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Facts
The Revenue appealed against the CIT(A)'s order which had quashed the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961, based on a notice issued under Section 148. The primary contention of the Revenue was that the CIT(A) erred in cancelling the assessment order.
Held
The Tribunal held that the reopening of assessment proceedings under Section 147 was not validly initiated. The reasons recorded by the AO did not demonstrate a "reason to believe" that income had escaped assessment, but rather indicated a fishing or roving inquiry. Furthermore, the AO failed to dispose of the objections raised by the assessee against the reasons recorded before finalizing the assessment. Therefore, the notice issued under Section 148 and the consequent assessment order were held to be bad in law.
Key Issues
Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, based on the reasons recorded by the Assessing Officer, was validly initiated and whether the non-disposal of the assessee's objections vitiated the proceedings.
Sections Cited
147, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 27/01/2025 Date of Order – 05/02/2025
O R D E R PER K.M. ROY, A.M.
Appeal by the Revenue and cross–objection by the assessee are emanating from the impugned order dated 12/07/2016, passed by the learned Commissioner of Income Tax (Appeals)–2, Nagpur, [“learned CIT(A)”], for the assessment year 2012–13.
2 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 ./2016 Revenue’s Appeal – A.Y. 2012–13
2. In its appeal, the Revenue has raised following grounds:
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1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the notice issued u/s 148 of the I.T. Act, 1961 was not in accordance with law and consequently in cancelling the assessment order framed thereupon.
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.16,36,89,599/- made on account of sale consideration of shares.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.3,95,898/ only as against the addition of Rs. 86,47,052/ on account of expenses for selling the shares and in deleting the balance amount.
4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.11,47,101/- being the difference between the gross interest received and the business income shown u/s 44AD of the I.T. Act, 1961. 5. (a) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the short term capital loss of Rs. 61,56,885/- without any evidence submitted before the assessing officer. (b) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to allow short term capital loss on the basis of evidence directly submitted before him and without asking remand report to verify such evidence.
6. Any other ground shall be prayed at the time of hearing.”
3. In ground no.1, relates to the action of the Assessing Officer in re– opening of assessment under section 147 of the Income Tax Act, 1961 ("the Act").
4. We have heard the learned Departmental Representative at length and perused the material available on record as well as the orders of the authorities below. While going through the impugned order passed by the learned CIT(A), we find that the learned CIT(A) has passed a very detailed
3 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 and a meticulous order pro the issues involved. The discussions so made by the learned CIT(A) while relying upon certain judicial pronouncements, which are perfectly placed on record, has resulted in quashing the assessment framed. It is, therefore, pertinent to reproduce Para–5 to 9 of the impugned order passed by the learned CIT(A) on this issue:– “5. Ground no.2. 5.1 This ground is directed against the action of the Ld. AO of re-opening the assessment by issuing notice u/s.
In this regard, during the course of appellate proceedings it was submitted by the appellant as under:- "A) Perusal of reasons recorded would indicate that Assessing Officer has embarked upon any enquiry to be made in respect to long terms capital gain declared in return of income. The reasons recorded does not indicate belief of escapement of income for which notice u/s 148 of I.T. 1961 could be issued. In the absence of belief of escapement of income, no valid notice u/s 148 of I.T. 1961 could be issued. The reason recorded does not indicate satisfaction as to belief of escapement of income and they are no valid reasons recorded in the eyes of law for issue of notice u/s 148 of I.T. Act 1961. Thus the reassessment framed is bad in law and deserves to be cancelled. B) It is respectfully submitted that the Assessing Officer has observed at para 10 of the reasons recorded that there is there is appreciation in value of assessee of M/s. M.V. Pvt. Ltd. within a period of three years and it is therefore necessary to lift corporate veil over this transaction and bring the entire amount for taxation as income from other sources as against long term capital gain shown by assessee. It is respectfully submitted that the Assessing Officer has not disputed or found fault with the transaction as declared in the return of income. The Assessing Officer merely wishes to change the head of income from long term capital gain to that of income from other sources. There is no tangible material brought on record to show that income arising on sell of shares can be assessed as income from other sources. The reason recorded does not indicate that observations made by Assessing Officer at para 10 is on basis of any evidence on record. The Assessing Officer has merely drawn adverse inference and reached to erroneous conclusion in absence of there being any evidence on record to suggest that the income declared under the head capital gain is assessable under the head income from other sources. The reason recorded by Assessing Officer is prima facie, incorrect and unjustified. The conclusions of Assessing Officer being not on the basis of any evidence on record it cannot be said that person properly instructed in law can derive belief of satisfaction of escapement of income. It is respectfully submitted that the reasons recorded are no valid reason recorded in eyes of law for which notice u/s 148 of I.T, Act 1961 could be issued in case of assessee. C) It is settled proposition of law that notice u/s 148 of I.T. Act 1961 could not be issued to make roving inquiry or set into motion an fishing expedition. The reasons recorded make it evident that Assessing Officer wants to make roving inquiry and requires to collect details to examine the income declared in return. The aforesaid exercise according to our
