreme Court in ACIT v. Dhariya Construction Co. [2010] 328 ITR 515 (SC) held that the opinion of the DVO per se is not an
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 28 of 38 information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961. It was held that the Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon and without the same, the Department was not entitled to reopen the assessment.
The Hon’ble Rajasthan High Court in CIT v. Shree Rajasthan Syntex Ltd. [2009] 313 ITR 231 (Raj) held that it has been very intelligibly projected that the factum of the Assessing Officer at Mumbai having allowed depreciation allowance to the lessee did constitute a fact which came to the notice of the Assessing Officer here and that furnished reason to believe that the income of the assessee chargeable to tax had escaped assessment but then if properly appreciated all that it comes to is that a set of lease deeds had been appreciated by the Assessing Officer of the lessee at Mumbai, who after appreciating them allowed depreciation and the Assessing Officer here came to the conclusion that the assessee continues to be the owner of the assets and is entitled to depreciation allowance, while the Assessing Officer at Mumbai formed an opinion from the same set of lease deeds that the lessee should be taken to be the owner and has right to depreciation. Thus, the net result which comes to is that simply because after the Assessing Officer here had formed a particular opinion on a particular set of documents simply because the Assessing Officer at Mumbai had formed a different opinion on the same set of documents the action was sought to be initiated here for reassessment which, in our view, has rightly been found by the learned Tribunal that it was a “borrowed satisfaction” under the opinion of the Assessing Officer at Mumbai and has rightly been found to be not sufficient to confer power on the Assessing Officer to initiate reassessment proceedings.
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 29 of 38 48. The Department’s special leave petition against the judgment of the Rajasthan High Court reported in 313 ITR 231 (supra) whereby the High Court held that initiation of reassessment proceedings based upon the opinion of the Assessing Officer of the lessor at Mumbai was “borrowed satisfaction” and was not sufficient reason to believe that income had escaped assessment proceedings under section 147 has been dismissed. [CIT v. Shree Rajasthan Syntex Ltd. [2009] 313 ITR (Statutes) 27]
The Hon’ble Mumbai High Court in ICICI Home Finance Co Ltd Vs ACIT, Mumbai 2012-TIOL-590-HC-MUM-IT held as under:-
“The belief u/s 147 that income has escaped assessment has to be the reasonable belief of the AO himself and cannot be an opinion and/or belief of some other authority. The AO cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief that income has escaped assessment. On facts, the recorded reasons are identical to the objection of the audit authority. The reasons do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the AO before he issued the s. 148 notice (India Eastern Newspaper Society 119 ITR 996 (SC) followed).”
The Bangalore Tribunal in M/s GMR Holdings Pvt Ltd Vs DCIT, Bangalore 2012-TIOL-114-ITAT-BANG held that issue of notice u/s. 148 of the Act only after the audit party raised certain objections is invalid.
The ld. AR submitted that in the present case, the reasons recorded do not show as to how the AO has come to the conclusion that income chargeable to tax has exceeded Rs. 1 lac merely based on certain information collected from search team. The AO considered the information gathered from search team itself to represent the income
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 30 of 38 chargeable to tax that has escaped assessment. In our opinion, the reasons recorded must disclose the process of reasoning by which the AO holds that he has reason to believe that income chargeable to tax has escaped assessment. The AO in the present case has recorded his conclusion itself as reason.
In the case of VXL India Ltd. v. Asst. CIT [1995] 215 ITR 295 the Gujarat High Court has held as under:-
“ In a case where the Assessing Officer holds the opinion that because of excessive loss or depreciation allowance the income has escaped assessment, the reasons recorded by the Assessing Officer must disclose by what process of reasoning he holds such belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, in our opinion, does not confer jurisdiction on the Assessing Officer to take action under sections 147 and 148 of the Act.”
In CIT Vs ICICI Bank Ltd 2012-TIOL-512-HC-MUM-IT, the Hon’ble Mumbai High Court held as under:-
“As disclosed in the reasons recorded while issuing notice under Section 148 of the Act, in the present case, the impugned notice was based on the ground that the income earned from the non fund based activities of the respondent had been included in the fund based income so as to claim excess deduction under Section 36(1)(viii) of the said Act. The reasons only provide a conclusion and give no material particulars of information obtained during the course of assessment proceedings for the assessment year 1998-99 Therefore the reasons recorded do not indicate any tangible material which has led to a reasonable belief that income has escaped assessment. As held by this court in the matter of
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Hindustan Lever Ltd. v. R.B. Wadkar 268 ITR 332 = (2004- TIOL-72-HC-MUM-IT), the reasons for reopening as recorded must be clear and not suffer from any vagueness so to keep the assessee guessing for the reasons. It is the reasons which provide the link between the evidence and the conclusion. In this case the reasons as recorded do suffer from the vice of vagueness.”
As per reasons recorded, the assessee has received commission from K.G. Krishna and it was not disclosed to the department. However, it it is not sure that it was income which escaped assessment. The AO also has not mentioned in the aforesaid reasons that he was satisfied that the above income escaped assessment. He simply relied on the information received in his possession to come to the conclusion that this income has escaped assessment.
