M/S. OMEGA BIOTECH LTD.,GHAZIABAD vs. ITO, NEW DELHI

PER LALIET KUMAR, JUDICIAL MEMBER :

This appeal is preferred by the assessee against order dated 27.02.2015 passed by the Ld. CIT (Appeals)-7, New Delhi for assessment year 2002-03 on the following grounds reads as under :-

2 ITA No.2570/Del./2015 (Omega Biotech Ltd.) I. The CIT(A) erred in law and on facts in upholding the

reassessment order passed u/s 147 and notice issued u/s 148

as valid ignoring the fact that the notice u/s 148 has been issued merely on the basis of the information received from

Investigation Wing. Thus, the assessment so made should be

cancelled. II. The CIT(A) erred in law and on facts in confirming the

addition of Rs. 12,50,000/- for the amount received towards

the share capital from five limited companies ignoring the

facts, evidences and submissions placed on record. Thus, the

addition so made should be deleted. III. The appellant craves the leave to add, substitute, modify,

delete or amend all or any ground of appeal either before or at the time of hearing.”

of the ACT against the assessee by citing the following reasons

paragraph 5.4 to 5.7.

“5.4 The issue was again examined by the apex court

in the case of Assistant Commissioner of Income tax v

Rajesh Jhaveri Stock Brokers (P.) Ltd (SC) wherein it

was held as under:

3 ITA No.2570/Del./2015 (Omega Biotech Ltd.) "16. Section 147 authorises and permits the AO to

assess or reassess income chargeable to tax if he has

reason to believe that income far any assessment year has escaped assessment. The word "reason" in the

phrase "reason to believe" would mean cause or

justification, if the AO has cause or justification to

know or suppose that income had escaped assessment,

it can be said to have reason to believe that an income

had escaped assessment. The expression cannot he

read to mean that the AO should have finally

ascertained the fact by legal evidence or conclusion.

The function of the Assessing Off leer is to administer

the statute with .solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As

observed by the Supreme Court in Central Provinces

Manganese Ore Co. Ltd. v. ITO [199!] 191ITR 662,

for initiation of action under ,sect ion 147(a) (as the

provision stood at the relevant time) fulfillment of the

two requisite conditions in that regard is' essentiaI. At

that stage, the, final outcome of the proceeding is not

relevant. In other words, at the initiation stage, what is

required is "reason to believe", but not the established

4 ITA No.2570/Del./2015 (Omega Biotech Ltd.) fact of escapement of income. At the .stage of issue of

notice, the only question is whether there was relevant

material on which a reasonable person could have firmed a requisite belief whether the materials would

conclusively prove the escapement is not the concern

at that stage. This is so because the formation of belief

by the AO is within the realm of subjective satisfaction.

substituted with effect from 1-4-1989, as also

sections 148 to 152 are substantially different from

the provisions as they stood prior to such

substitution. Under the old provisions of section

147, separate clauses (a) and (b) laid down the

circumstances under which income escaping

assessment ,for the past assessment years could be

assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be

satisfied, firstly the AO must have reason to believe

that income profits or gains chargeable to income

tax have escaped assessment, and secondly he must

also have reason to believe that such escapement

has occurred by reason of either (i) omission or

5 ITA No.2570/Del./2015 (Omega Biotech Ltd.) failure on the part of the assessee to disclose filly or truly di material facts necessary for his assessment

of that year. Both these conditions were conditions

precedent to be satisfied before the AO could have

jurisdiction to issue notice under section 148 read

with section 147(q). But under the substituted

section 147 existence of only the first condition

suffices. In other words if the AO for whatever

reason has reason to believe that income has

escaped assessment it confers jurisdiction to reopen

the assessment.

fulfilled, the AO is free to initiate proceeding under

section 147 and, failure to take steps under section

143(3) with the AO powerless to initiate

reassessment proceedings even when intimationy 143(1) had been issued." 5.5 The Hon'ble Courts in the judgments

mentioned above have clearly held that formation of

belief by the AO is within the realm of subjective

satisfaction and it is not necessary for the AO to

conclusively prove the escapement of income before

6 ITA No.2570/Del./2015 (Omega Biotech Ltd.) initiating proceedings u/s 147. Therefore, it is held that

the AO had reasons to believe that income had

escapement assessment and he was within his competence to invoke the powers contained in section

147 to initiate reassessment of the income of the

appellant.

5.6 As per Section 147: ,

“For the purpose of assessment or reassessment

under this section, the Assessing Officer may assess

or reassess the income in respect of any issue, which

has escaped assessment, and such issue comes to his

notice subsequently in the course of the proceedings

under this section, notwithstanding that the reasons

for such issue have not been included in the reasons

recorded under sub-section (2) of section 148."