4 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 humble submission is impermissible and thus notice issued u/s 148 of I.T. Act 1961 is not in accordance with law. It is submitted that the consequent assessment framed in case of assessee is unsustainable and deserves to be cancelled. The assessee for this proposition places reliance on the following decisions. i) ITAT order in 10 & 11/Nag/99 in the case on Shri Meghraj Tarachand Rughani vide order datec 17/07/2002. ii) (1985) 154 ITR 0547 (Bom.) Siesta Steel Construction (P) Ltd. vs. K.K. Shikare & Ors. D) It is submitted that the assessee has subsequent to supply of reasons submitted objections on issue of notice u/s 148 on 30/04/2015 before Assessing Officer copy of which is placed in paper book. The aforesaid objections to the reasons recorded have not been rejected by Assessing Officer before finalization of assessment framed. The non disposal of objections for notice issued u/s 148 of I.T. Act 1961 vitiates the reassessment proceedings initiated and assessment framed is unsustainable and liable to be cancelled. The assessee for this proposition places reliance on following decision. i) ITAT order in in the case of Suresh Chandra vide order dated 13/03/2015. ii) 354 ITR 244 (Guj.) General Motors India (P) Ltd. vs. DCIT iii) ITAT order in ITA No.731 & 732/Ahd/2007 in the case of M/s. Bharuch Enviro Infrastructure Ltd., vide order dated 05/08/2014 E) Perusal of reasons recorded would indicate that they are no valid reasons in the eye of law for which a valid notice under section 148 of 1.T. Act 1961 could be issued in the case of assessee. Perusal of reasons recorded would show that there is no reference to any new tangible material brought on record subsequent to regular assessment completed in the case of assessee. There is thus no valid satisfaction in the eye of law for escapement of income for which notice under section 148 of I.T. Act 1961 could be issued in the case of assessee. The assessee places reliance on the following decisions for the proposition that in the absence of any new tangible material having come on record there could be no valid satisfaction for escapement of income in the case of assessee. i) (2010) 320 ITR 0561 (SC)). CIT VS, Kelvinator India Ltd. ii) Hon'ble Bombay High Court in Writ Petition No.1479 of 2011 in the case of M/s. Direct Information Pvt. Ltd. vs. ITO vide order dated 29/09/2011. The relevant extract from judgement of Hon'ble Apex Court in the case of Kelvinator India Ltd. is reproduced hereunder for ready reference which fully supports the submission of assessee. "Hence, after 1st April, 1989, A.O. has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 The ratio laid down by the aforesaid decisions squarely applies to the facts in the case of assessee and considering the same, it is humbly prayed that notice issued under section 148 of I.T. Act 1961 is bad in law and thus consequent assessment framed thereupon to be cancelled.
6. The ld. AO attended the appellate proceedings and expressed his intent to respond to the various submissions made by the appellant. Copy of the above submissions were handed over to the Id. AO. With regard to the issue of reopening of the assessment u/s 147, it was submitted by the Id. AO as under: “2 As per the submissions made before your kind self, the Counsel of the assessee has claimed that the proceedings u/s 147 are illegal. As per the provisions of section 147 of the I.T. Act, the AO is empowered to reopen the assessment, if he/she has reasons to believe that the income chargeable to tax has escaped assessment. In the present case, notice u/s 148 of the I.T. Act was issued and served to the assessee after following due procedure as provided by Income Tax Act and also copy of reason recorded was provided to the assessee. In the cast of Acorus Unitech Wireless(P) Ltd. Vs Assistant commissioner of Income Tax, in WP(c) No. 1954 of 2013 the Hon'ble High Court of Delhi held that "the adequacy of the reasons provided by the AO fall outside the court's review power, and with the domain of AO." Hence, it is clear that there was no illegality in the reopening of the assessment and the same was made as per law."
7. Copy of the above submissions was handed over to the appellant and he responded to the same as under: "A) The A.O. at para 2 has observed that in view of judgement of Hon'ble Delhi High Court in the case of M/s. Acorus Unitech Wireless (P) Ltd. there is no illegality in reopening of assessment and thus the reopening made is as per law. B) It is respectfully submitted that detailed submission made before your honour for ground challenging validity of notice u/s 148 has not been found to be factually incorrect. C) The objections filed challenging validity of notice u/s 148 for the reasons recorded have not been disposed off by A.O. before culminating assessment proceedings. In fact the assessment order passed by A.O. also does not indicate that objections filed for issue of notice u/s 148 of I.T. Act 1961 have been accepted or rejected. The objections filed by assessee for issue of notice u/s 148 have not been considered and are ignored without recording any finding on the same. The aforesaid fact itself invalidates the assessment framed and reassessment framed is bad in law. D) The A.O. has referred to the decision of Hon'ble Delhi High Court in the case of Acorus Unitech Wireless (P) Ltd. and it can be seen that in said decision objections filed were disposed by revenue authorities as is evident from para 3 of judgment. It is further seen from the reasons recorded in the aforesaid case that there was crystallization of escapement of income on the basis of factual data observed in the reasons recorded. The facts in said case are thus distinguishable and thus ratio laid down is inapplicable to the facts in the case of assessee. E) In view of above it is humbly submitted that notice issued u/s 148 of I.T. Act 1961 is not in accordance with law for the detailed submission made before your honour. It is humbly prayed that the notice issued u/s 148 be held as not in accordance with law and consequent assessment framed thereupon be directed to be cancelled."