From the provisions of section 147, it is clear that the AO must have reason to believe that any income chargeable to tax has escaped assessment. However, it cannot be said that if there is any receipt which is sufficient to believe that income to that extent escaped assessment because there may be so many reasons for receiving such amount and it is not necessary that only on receipt, it can be presumed that income to that extent escaped assessment. There should be concrete finding before coming to the conclusion that any income escaped assessment and merely on the basis of information provided by any other wing of the department, the AO cannot believe that there was income which has escaped assessment.
In the present case, the AO simply relied upon the information received by him and stated that income has escaped assessment which has not been disclosed by the assessee and it is the income which escaped assessment in the hands of assessee. It clearly shows that AO
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 32 of 38 simply acted upon the information and did not apply his own mind to the information to arrive at a belief independently that on the basis of material before him to come to the conclusion that income has escaped assessment.
It was only a doubt, but not a reason to believe meaning thereby that, even if there was some material in respect of source of receipt, it was not sufficient for arriving at the conclusion that the receipt represented unexplained income of the assessee. In other words, the AO has just suspicion in his mind and it is trite law that an assessment cannot be reopened merely on the basis of suspicion and initiation of reassessment proceedings u/s. 148 of the Act on the basis of this aspect was invalid in the eye of law.
Therefore, considering the facts and circumstances of the case and also by following the precedents discussed above, we are of the considered opinion that the AO reopened the assessment merely on suspicion and surmise, without there being any positive material in his possession to prove that the assessee is the owner of the bank account or having beneficial interest in this bank account. Therefore, we are of the opinion that the reopening of assessments are bad in law, which cannot be sustained. Accordingly, we quash the reassessment.
Being so, there is error in reopening the assessment. Thus, this objection of the assessee is allowed.
The assessee also argued on the limitation of issue of notice u/s. 148 of the Act as well as on merits of the case. As we have quashed the reassessment itself, we are not going into the same.
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 33 of 38 61. Ground Nos.4 to 7 of the CO do no not require any adjudication in view of our findings in the revenue’s appeal.
By ground No.8 of the CO, the assessee challenges the reopening of assessment on the reason that assessment was reopened consequent to search action in the case of K.G. Krishna K.G. Krishna u/s. 148, it should be reopened u/s. 153C of the Act. It was submitted by the ld. AR that assessment was reopened on the basis of information obtained from DDIT (Inv)Unit 1(2), Bangalore. The AO did not have any material to form a reason to believe that income chargeable to tax escaped assessment, except the information admittedly received by him from the Investigation team. Since the information with regard to payment of Rs.2.55 crores to the assessee came to the knowledge of the present AO in the course of search action in the case of K.G. Krishna, the assessment should have been framed u/s. 153C r.w.s. 153A of the Act. Though information was gathered during the course of search action, the assessment framed u/s. 148 is bad in law. The provisions of section 148/147 cannot be invoked in case of search related assessments. Therefore, issue of notice u/s. 148 of the Act was invalid and bad in law.
On the other hand, the ld. DR submitted that the assessment u/s. 153C r.w.s. 153A can be invoked only when documents found during the course of search action u/s. 132 belong or pertain or relate to assessee. According to him, search action took place on 5.11.2012 which is prior to 1.6.2015. The provisions of section 153C suggest that in case of search action carried out 132 of the Act, if any money, bullion, jewellery or other valuable article or thing or books of account or documents seized, requisitioned “belongs or relating” to a person other than the person referred to in section 153A, then the AO of searched person while passing the assessment order u/s. 153A or prior to that, record a satisfaction about
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 34 of 38 those documents and if those documents disclose undisclosed income of the person, other than the searched person, he will transmit those documents along with the satisfaction note to the AO having jurisdiction over that such other person. Jurisdiction u/s. 153C of the Act prior to 1.6.2015 can be invoked only if the material seized during the course of search in the case of third person belongs to “some other person other than the searched person”. However, after 1.6.2015, the legislature has categorized two situations. As far as recovery of any money, bullion, jewellery or other valuable article or thing seized or requisitioned belong to a person other than the searched person, then section 153C would be justified. However, with regard to recovery of books of account or documents seized or requisitioned, then if they pertain to other person or information contained therein relate to person other than the searched person, then action u/s. 153C could be taken. The scope of section 153C after 1.6.2015 had been widened viz., if a person at whose premises search was carried out, maintaining certain details in his regular day to day business that contains certain information exhibiting undisclosed income of the person other than the searched person, then action u/s. 153C could be justified. But prior to 1.6.2015, documents which belong to person other than the searched person. There is clear distinction between both the conditions. Subsequent to 1.6.2015, the information embedded in the document is sufficient for taking action u/s. 153C. But prior to 1.6.2015, action u/s. 153C could be taken if document belonged to a person other than the searched person found during the course of search.