5.7 It is thus clear that the AO can assess such

income for which 147 has been used and any other

income which comes to his notice subsequently in the course of proceedings. In view thereof, proceedings u/s

148 are perfectly in order. The ground of appeal is thus ruled against the appellant.”

7 ITA No.2570/Del./2015 (Omega Biotech Ltd.) 3. Feeling aggrieved by the decision on legal grounds as well as

on merits, the assessee has preferred the present appeal before

us for the grounds mentioned hereinabove. 4. At the outset the Ld. AR for the assessee had submitted that the

reopening done by the Assessing Officer is not in accordance

with law , as there was no independent application of mind by

the Assessing Officer and the Assessing Officer had merely

relied upon report of the Investigation Wing of the department.

It was submitted that the assessee was permitted to take this

legal ground at the second round of application and for that

purposes he had relied upon the decision of Special Bench as well as the High Court Hemal Knitting Industries vs. ACIT (2010) 127 ITD 160 (Chennai) (TM) reads as under :

“As there was a difference of opinion between the Members of the Division Bench who heard this appeal, the same was referred to the Third Member by the Hon'ble President under sec.255(4) of the Income-tax Act, 1961 (the Act) to resolve the same. The point of difference referred to the Third Member was as follows : "Whether, on the facts and in the circumstances of the case, is it open to the assessee to challenge the validity of reassessment proceedings before the Tribunal in the second round of litigation,

8 ITA No.2570/Del./2015 (Omega Biotech Ltd.) when in the first round, the Tribunal had remanded the order for limited purpose?"

“23. We, therefore, hold that a ground by which the jurisdiction to make assessment itself is challenged can be urged before any authority for the first time 24. This, however, does not solve the problem before us. All the cases referred to by us above are the cases dealing with same round of litigation In the case before us, the new ground was raised for the first time not in appeals arising out of the same proceedings. It was taken in collateral proceedings. Reassessment under section 147 was made on August 27,1959. More or less a consent order was obtained in appeal there against as a result of which the order of reassessment stood set aside for the purpose of giving an opportunity to the assessee to prove the genuineness of certain cash credits. The grounds questioning jurisdiction to reassess was not raised even in the second roupd of proceedings before the Income-tax Officer who completed reassessment afresh on March 28,1970. No such grounds was taken originally in dispute

9 ITA No.2570/Del./2015 (Omega Biotech Ltd.) was taken at the same time of hearing before the Appellate Assistant Commissioner, In view of the latest decision of the Supreme Court in the case of Jute Corporation of India Ltd., it cannot be disputed that the assessee could have raised this ground before the Appellate Assistant Commissioner in his appeal against the first order of reassessment. The pertinent question is whether the new ground could be taken in reassessment proceedings after remand. This takes us another aspect of the question, namely, whether the assessee could have taken such a ground before the Income-tax Officer himself in these proceedings because if he could have done so, the power of the Appellate Assistant Commissioner being coterminous, it would be open to him to do so before the Appellate Assistant Commissioner as well. The other aspect would be whether being a ground challenging the very jurisdiction to make reassessment, such a ground could be taken before any authority and any stage of the proceedings. In this context, it will be necessary in the first instance to ascertain the scope of fresh assessment to be made by an Income-tax Officer when the Appellate Assistant Commissioner sets aside the assessment and directs the Income-tax Officer to make fresh assessment with some directions. The legal position does not appear to be very clear on the subjects. One view is that while making a fresh

10 ITA No.2570/Del./2015 (Omega Biotech Ltd.) assessment, the Income-tax Officer has, subject to the Appellate Assistant Commissioner's directions, the same powers which he had while making the original assessment. He is entitled to disregard his own previous findings. He can take not account materials not previously existing and tax income not originally assessed. Likewise, it may be open to the assessee to raise objections to the assessments or to the quantum which he had not raised originally before him or the Appellate Assistant Commissioner. The other view is that the Income- tax Officer, is while passing orders in pursuances of the orders of the appellate authority, required to consider only those matter about which there was a dispute before the appellate authority and directions had been given. Even where the appellate order does not contain such specific directions, under certain circumstances, it may have to be read as remitting the case only on the issued in appeal and, in that event also, the Income-tax Officer cannot re-examine other issues. Consequently, the assessee may not be able to raise contentions which were not raised him in he original proceedings. 25. However, in this case, it is not really necessary to go into this questions. The impunged ground raised before the Appellate Assistant Commissioner admittedly goes to the very root of the Income-tax Officer's jurisdiction to make