6 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016
I have considered the facts of the case and the submissions of the appellant. I have also considered the subsequent submission of the Id. AO and the appellant's response to the same. There is substantial merit in the submissions made by the appellant. The argument of the appellant that section 148 of I.T. Act 1961 is bad in law is based on the following primary submissions: I. That the reasons recorded does not indicate belief of escapement of income for which notice u/s 148 of I.T. 1961 could be issued. II. That the objections raised to the reasons recorded have not been rejected by AO before finalization of assessment. III. That the AO wanted to embark upon an enquiry in respect to long terms capital gain declared in return of income. 8.1 Considering the first and third submission of the appellant, there is merit in the contention of the appellant that the reasons recorded for reopening do not indicate belief of escapement of income for which notice u/s 148 could be issued and that the AO has merely embarked upon an enquiry to be made in respect to long terms capital gain declared in return of income. It is an accepted legal position that an assessment cannot be reopened merely to verify the genuineness of a transaction as that would amount to an impermissible fishing or roving enquiry without any tangible material to show escapement of income. The legislature has employed the expression "reason to believe" with reference to any income chargeable to tax which has escaped assessment. Therefore it automatically follows that in order to take recourse to the provisions of sec. 147, the AO should have reason to believe that any income chargeable to tax has escaped assessment. The expression 'reason to believe' employed in the section, pre-supposes some objectivity of the Assessing Officer and not merely the subjective satisfaction or any suspicion about the escapement of income. A mere suspicion of the Assessing Officer about the escapement of income cannot justify the action under this section. Even in the case of Acorus Unitech Wireless (P) Ltd. relied upon by the Id. AO, there was crystallization of escapement of income on the basis of factual data available. There must be something positive to indicate that the income chargeable to tax has escaped assessment. 8.2 Before proceeding further, it would be worthwhile to peruse the reasons recorded for reopening the assessment. The same are as under: REASONS FOR RE-OPENING U/S 147 NAME : Shri Govinddas G. Daga A.Υ. : 2012–13 PAN : AAWPD9591R The assessee has filed the return of income for A.Y. 2012-13, vide acknowledgment No. 451236300310712 on 31/07/2012, declaring total income of Rs. 25,66,840/-.
Shri Govinddas Govardhan Daga ITA no.517/Nag./2016
2. In the return of income, the assessee has shown Long Term Capital Gain on sale of shares as under:–
– Company Name Total B.S. Ispat Ltd. M.V. Pvt. Ltd. Acquisition Dt./Yr. Qty. 01/04/2009 31/12/2008 Acquisition Cost ` 2,500 ` 6,47,028 ` 6,49,528 Indexed Acquisition Cost ` 3,105 ` 8,72,710 ` 8,75,815 Sale Date 31/12/20111 31/12/2011 Sales Consideration ` 18,459 ` 17,31,94,4007 ` 17,32,12,466 Selling Expenses ` 0 ` 86,47,052 ` 86,47,052 Net Sale Consideration ` 18,459 ` 16,45,46,955 ` 16,45,65,414 Capital Gains ` 15,354 ` 16,36,74,245 ` 16,36,89,599
The assessee has claimed deduction u/s 54F, being investment made in “Capital Gain Scheme” for an amount of Rs. 15,78,88.855/- 4. The assessee, had applied for withdrawal of sum deposited in "Capital Gain Scheme", vide letter dated NIL, submitted on 09/05/2013. The assessee also filed a grievance petition to the then the CIT-I, Nagpur, who in turn forwarded the same to this office on 27/05/2013. The assessee was permitted to withdraw the amount vide this office letter dated 07/06/2013. 5. It is noticed that the assessee's name is reported in "Coalgate Scam". The transactions of sale of shares were therefore required to be verified from that angle, As no proceedings were pending against the assessee, permission was solicited from the then CIT-I, Nagpur, vide letter dated 03/10/2013, for issue of notice u/s 133(6) of the 1.T. Act, 1961. The erstwhile CIT-I, Nagpur had given the permission vide F. No. CIT-I/NGP/Tech/Appr/133(6)/2013-14 dated 11/10/2013. Accordingly, assessee was served with notice u/s 133(6) dated 15/10/2013, which reads as under: "Please refer to the return of income filed by you for A.Y. 2012-13, on 31/07/2012 under PANAAWPD9591R declaring total income of Rs. 25,66,840/-, including Rs. 16,36,74,245/-, being Long Term Capital Gain on sale of shares of M/s MV Pvt. Ltd. 2. It is noticed from the calculation of capital gain statement that you have sold shares of M/s M.V. Pvt Ltd. for total consideration of Rs. 16,45,46,955/- on 31/12/2011. It is also noticed that the shares were purchased by you on 31/12/2008 for value of Rs. 647,028/- 3. In this regard you are requested to submit following information regarding M/s MV Pvt. Ltd. i. Complete Name of the company. ii. Registered Address. iii. PAN iv. Company Registration No. and copy of certificate.
Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 v. Copies of acknowledgements of returns filed for F.Y. 2008-09 to F.Y. 2011-12 with copies of final accounts, audit report and annexures thereto. vi. Name, Address, PAN of person from whom the shares were purchased vii. Name, Address, PAN of person from whom the shares were sold. viii. Copy of contract / agreement for shares, purchased and sold. ix. Copy of application. Details of other share holders, directors giving name, address, PAN, no. of shares held in F.Y. 2008-09, 2009-10, 2010-11 & 2011– 12. x. Nature of Business activity carried out by the company during the FY. 2008- 09, 2009-10, 2010-11 & 2011-12 xi. Basis of valuation and detailed calculation of value per share at the time of acquisition and at the time of sale of shares.