We have heard both the parties. In this case, assessment was reopened consequent to information received from DDIT (Inv)Unit 1(2), Bangalore, about the assessee upon a search conducted u/s. 132 of the Act in the case of K.G. Krishna. The information received was said to be that the purchaser of lands K.G. Krishna has apart from the sale
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 35 of 38 consideration paid to the land owner, a sum of Rs.2.55 crores was paid to the assessee in FY 2007-08 relevant to AY 2008-09. Since the assessee was said to be facilitator of the land transaction, the assessee also confirmed the same vide letter dated 19.2.2013 addressed to the DDIT (Inv)Unit 1(2), Bangalore. Further in the sworn statement said to have been recorded u/s. 131(1A) of the Act on 19.2.2013. Since the assessee has filed return of income for the AY 2008-09, therefore to examine the escapement of income chargeable to tax, the case of assessee was reopened u/s. 147 and accordingly notice u/s. 148 was issued to assessee on 14.11.2014 and served on 20.11.2014.
Now the question before us is whether the AO was justified in reopening the assessment on the basis of the above information. According to the assessee, assessment should have been reopened u/s. 153C of the Act instead of 148. In our opinion, the first and foremost condition for initiating of the proceedings u/s. 153 of the Act is for the AO of the searched person to be satisfied that assets or documents seized belonging to assessee being a person other than the searched person, the AO of assessee receiving the documents or assets seized, would have jurisdiction to commence proceedings u/s. 153C. The AO of searched person is not required to examine whether the assets or documents seized reflect undisclosed income. All that is required for him to satisfy himself is that the assets or documents do not belong to the searched person, but belong to another person. Thereafter the AO has to transfer the seized assets or documents to the AO having jurisdiction of the assessee to whom such assets or documents belong. As per section 153C, once the AO of a person other than the one searched, has received assets or documents, he has to issue notice to the assessee to assess or reassess income of such person i.e., other than the person searched in accordance with the provisions of section 153A. On this point, it is appropriate to mention the
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 36 of 38 ratio laid down by the Hon’ble Delhi High Court in the case of Pepsi Beverages P. Ltd., 367 ITR 112 (Del) wherein it was explained that under section 153C of the Act, a notice under that section could be issued only after two conditions have been met. First of all, the AO of the searched person would have to arrive at a satisfaction that document or asset seized does not belong to a person searched, but to some other person, and secondly, the seized documents or assets are handed over to the AO having jurisdiction over that person, i.e., person other than the one searched and to whom the seized document or assets are said to belong.
In the present case, the basis for reopening the assessment was information received from DDIT (Inv)Unit 1(2), Bangalore, about the payment of Rs.2.55 crores to the assessee by K.G. Krishna who was searched u/s. 132 of the Act. The search team had not found any assets or documents seized belonging to the present assessee. Since there was no unearthing of document or assets during the course of search u/s. 132 belonging to the present assessee, consequent to search action in the case of K.G. Krishna. Being so, as per the provisions of section 153C as it stood on 1.6.2015, the assessee’s case cannot be reopened u/s. 153C of the Act and on the basis of information gathered through DDIT (Inv)Unit 1(2), Bangalore, the assessment of present assessee could be reopened only u/s. 147/148 of the Act and this is subject to our findings in ground No.3 in CO. This ground of objection by the assessee is dismissed.
The next argument of the ld. AR of the assessee is that notice u/s. 148 was issued to the assessee after 4 years and no approval was obtained from the CCIT as required u/s. 151 of the Act, instead approval for reopening of assessment was obtained from JCIT, Range 2, Bangalore which is bad in law. For this purpose, he relied on the judgment of Delhi High Court in the case of CIT v. Motor Industries Co. Ltd., ITA No.1410 of
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 37 of 38 2006 dated 5.4.2013, Ashok Kumar Gard v. ITO, ITA No.1151/Bang/2019 and ACIT v. Srinivas Rao Hoskote, ITA No.1154 & 1155/Bang/2015.
The ld. DR supported the order of the CIT(Appeals) on this issue and relied on the following judgments:-
i) CIT v. Late Shri Rajpal Bhatia & Others in ITA No.276/2009 dated 29.11.2010 (Delhi High Court). ii) Shailesh S. Patel in ITA No.3063/AHD/2016 dated 31.8.2018. 69. We have carefully gone through the above argument of the ld. AR. The argument of the ld. AR is totally misconceived. For understanding, we will reproduce the relevant provisions of section 151 of the Act, which is as follows:-
“151. (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice : Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.”
ITA No.910/Bang/2019 & CO No.51/Bang/2019 Page 38 of 38 70. In the instant case, though the assessment was reopened after 4 years, there was no assessment u/s. 143(3) of the Act. As seen from the provisions of section 151(2), Jt. Commissioner is the competent authority to approve the reopening of assessment and there is no necessity of approval of Commissioner of Income Tax to reopen the assessment. The assessee is relying on proviso to section 151(1) of the Act, which is only applicable to assessment to be reopened after four years in case original assessments were completed u/s. 143(3) of the Act. Being so, this argument of the assessee is also dismissed.
In the result, the appeal of the revenue is dismissed and CO of the assessee is partly allowed.
Pronounced in the open court on this 29th day of September, 2021.
Sd/- Sd/- ( N V VASUDEVAN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER
Bangalore, Dated, the 29th September, 2021.
/Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.