11 ITA No.2570/Del./2015 (Omega Biotech Ltd.) reassessment. 26. In our view, the jurisdiction of the Income-tax Officer to initiate reassessment proceedings under section 34 of the Act depends solely on the existence of the conditions precedent prescribed by law and the jurisdiction defect, if any, cannot be made good be relying on the order of remand passed by the Appellate Assistant Commissioner. In fact, the Appellate Assistant Commissioner has no jurisdiction under section 31 of the 1922 Act to issue directions to the extent of conferring jurisdiction upon the Income-tax Officer which he is not lawfully seized of. This view was taken by the Madras High Court in the case of N. Naganatha Iyer v. CIT [1966] 60 ITR 647. The said decisions was followed by the Gujarat High Court in CIT v. Nanalal Tribhovandas [1975] 100 ITR 734. We are in respectful agreement with the view taken by the Madras Gujarat High Court in this regard. If it is found that the Income-tax Officer had no jurisdiction to make an order of reassessment, it is irrelevant that the jurisdiction of the Income-tax Officer to reassess was not challenged at any of the earlier stages. The assessee was entitled to challenge the jurisdiction of the Income-tax Officer to initiate reassessment proceedings before the Appellate Assistant Commissioner in the second

12 ITA No.2570/Del./2015 (Omega Biotech Ltd.) round of proceedings even though he had not raised it earlier before the Income-tax Officer or in the earlier appeal The Calcutta High Court has taken the view in the case of CIT v. Shree Ganesh Jute Mills Ltd [1977] 109 ITR 562 that any new ground, not necessarily a ground pertaining to jurisdictional aspect, could be taken for the first time before the Appellate Assistant Commissioner in the second round of proceedings. But, for the present we need not go that far. We leave this question open. 27. In the light of the discussion above, we answer the question in the negative and in favour of the assessee. 28. No order as to costs.” 6. On the basis of above it was submitted that the assessee is not precluded in raising legal ground even in the second round of

litigation before the CIT(A) as well as before the Tribunal.

In view of the decisions and discussion Hemal Knitting 7.

Industries vs. ACIT & Investment Corpn. Ltd. vs. CIT (supra), we are of the opinion that the assessee can take the legal

ground in the second round of litigation , despite it was not taken

in the first round of limitation.

13 ITA No.2570/Del./2015 (Omega Biotech Ltd.) Present appeal is the 2nd round of the litigation 8. before the tribunal on the above noted grounds . In the 1st round of the litigation the Tribunal vide order dated 31st

of December 2009 had remanded back the matter to the

file of the assessing officers with a direction to examine

the nature of credit and to satisfy whether the credit is

properly explained not. The assessee was also directed to

justify the identity and creditworthiness of the creditor

and genuineness of the connection. 9. In the remand proceeding the assessing officer had

called upon the Assessee to discharge the burden in terms

of the Decision of the tribunal , however the AO was not

convinced with the explanation given by the Assessee ,

hence confirmed the additions. The AO at page 1 of the

assessment order had recorded that “the reopening was

done pursuant to recording of the reasons by the assessing

officer on the basis of information received from

investigation Wing “. The Ld. AR for the assessee has

14 ITA No.2570/Del./2015 (Omega Biotech Ltd.) drawn our attention to the reasons recorded for reopening

and in the said reasons it was mentioned that :

“Reason recorded for reopening

The Investigation Wing, New Delhi has sent details information. As per information, the assessee company’s name appears in the list of beneficiaries who have obtained accommodation entries from the following parties:

Beneficiary Beneficiary Value of Date on Name of Bank Name Bank entry which account holder from Branch taken entry of entry giving which taken account entry given Standard Connaught 2,50,000/- 12, Enpol (P) Ltd. Jai Laxmi Chartered Place January, Co- Bank 2002 operative Bank Standard Connaught 2,50,000/- 12, Amba Alloys (P) Jai Laxmi Chartered Place January, Ltd. Co- Bank 2002 operative Bank Standard Connaught 2,50,000/- 12, Landmark Jai Laxmi Chartered Place January, Communication Co- Bank 2002 (P) Ltd. operative Bank Standard Connaught 2,50,000/- 12, Saurabh Jai Laxmi Chartered Place January, Petrochem (P) Co- Bank 2002 Ltd. operative Bank Standard Connaught 2,50,000/- 12, Profan Finance Jai Laxmi Chartered Place January, & Investments Co- Bank 2002 operative Bank

Since the assessee has received entries, I have reason to believe that income of the assessee to extent of Rs.

15 ITA No.2570/Del./2015 (Omega Biotech Ltd.) 12,50,000/- has escaped assessment for which action u/s 148 of the Income Tax Act is initiated for the A.Y. 2002-03.”