4. The above information of the company is called for the reason that you were shareholder of the said company during F.Y. 2008-09, 2009-10, 2010-11 & 2011-12. The information is necessary to determine correct total income for FY 2011-12 in your case.
5. The information is called for by virtue of the powers conferred upon the undersigned by provisions of section 133(6) of the LT. Act, 1961. Necessary approval for issue of this notice u/s 133/6) has been accorded to the undersigned by the CIT-1, Nagpur, vide letter F. No. CIT-I/NGP/Tech/ Appr/133(6)/2013-14 dated 11/10/2013 6. The requisite information should be submitted to the undersigned on 21/10/2013 at 11:00 AM. at the ghove given address. Please note that failure to comply to this notice will constrain the undersigned to initiate penalty proceedings a/s 272.4(2)(c) of the L.T. Act, 1961 and to take other necessary steps under the law." 5.1 The AR of-the assessee later on submitted copies of assessment order passed by ACIT(CC)-1(4). Nagpur, u/s 143(3) and stated that the undersigned had no jurisdiction to issue notice u/s 133(6) of the 1.T. Act. Thus, the assessee, had made a false statement under verification while submitting application for withdrawal of money from capital gainscheme account.
6. The case was later on decentralized with the undersigned vide order F. No. CIT(C)/NGP/127/Decentralization/Daga Group/2014-15 dated 20/05/2014 7. A fresh proposal for issue of notice u/s 133(6) was sent to the then CIT-I, Nagpur, vide this office letter dated 25/07/2014. The erstwhile CIT-I, Nagpur had given approval vide F. No. CIT-1/NGP/Tech/Appr./133(6)/2014-15 dated 01/10/2014.
8. Accordingly, notice u/s 133(6) dated 07/10/2014 was issued to the assessee requiring submissions on 13/10/2014. The notice read as under. Please refer to the return of income filed by you for A.Y. 2012-13, on 31/07/2012 under PAN AAWPD9591R declaring total income of Rs.25.66.840/-, including Rs. 16.36,74,245/-, being Long Term Capital Gain on sale of shares of Mis MV Pvi Lid.
It is noticed from the calculation of capital gain statement that you have sold shares of Mis M.V. Pvt. Ltd. for total consideration of Rs 16,45.46.955/- on 31/12/2011. It is also noticed that the shares were purchased by you on 31/12/2008 for a consideration of Rs. 6.47.0281-
Shri Govinddas Govardhan Daga ITA no.517/Nag./2016
3. It is also noticed as per agreement dated 28/10/2005 that you had agreed to transfer shares held by you in Mis Gondwana Ispat Limited and received eleven hundi documents. Later, on 30/05/2008 you transferred the shares held by you to Mis Kalash Marcantile Pvt. Ltd.
In this regard you are requested to submit following information regarding M/s MV Pvt. Ltd., M/s Gondwana Ispat Ltd., M/s B.S. Ispot Ltd. i. Complete Name of the company ii. Registered Address iii. PAN. iv. Company Registration No. and copy of certificate. v. Copies of acknowledgements of returns filed for FY. 2008-09 to F.Y. 2011-12 with copies of final accounts, audit report and annexure thereto vi. Name, Address, PAN of person from whom the shares were purchased by you. vii. Name, Address, PAN of person to whom shares were sold by you. viii. Copy of contract/agreement for shares, purchased and sold. xi. Details of other share holders, directors giving nome, address, PAN, mo. of shares held in F.Y 2008-09, 2009-10, 2010-116 2011-12. of each of the above referred company x. Nature of Business activity carried out by the company during the F.Y. 2008-09, 2009-10, 2010-11 2011-12- xi. Basis of valuation and detailed calculation of vahie per share at the time of acquisition and at the time of sale of shares. xii. Copies of scheme of amalgamation of Gondwana Ispot Ltd. with B.S. Ispot Laid xiii. Details of Hundi received by you as per agreement dated 28/10/2005 and consideration for which the shares were transferred to M/s Kalash Mercantile Pvt. Ltd.
5. The above information of the company is called for the reason that you were shareholder of the said company during F.Y. 2008-09, 2009- 10, 2010-11 2011-12 The information is necessary to determine correct total income for F.Y. 2011-12 in your case. 6. The information is called for by virtue of the powers conferred upon the undersigned by provisions of section 133(6) of the IT. Act. 1961. Necessary approval for issue of this notice u/s 133/6) has been accorded to the undersigned by the CIT-
1. 1. Nagpur, vide letter F. No. CIT-I/NGP/ Tech/ Appr/133(6)/2013-14 dated 01/10/2014.
7. The requisite information should be submitted to the undersigned on 13/10/2014 at 11:00 AM at the above given address. Please note that failure to comply to this notice will constrain the undersigned to initiate
10 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 penalty proceedings uis 2724(2)(c) of the LT. Act, 1961 and to take other necessary steps under the law 9. A letter has been received seeking further time of 15 days for compilation of details. Time was granted upto 28/10/2014. On 28/10/2014 the A.R. has once again sought adjournment for filing the requisite details which was granted till 17/11/2014. However the assessee has failed to submit the requisite details till date.
10. The appreciation in value of shares of M/s M.V, Pvt. Ltd. from Rs. 8.72 lacs to Rs. 1731.94 lacs within a period of 3 years, i.e., from 31/12/2008 to 31/12/2011 is only on account of a "Coal Block" managed by the company. It is, therefore, necessary to lift the corporate veil over this transaction and bring the entire amount for taxation as Income from other Sources as against "Long Term Capital Gain" shownby the assessee.
