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Facts
The assessee, a cooperative society, was subjected to reassessment proceedings initiated by the AO for AY 2019-20 based on cash deposits. The AO disallowed a deduction under Section 80P of Rs. 13,04,658/-. The CIT(A) upheld the AO's order, and the assessee appealed to the Tribunal.
Held
The Tribunal held that the reassessment proceedings were invalid as they were based on a 'change of opinion' and lacked the necessary tangible material to justify reopening. The AO failed to establish that the assessee had not made a true and full disclosure of material facts.
Key Issues
Whether the reassessment proceedings initiated under Section 147 were valid when based on a change of opinion without new tangible material or failure to disclose material facts by the assessee.
Sections Cited
147, 144B, 148A, 148, 139, 80P, 250, 251(2), 234A, 234B, 234F, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “SMC”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
This appeal by the assessee is directed against the order of NFAC, Delhi dated 05.09.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
The impugned order u/s. 147 r/w 144B dated 15.01.2024 passed by Ld. AO (NeFAC, Delhi) is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be quashed.
The impugned order u/s. 148A(d) dated 29.03.2023, passed without serving the mandatory Show Cause Notice u/s. 148A(b), itself is bad in law and void ab initio. Hence, the impugned order u/s 148A(d) and the consequent notice u/s. 148 dated 29.03.2023, being without jurisdiction, kindly be quashed.
The very action taken u/s. 147 r/w 148 is bad in law without jurisdiction and being void ab-initio, the same kindly be quashed. Consequently, the impugned assessment framed u/s. 147 r.w.s 144B dated 15.01.2024 also kindly be quashed.
4. The Id. CIT(A) completely acted beyond jurisdiction by finding new sources of income and taking up new issues, which were beyond the controversy raised before him. Thus, having decided the subjected issue raised before him in favour of the appellant, the Ld. CIT(A) could not have widened the scope of the such appeal. Therefore, this part of the impugned order of the Ld. CIT(A) deserves to be quashed and set aside.
5. The Ld. CIT(A) also seriously erred in law as well as on the facts of the case in directing the AO to adjudicate new issues, which results in implied enhancement of the income, without issuing the statutory notices as mandated by provisions of S. 251 (2) of the Act. The direction so given by the Ld. CIT(A) tantamount to enhancement and being in violation of S. 251(2), the relevant part of the impugned order of the Ld. CIT(A) deserves to be quashed and set aside.
6. The Ld. AO (NFAC) further erred in law as well as on the facts of the case in charging interest u/s. 234A & 234B and Fees u/s. 234F of the Act. The appellant totally-denies its liability of charging of any such interest and fee. The interest/fee, so charged, being contrary to the provisions of law and facts, kindly be deleted in full.
The appellant prays your honour indulgence to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing. 2. The brief facts of the case are that the assessee is a cooperative society and amongst the non-filers of return u/s. 139 of the Act. As per specific information in respect of the assessee through ITBA software under the head “NMS”, the assessee has entered into financial transaction in the form of depositing cash in bank account maintained with the Central Cooperative Bank Ltd., The Uniyara, Tonk, Rajasthan, where it deposited cash of Rs. 1,51,68,000/-. In view of this a notice u/s. 148 of the Act was issued vide dated: 29.03.2023 after issuing notice u/s. 148A(b) of the Act, but there was no response from the assessee’s side.Ultimately, a notice u/s. 148 of the Act was issued r.w.s. 148A(d) of the Act. The assessee filed its return u/s. 148 of the Act on 28.04.2023 at Rs. NIL claiming deduction u/s. 80P of the Act under Chapter VI-A of Rs. 13,04,658/-. Ultimately, the case of the assessee was assessed at Rs. 13,04,658/- after disallowing the deduction claimed by the assessee u/s. 80P of the Act.The assessee being aggrieved with this order of the AO, preferred an appeal before the Ld. CIT(A), who in turn dismissed the appeal of the assessee and confirmed the order of the AO. The assessee being further aggrieved preferred the present appeal before us.
3. We have gone through the order of the AO passed u/s. 147 r.w.s. 144B of the Act, order of the Ld. CIT(A) passed u/s. 250 of the Act and submissions of the assessee alongwith grounds taken before us. It is observed that the case of the assessee was reopened on the ground of the cash deposits of Rs. 1,51,68,000/-, but ultimately the assessment was ended with a disallowance of Rs. 13,04,658/- (Deduction claimed u/s. 80P of the Act). Certainly, the assessee was duty bound to file its return u/s. 139(1) of the Act to claim deduction u/s. 80P of the Act and was failed to do so. But, matter before us is whether the action taken u/s. 148 of the Act is legally tenable or not. On this issue there is an established position of law that the issue mentioned in the reasons for re-opening has to be disallowed/added back then only further additions/disallowances can be made.