16 ITA No.2570/Del./2015 (Omega Biotech Ltd.) firmed a requisite belief whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction. 19. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment ,for the past assessment years could be assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be satisfied, firstly the AO must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose filly or truly di material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under section 148 read with section 147(q). But under the substituted section 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. 20. So long as the ingredients of section 147 are fulfilled, the AO is free to initiate proceeding under section 147 and, failure to take steps under section 143(3) with the AO powerless to initiate reassessment proceedings even when intimation 143(1) had been issued." 5.5 The Hon'ble Courts in the judgments mentioned above have clearly held that formation of belief by the AO is within the realm of subjective satisfaction and it is not necessary for the AO to conclusively prove the escapement of income before initiating proceedings u/s 147. Therefore, it is held that the AO had reasons to believe that income had

17 ITA No.2570/Del./2015 (Omega Biotech Ltd.) escapement assessment and he was within his competence to invoke the powers contained in section 147 to initiate reassessment of the income of the appellant.

5.6 As per Section 147: , “For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148." 5.7 It is thus clear that the AO can assess such income for which 147 has been used and any other income which comes to his notice subsequently in the course of proceedings. In view thereof, proceedings u/s 148 are perfectly in order. The ground of appeal is thus ruled against the appellant.” 11. Feeling aggrieved by the decision on legal grounds as well as on merits, the assessee has preferred the present appeal before us for the grounds mentioned hereinabove. 12. It was submitted by the Ld LD AR before us that

there was no independent application of mind by the

assessing officer before issuance of notice under section

148 and the assessing officer had merely copied the

information received from the investigation Wing without

independently applying his mind. It was submitted that

assessing officer is required to form opinion based on the

18 ITA No.2570/Del./2015 (Omega Biotech Ltd.) tangible material that the has escaped assessment and

further submitted if the reason for reopening is solely

based on information received from the investigation Wing

of the Department, than the reasons for reopening must

show that the assessing officer had independently

examined information and applied his mind to the said

information and thereafter formed his opinion . Ironically

same was not been done in the present case by the AO and

therefore reopening done by the assessing officer is liable

to be set-aside. The assessee relied upon judgment of

Delhi High Court in the matter of Dharamveer Singh Rao

Vs ACIT 2017 TIOL 2447. In the said matter it was held

that the satisfaction based on the borrowed satisfaction is

no satisfaction in the eyes of law and hence the assessment

made by assessing officers based on such satisfaction is

liable to set aside. Further the assessee relied upon the

decision in the matter of Sarthak securities 329 ITR 110,

wherein in the identical facts the High Court has quashed

the notice under section 148 of the act.

19 ITA No.2570/Del./2015 (Omega Biotech Ltd.) 13. On the other hand the Ld. DR, had submitted that the

reasoning given by the lower authorities is correct and the

issue is not required to be decided against the revenue as

there is proper application of mind by the lower

authorities.

perused the material available on record and the

Judgments relied upon by the parties before us. The

reasons for reopening are given in the paperwork by the

assessee and the content of which are reproduced herein

above which clearly shows that the assessing officer at the

time of issuance of notice under section 148 had only

considered the report of the investigation. It is incumbent

upon the assessing officer to apply independently mind

and examine the information came to him from the

investigation Wing and after examining the correctness

and reliability of the information independently the

assessing officer was required to issue the noticed under

20 ITA No.2570/Del./2015 (Omega Biotech Ltd.) section 148 to the assessee. In the present case needful was

not done.

Therefore we have no other option but to hold that the

notice issued under section 148 was not in accordance and

law and hence proceeding based on this satisfaction are

required to set aside. We also find that the verbettim of the

satisfaction written in the case of Sarthak Securities Co.

Pvt. Ltd., and in the case of the assessee are similar and de

void of any iota of “satisfaction” derived by the Assessing

Officer. We also draw our strength from the decision of

Sarthak Securities Co. Pvt. Ltd. vs. Income Tax Officer-

Ward 7(3) 2010-TIOL-726-HC-DEL-IT regarding the

issue of notice under section 148 and satisfaction of the

AO thereof, wherein it was held as under : “23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the

21 ITA No.2570/Del./2015 (Omega Biotech Ltd.) orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply”. In view of the above , that the satisfaction recorded by the Assessing Officer and the reason for reopening was not in accordance with law and therefore, the assessment order passed by the Assessing Officer required to be set aside. Since, we allow ground 1 of the assessee appeal.

22 ITA No.2570/Del./2015 (Omega Biotech Ltd.) As we have allowed ground 1 of assessee appeal, all

other grounds are not adjudicated as become academic. Consequently, the appeal of the assessee

is allowed. Order pronounced in open court on this 12th April,

2019.

Sd/- Sd/- (B.R.R.KUMAR) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated 12 /04/ 209 BR