11. Considering the facts mentioned herein above, I have reason to believe that income has escaped assessment and therefore consider this case fit for re- opening u/s 147 of the 1.T. Act, 1961, for A.Y. 2012-13.
Issue Notice u/s 148 of the I.T, Act, 1961 for A.Y. 2012-13. Date: 05/01/2015 (ABHAY Y. MARATHE) Asst. Commissioner of Income Tax Circle 2, Nagpur 8.3 Perusal of the above reasons shows that the case of the appellant has been re-opened only for the purpose of making certain verifications. It is noted by the Ld. AO in para 5 of the reasons recorded that the "transaction of sale of shares are therefore required to be verified...". Thus the very purpose of reopening is verification. In para 9 the Ld. AO has noted that there was no compliance by the appellant to the notice u/s. 133(6). It is instructive to note the nature of information sought by the Id. AO in the 133(6)/148 notice. The Id. AO is seeking the most basic information like the Name, Registered Address, PAN, Registration No., Copy of certificate, Copies of acknowledgements of returns filed etc. of the company. He is also seeking detalls like Name, Address, PAN of person from whom the shares were purchased by the appellant Para 10 then mentions regarding the "appreciation in value of shares of M/s M.V. Pvt. Ltd. from Rs. 8.72 lacs to Rs. 1731.94 lacs within a period of 3 years" and that therefore it is necessary to lift the corporate veil over the transaction. The Ld. AO then concludes that he therefore has "reasons to believe that income as escaped assessment". 8.4 There is no reference to any tangible material brought on record for which it is sought to be concluded that income declared under the head Long Term Capital Gain requires consideration under the head Income from Other Sources. However, there is not a whisper of escapement of income in the entire reasons recorded. There is no specific, relevant and reliable criteria hinting at escapement of income. There is only a stated intent to verify certain transaction so as to ascertain the reasons for such a manifold increase in the value of shares of M.V. Pvt. Ltd. There is no nexus or live link or rational connection between the material before him and the formation of the belief of escapement of income. Non-compliance to a notice u/s 133(6) calling for 11 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 general information cannot Justify reopening an assessment. Evidently the Id. AD has no material or evidence, and merely wants by his ipse dixit to take up the return for further probe and hence this is a case of an arbitrary exercise of the power to reopen the assessment. No action u/s 147 should have been taken on mere suspicion or surmises and for making fishing and roving enquiries. The reopening of the assessment is based on "reason to suspect and not on a "reason to believe and such a reopening is not sustainable in law. 8.5 It has been held in various judicial pronouncements that for mere verification of a claim made, power for re-opening of the assessment cannot be exercised even when the retum was processed under section 143(1) only. In the case of ACIT Vs. Shri Meghraj Tarachand Rughani (Supra) the Hon'ble ITAT, Nagpur Bench, Nagpur has held as under:- "It is a settled proposition of law that when the question, relates to the validity of initiation of proceedings u/s. 147 read with section 148, it must be tested on the basis of materials available on the date of such initiation and materials or events becoming available long after initiation cannot sustain the initiation of the proceedings. In the present case, as already discussed, the Assessing Officer had assumed jurisdiction u/s. 147 mainly for the purposes of making certain enquiries and as on the date of issue of notice u/s. 148, there was nothing available on record before him on the basis of which he could have arrived at a conclusion that prima facie some income of the assessee had escaped assessment. Thus the condition precedent for reopening the assessment u/s. 147 i.e. the existence of a valid reason to form a belief about prima facie escapement of income was not satisfied in the present case and since this jurisdictional fact was not in existence at the relevant time, the notice issued by him u/s. 148 is liable to be struck down as invalid. As such, considering all the facts of the case and for the reasons given herein above in the light of various judicial pronouncements, we are of the considered opinion that the notice issued u/s. 148 was invalid and the reassessments made in pursuance of the same are liable to be quashed. We order accordingly.” 8.6 Similarly, in the case of Subhash Chander Goel vs. Income-tax Officer, Ward 1(3), Chandigarh [2016] 65 taxmann.com 216 (Chandigarh - Trib.) the assessee filed his return which was processed under section 143(1). Subsequently, the Assessing Officer noted that assessee had made a statement under section 161 of Criminal Procedure Code, 1973 to Police that he had incurred approximately Rs. 45-50 lacs on the marriage of his daughter M and gift of jewellery of Rs. 55 lacs was made to his daughter at the time of mariage as per 'Will' of assessee's mother. The AO initiated reassessment proceedings by recording reasons that source of expenditure incurred on the marriage including cost of jewellery gifted by assessee to his daughter were required to be verified. In such facts, it was decided by the Hon'ble Chandigarh ITAT as under: "The Assessing Officer in the reasons noted that source of expenditure incurred on the marriage including cost of jewellery gifted by assessee to his daughter are required to be verified. Thus, Assessing Officer in the reasons recorded wanted to verify the facts of incurring of the marriage expenses by assessee for performing the marriage of his daughter on 18.11.2005. Thus, the Assessing Officer referred to the statement given to the police on 09.12.2009 under section 161 CrPC as well as 'Will' of his mother dated 04.07.2002 (PB-42). The Assessing Officer, therefore, stated to have had a reason to believe for escapement of income only after verification of the fact of marriage expenses of daughter of the assessee after verifying the statement made to the police as Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 well as consideration of the 'will'. The re-opening of the assessment only on the basis of verification of the facts is not permissible under the law. The Assessing Officer is not empowered to reopen the assessment nor verify the facts for re- assessment..