In this case, reasons assigned for re-opening was cash deposit in the Central Cooperative Bank Ltd., The Uniyara, Tonk, Rajasthan amounting to Rs. 1,51,68,000/-, whereas there is no addition made on this account and rather a disallowance was made amounting to Rs. 13,04,658/- u/s. 80P of the Act claimed by the assessee, which is not sustainable in law. No doubt, a separate proceeding u/s. 148 of the Act can be issued against the assessee on this issue, if possible, but in this proceeding, action of the authorities below is not sustainable as per law. Our view is being further fortified by the authority of the Hon’ble Apex Court in the case of [1976] 103 ITR 437 (SC) Income-tax Officervs.Lakhmani Mewal Das as under:
Two conditions have to be satisfied before an ITO acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the ITO, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the ITO to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that, the ITO did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law. Reference to the names of 'N', 'D' 'S' in the report of the ITO to the Commissioner of in the instant case did not stand on a better footing than the reference to the three names in the report made by the ITO in the case of Chhugamal Rajpal v. S.P. Challita [1971] 79 ITR 603 (SC). Therefore, it was that the second ground mentioned by the ITO, i.e., reference to the names of 'N', 'D', 'S' could not have led to the formation of the belief that the assessee's income of the respondent-assessee chargeable to tax had escaped assessment for that year because of the failure or omission of the assessee to disclose fully and truly all material facts. Therefore, the High Court was justified in excluding this ground from consideration. 'M' against whose name there was an entry about the payment in the books of the assessee, having made a confession that he was doing only name-lending, there was nothing to show that the above confession related to a loan to the assessee and not to someone else, much less to the loan which was shown to have been advanced by that person to the assessee-respondent. There was also no indication as to when that confession was made and whether it related to the period which was the subject-matter of the assessment sought to be responded. The report was made on 13-2-1967. In the absence of the date of the alleged confession, it would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it related to the period from 1-4-1957, to 31-3-1958, and that it pertained to the loan shown to have been advanced to the assessee would be rather far-fetched. 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 ITO 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. The court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO 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. The powers of the ITO to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the ITO in the instant case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material fact was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The High Court was not in error in holding that the said material could not have led to the formation of the belief that the assessee's income had escaped assessment because of his failure or omission to disclose fully and truly all material facts. [2023] 148 taxmann.com 185 (Bom.) Jetair (P.) Ltd.vs.Deputy Commissioner of Income-tax It is viewed that the pre-requisite conditions of assuming jurisdiction under section 148 are not satisfied inasmuch as the Assessing Officer has failed to specify the material facts that were not truly and fully disclosed by the assessee that was necessary for the assessment. Upon perusal of all the documents attached with the petition, it is clear that all documentary evidence including books of account as well as statements were submitted by the assessee and therefore it is nothing but change of opinion which is not permissible under the Act. [Para 16] It is viewed that there was no failure to disclose any material fact necessary for the assessment by the Assessees. [Para 17] Based upon the reasons recorded, one needs to scrutinize whether there was any tangible material with the Assessing Officer justifying reopening of the assessment or can it be said to be a case of 'review' and 'change of opinion' by the said officer. On the perusal of the papers and the reasons mentioned in the notice for reopening it is found that the Assessing Officer has not mentioned what was the new tangible material to justify the reopening and what was the material fact which was not truly and fully disclosed. [Para 18] In the present case the Assessing Officer had passed an order under section 143(3). Therefore, it would be relevant to note that when a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. [Para 19] The revenue has failed to show why the presumption should not be applied in the present case. Further, it can also be seen from the reasons recorded that there was no new material which had come to the notice of the Assessing Officer and the entire reference in the reasons recorded is only to the material on record. [Para 20] In the facts of the present case, it could be seen that there was no new material in the possession of the Assessing Officer. Nothing new had happened, neither was there any change in the applicable law, which would have warranted the reopening of the case. It clearly suggests that in the garb of reopening the assessment, the Assessing Officer was reviewing the earlier order of assessment. In the absence of any new tangible material available with the Assessing Officer, and in view of the fact that there is a general presumption that an order of assessment under section 143(3) has been passed after proper application of mind and considering the fact that in the present case, the Assessing Officer had sought clarification with regard to the details of sister concerns and all transactions, details whereof were submitted during the course of the proceedings, it certainly goes to show that the issue with regard to transactions with all parties including Jet Airways had been gone into by the said Assessing Officer. [Para 22] It is viewed that the Assessing Officer wrongly rejected the foretasted objection of the petitioner by the impugned order. The statement of an employee, during the course of survey of Jet Airways cannot form the basis of assessment. It would clearly amount to a change of opinion. There is no failure on the part of the assessee to disclose any material facts and consequently the reopening is invalid in view of the proviso of section 147. [Para 23] It is viewed that the petitioner was right in charging lower commission rates to its sister concern/related party jet airways on account of it being a sole selling agent as well as client giving more than 98 per cent of its total turnover. [Para 23(i)] It is viewed that it is business call/decision for a party and is certainly not colourable device/mechanism as contended by the revenue. In fact, if the sister concern/related party namely Jet Airways which is loss making company were to pay the same rates as paid by other clients of the assessee then such transaction in normal business parlance would have been colourable device or mechanism to increase the expenses of the sister concern, the fact that Jet airways is a loss-making company is not a valid criterion to determine escapement of income. [Para 24] Since this transaction is neither an international transaction nor a specified domestic transaction, the transfer provisions do not apply. [Para 25] In the light of the above, it is held that the reassessment proceedings were nothing but a case of 'change of opinion', which did not comply with the jurisdictional foundation under section 147. [Para 26] In view of the above, the impugned notice and the impugned Order are set aside and all proceedings in furtherance thereto are stayed. [Para 27].
Certainly, without further discussion and making findings lengthy, based on above legal position it is held disallowance/addition made by the AO is not sustainable in law and the same is directed to be deleted. On the other hand, action against the assessee can also be taken in fresh proceedings u/s. 148 of the Act. In these terms grounds taken by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
The Order is pronounced in the open court on the 21st Day of May 2025. Sd/- Sd/- (Dr. S. SEETHALAKSHMI) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 21/05/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file.