The Hon'ble Gujarat High Court in the case of Inductotherm (India) (P.) Ltd. v M. Gopalan, Dy. CIT [2013] 356 ITR 481/217 Taxman 132 (Mag.)/36 taxmann.com 401 also observed that "There should be tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief". It was held as under: "(ii) That in two out of the four reasons recorded by the Assessing Officer for reopening the assessment, he stated that he needed to verify the claims to bad debts and the admissibility of the bad debts written off. For mere verification of the claim, power for reopening of assessment could not be exercised. The Assessing Officer in the guise of power to reopen an assessment cannot seek to undertake a fishing or rowing inquiry and seek to verify the claims as if it were a scrutiny assessment."... Therefore, Assessing Officer was not justified in re-opening of the assessment on the basis of the aforesaid facts. It would show that there was nothing in the reasons recorded to show that any tangible material had come into the possession of Assessing Officer subsequent to the issue of intimation under section 143(1) of the Act. The notice under section 148 reflected arbitrarily exercise of power conferred under section 147 of the Income Tax Act. In the reasons recorded by the Assessing Officer for re-opening of the assessment, Assessing Officer stated that he wanted to verify the marriage expenses of the daughter of the assessee. For mere verification of the claim, power for re- opening of the assessment could not be exercised."(Emphasis supplied) 8.7 Thus it has been held that for mere verification of the claim, power for re- opening of the assessment could not be exercised.Similar view has also been taken by the Hon'ble Delhi Bench of the ITAT in the case of Assistant Commissioner of Income-tax vs. Star Ferro Alloys (P.) Ltd([2004] 90 ITD 63 (DELHI)(TM) wherein the assessee filed its return declaring income under section 139(1) within the due date and the return was processed under section 143(1)(a). Subsequently, a notice under section 143(2) was issued but the assessment could not be completed within the period of limitation. The Assessing Officer thereafter issued notice under section 147/148 after recording the reasons. And finally completed the assessment. In such facts the Hon'ble Third member held as under: "9. Besides this, the so called reasons recorded by Assessing Officer shows that there was non application of mind on the part of the Assessing Officer. It appears from the language that some staff official put up a note before the Assessing Officer seeking his approval before issuing notice under section 148. Further, it appears that such note was put up in order to make investigation into the claim of the assessee regarding various expenses incurred by it. The so called reasons clearly shows that the Assessing Officer wanted to make investigations into the claim of the assessee regarding entertainment expenses and other expenses as well as the donation of Rs. 5 lakhs. In my opinion, the proceedings under section 147 cannot be resorted to for making roving enquiries. As noted in the earlier para, the Hon'ble Supreme Court has clearly held that belief must be held in good faith and could not merely be a pretence. In view of the same, it has to be held that provisions of section 147 cannot be Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 invoked merely for making investigation or roving enquiries. Therefore, even on this account, such proceedings were bad in law.
In view of the above discussion, I am entirely in agreement with the view expressed by learned AM. Accordingly, it is held that re-assessment proceedings under section 147 were not validly initiated. The matter would now go back to the regular Bench for necessary orders.” (Emphasis supplied) 8.8 Thus it is settled law that proceedings under section 147 cannot be initiated either on basis of mere suspicion or making fishing or roving enquiries. Similar view has been taken by the Hon'ble ITAT Lucknow Bench in the case of Deputy Commissioner of Income-tax vs. B.J.D. Paper Products [2012] 17 taxmann.com 11 (Lucknow), wherein on similar set of facts it has been held as under: "8.7 In view of the above discussion, now we will consider as to whether reopening of assessment was legally tenable or not. It is relevant to point out that we have reproduced the reasons recorded by the AO for reopening of the assessment in para 6 (supra). At the very outset we may observe that the reasons recorded are based on the premises of suspicion only. On analysis of the reasons, it would be found that record/file of asst, yr. 2005-06 have not been examined or looked into. On mere suspicion that the opening balance for asst. yr. 2006-07 of the creditors could not be properly explained by the assessee, a presumption has been drawn that the income for asst. yr. 2005-06 has escaped assessment. We find substance in the submission of the learned counsel for the assessee that there is no allegation that the opening balances of the creditors for asst. yr. 2006-07 do not tally with the closing balances of the creditors for asst. yr. 2005-06. Furthermore, there is no mention that which particular credit balance is not explainable satisfactorily. The AQ has failed to mention any particular amount or name of the party in the reason recorded. What to say, there is no whisper in the entire reasons recorded as to whether return for asst. yr. 2005-06 have ever been seen by the AO before or at the time of recording the reasons. We may also add here credits for asst. yr. 2006- 07 may have been themselves shown as opening balances instead of fresh deposits. The so-called reasons recorded by the AO speak of non-application of mind. It seems that the reasons have been recorded without looking into the file or facts of the case. Looking to the facts, we are of the opinion that the reassessment proceedings have been initiated on suspicion and for making roving enquiries and since it is settled law that proceedings under s. 147 of the Act cannot be Initiated either on the basis of mere suspicion or making fishing or roving enquiries, initiation of proceedings under s. 147 of the Act in the present case was illegal and bad in law.” 8.9 In the facts in the case of assessee it actually seems to be a case wherein the Id. AD simply wanted to investigate the case and but had no information on the basis of which there could be a reason to believe that income had escaped assessment and at the same time, the limitation for issue of notice under section 143(2) had expired. In such circumstances, the Assessing Officer was debarred from holding jurisdiction under section. 147 and hence should not have issued a potice u/s 148. In similar set of facts, in the case of Assistant Commissioner of Income-Tax Vs. Malli Chand Baid [2008] 19 SOT 1 (NAG.) (URO) the Hon'ble ITAT Nagpur Bench held that the proceedings initiated u/s 147 were invalid. The relevant part of the judgment is reproduced hereunder:
Shri Govinddas Govardhan Daga ITA no.517/Nag./2016
8. We have heard the rival contentions and perused the material available on record. The reasons for formation of the belief contemplated by section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be direct nexus or live link between the material giving (sic-company) to the notice of the ITO and the formation of his belief that there has been escapement of income by the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. We find force in the submission of the learned counsel for the assessee that the issue of notice under section 143(2) was time-barred and as has been held by Tribunal, Special Bench, Delhi, the Assessing Officer had lost jurisdiction to make reassessment more so the existence of tangible material for the formation of opinion was al prerequisite for initiation of action under section 147 of the Income-tax Act, 1961 as amended with effect from 1- 4-1989. As has been pointed out by the learned-Departmental Représentative that it was a mere suspicion in the mind of the Assessing Officer and so also which appeared in his order the expression "reasons to believe" as has been held is stronger than the words "is satisfied". The reasons recorded are not relevant and could not have bearing on the matters with regard to which he was required to the assessment insofar as the order of the Assessing Officer can be pursued have no nexus to the rationality for the purpose of reason to believe. To put otherwise, the information which formed the basis for the 'reason to believe' for the Assessing Officer lacked specific, relevant and reliable criteria which material are liable to be rejected only on the ground that they may be reason to escape (suspect) but not reasons to believe as was not considered by the Hon'ble Apex Court in the case of Phool Chand BajrangLal v. ITO [1993] 203 ITR 456. It was not the case of the Assessing Officer that the return indicated possible escapement of income and he was not sure about it to initiate proceedings under section 147. When proceedings under section 147 are Initiated, the proceedings are open only qua items of under assessment. The finality of assessment proceedings on either (other) issues remains, undisturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment under section 143(1) of the Act or on account of non-issue of notice under section 143(2) of the Act within the stipulated period. Therefore, it was the Assessing Officer's loud thinking by reasoning his suspicion to verify the very return which enquiry could only be made by him by issuing a notice under section 143(2) within the stipulated period which in the case of the assessee had already expired. It is not the case of the revenue that during the coarse of proceedings under section 147 it had come across any material relating to the items as mentioned in his reason to believe suggesting escapement of income under any of those heads, There was no live link between the two assessee considered by Tribunal, Cuttack Bench in the case of Bhupaneshwar Stock Exchange v. Asstt. CIT [2005] 96 ITD 450 (Cuttack). We are therefore, inclined to uphold the order of the learned CIT(A) insofar as he rightly held that the Assessing Officer had simply wanted to investigate the case and had no information on the basis of which there could be a reason to believe that income had escaped assessment. He, therefore, on the basis of various case laws as relied on rightly considered that the Assessing Officer was debarred from holding jurisdiction under section 147 and, therefore, proceedings thereupon were held to be invalid. He rightly considered the assessee's appeal before him by annulling the order of the Assessing Officer. No interference therein is called for.
In the result, the appeal filed by the revenue is dismissed.” 8.10 In the facts of the present case and on perusal of reasons recorded, it does not indicate any tangible material is on record on which conclusion of belief of escapement of income can be entertained. The Hon'ble Apex Court in 15 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 the case of CIT vs. Kelvinator India Ltd. reported at 320 ITR 561 (SC) peld as under: "Hence, after 1st April 1989, A.O. has power to reopen provided there is "tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." The ratio laid down by Hon'ble Apex Court squarely applies to the facts in the case of assessee as neither there is any tangible material or live link in reasons recorded for formation of belief of escapement of income. 8.11 Thus it is settled law that proceedings under section 147 cannot be initiated either on basis of mere suspicion or making fishing or roving enquiries; where so-called reasons recorded by Assessing Officer speak of non-application of mind, initiation of proceedings under section 147 would be illegal and bad in law. In the facts of present case on perusal of reasons recorded it is evident that reopening is sought only for verification of transaction declared as long term capital gain which is impressible. I therefore hold that reasons recorded for making verification of income no valid reasons in the eye of law for Issuing notice u/s 148 of 1.T. Act 1961. 8.12 Coming to the second submission of the appellant, there is merit in the contention that the objections raised by the appellant to the reasons recorded have not been rejected by AO before finalization of assessment. Subsequent to receipt of reasons for reopening, the appellant on 30/04/2015 submitted its objections before the id. AO on the issue of notice u/s 148. The said fact is verified from the case records and it is seen that the objections to the reasons recorded have not been rejected by the Id. AO before finalization of assessment framed. In his remand teport also the Id. AD has remained silent on this aspect. Thus it is evident that objections raised by the appellant to the reasons recorded have not been rejected by AO 8.13 The non-disposal of objections for notice issued u/s 148 of 1.T. Act 1961 vitates the reassessment proceedings initiated and assessment framed is unsustainable and is required to be cancelled on this basis alone. There are various judicial pronouncements that support the above view. It has been held in these decisions that since the findings of the Supreme Court in GKN Driveshafts (India) Ltd. vs. Income-tax Officer and others 259 ITR 19 (2003) (SC) applies, the AO is duty bound to dispose the objections raised. The Madras High Court in 271 ITR 393 has further held that this is to be done within a time frame of 4 weeks. This is to be done because once the objections to reopening are disposed off by a speaking order, assessee can pursue any further judicial remedy if he is still aggrieved. Evidently, the action of A.O. of not disposing off the objections of the appellant is against the established legal position and principles of natural justice. 8.14 Even in the case of Acorus Unitech Wireless (P) Ltd. relied upon by the Id. AO, the objections filed by the appellant were disposed off by revenue authorities. In the case of General Motors India (P) Ltd. vs DCIT (supra), it has been held by the High Court Of Gujarat as under:
Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 "23. From the aforesaid discussion, we are of the considered opinion that writ petition under Article 226 of the Constitution of India is maintainable where no order has been passed by the Assessing Officer deciding the objection filed by the assessee under Section 148 of the Act and assessment order has been passed or the order deciding an objection under Section 148 of the Act has not been communicated to the assessee and assessment order has been passed or the objection filed under Section 148 has been decided along with the assessment order. If the objection under Section 148 has been rejected without there being any tangible material available with the Assessing Officer to form an opinion that there is escapement of income from assessment and i absence of reasons having direct link with the formation of the belief, the writ Court under Article 226 can quash the notice issued under Section 148 of the Act. The writ petition filed by the petitioner is maintainable. The Assessing Officer is mandated to decide the objection to the notice under Section 148 and supply or communicate it to the assessee. The assessee gets an opportunity to challenge the order in a writ petition. Thereafter, the Assessing Officer may pass the reassessment order. We hold that it was not open to the Assessing Officer to decide the objection to notice under section 148 by a composite assessment order. The Assessing Officer was required to, first decide the objection of the assessee filed under section 148 and serve a copy of the order on assessee. And after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the Assessing Officer, therefore, the order on the objection to the notice under section 148 and the assessment order passed under the Act deserves to be quashed." (Emphasis supplied) 8.15 The High Court Of Gujarat followed the above judgement in the case of Gujarat Eco Textile Park Ltd. v. Assistant Commissioner of Income-tax[2015] 60 taxmann.com 296 (Gujarat) and has held as under: “9. Apart from the above, there is considerable force in the contention of the learned counsel for the petitioner that in the similar fact situation, this court in the case of General Motors India (P.) Ltd. (supra) has found that if the objections are not decided to the reasons for opening of reassessment and the Department has proceeded for reassessment, the assessee would be well within his right to invoke the jurisdiction of this court under article 226 of the Constitution. As the mandatory procedure is not followed for disposal of the objection before proceeding with reassessment, Initiation of the action as well as the subsequent order for reassessment would be required to be quashed.
10. In view of the above, examining the matter in either way, we find that the action for reopening of assessment under section 147 of the Act was barred and even the action for non-disposal of objection and subsequent order, which is impugned in the present petition, would also be required to be quashed and set aside. Hence, they are quashed and set aside.
The petition is allowed to the aforesaid extent. Rule is made absolute. Considering the facts and circumstances, no order as to costs." (Emphasis supplied) 8.16 Thus the Id. AO was required to first decide the objection of the assessee filed under section 148 and serve a copy of the order on assessee and after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This has evidently not been done by the Assessing Officer and therefore the assessment order passed is required to be cancelled on this ground alone.
17 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016
9. For detailed reasons given paragraph hereinabove and various binding judicial precedents discussed I hold that notice issued u/s 148 of 1.T. Act 1961 is not in accordance with law. Taking into consideration the above totality of facts and considering the above legal position it is held that the notice issued under section 148 of I.T. Act 1961 is bad in law and hence the consequent assessment framed thereupon is repaired to be cancelled. It is ordered accordingly. These grounds are therefore allowed.”
Keeping in view the detailed discussions made by the learned CIT(A) cited supra, in our considered opinion, the the reopening notices issued after is unsustainable and bad in law. Considering the overall facts of the case in hand and in light of the case laws discussed hereinabove, we are of the considered view that the impugned notice issued under section 148 of the Act is without jurisdiction and hence set aside making the resultant re- assessment order null and void. Since we have quashed the re-assessment order, we do not find it imperative to delve into the merits of the case. Accordingly, the ground no.1, argued before us by the learned Departmental Representative is hereby dismissed.
In the result, Revenue’s appeal for A.Y. 2012–13 stands dismissed.
C.O. no.15/Nag./2017 (Assessment year – 2012–13) Assessee’s CO is arising out of Revenue’s Appeal being ITA no.517/Nag./2016
After hearing the learned Departmental Representative, we find that the assessee has filed this cross–objection which is in support of the appeal filed by the Revenue for the assessment year 2012–13, which we have dismissed on technical ground, as detailed above, relates to re–opening of assessment under section 147 thereby issuance of notice under section 148 of the Act.
18 Shri Govinddas Govardhan Daga ITA no.517/Nag./2016 Accordingly, the cross objection filed by the assessee becomes infructuous and hence dismissed.
8. In the result, cross–objection filed by the assessee stands dismissed.
9. To sum up, Revenue’s appeal and assessee’s cross objection both are dismissed. Order pronounced in the open Court on 05/02/2025