M.R.PRASAD,TRICHY vs. ITO, TRICHY

आदेश / O R D E R

Appeals filed by the assessee Shri. M.R. Prasad are directed

against an order dated 31.03.2017 of ld. Commissioner of Income Tax

(Appeals)-2, Tiruchirappalli; appeals of the assessee Shri. S.

Devendran are directed against orders dated 17.03.2017 of ld.

Commissioner of Income Tax (Appeals)-2, Tiruchirappalli and appeals

of the assessee Shri. M.R. Prakash are directed against orders dated

29.03.2017 of Income Tax (Appeals)-2, Tiruchirappalli. Since all these

appeals emanate from same set of facts, these are disposed off

through a consolidated order.

Act, 1961 (in short ‘’the Act’’) on 20.12.2002 in the business premises

of the following firms which were engaged in quarry of blue metal.

ITA Nos.1218 to 1223/2017 :- 3 -:

The above firms were controlled by family members of one late Shri.

M.R Prasad and the assessees in these appeals are some such family

members. Ld. Assessing Officer issued notices u/s. 148 of the Act to

these assessees for reopening the assessments for the impugned

assessment years. The assessees thereupon requested the ld.

Assessing Officer to furnish the reasons for such reopening. It seems

such reasons were not supplied to the assessee. The assessment was

thereafter completed considering the returns filed by the assessees

pursuant to such notice. Additions were made for opening cash

balance as on 01.04.1995 for assessment year 1996-97, and additions

were made for investments made by the assessees in a firm called

‘’M/s. Natchiyar Industrial Makes’’ for A.Y. 1997-98. All the assessees

moved in appeals before ld. Commissioner of Income Tax (Appeals)

wherein they challenged the validity of the reopening for want of

supply of reasons. It seems reasons for reopening were given to the

assessees during the course of proceedings before ld. Commissioner of

Income Tax (Appeals). The ld. Commissioner of Income Tax (Appeals)

held that reasons cited by the ld. Assessing Officer were good enough

for a reopening. Thereupon all the assessees moved further appeals

ITA Nos.1218 to 1223/2017 :- 4 -:

before this Tribunal, relying on the judgment of Hon’ble Supreme

Court in the case of GKN Driveshaft (India) Ltd vs. ITO 259 ITR 19.

This Tribunal in appeals of the assessees numbered ITA 1981 to 1988/Mds/2007 vide its order dated 24th October, 2008 held as under

at para 5 & 6 ‘’After considering the rival submissions, we find that the Hon'ble Jurisdictional High Court in the case of K.S. Suresh V. DCIT (supra) has held as under:- It was admitted that the objections the petitioners mode on December 2004, February 10, 2005 and February 18, 2005 were not considered by the Income-tax authorities , It was that the income-tax authorities had committed an error apparent on the fact of the record by pre- determining the issue, holding that it was a fit case for levy of penalty under section 271(1) ( c) Income-tax Act, even while giving opportunity to the petitioner in proceedings dated February 10, 2005, to submit their objections on or before February, 2005, with regard to reopening of the assessment for the assessment year 2001-01 and before deciding the matter on the merits. The notices of reassessment as well as consequential proceedings of provisional attachment dated November, 25 2004 issued under section 281B were not valid and were liable to be quashed’’. We further find that the Hon'ble Supreme Court in the case of GKN Driveshaft (India) Ltd. v. ITO (surpa) has held as under :- When a notice under sec.148 of the I.T Act, 1961 is issued the proper course of action for the notice is to file the return and. If he so desires to seek reasons for issueing the notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice of entitled to file objections to Issuance of notice and

ITA Nos.1218 to 1223/2017 :- 5 -:

the Assessing Officer is bound to dispose of the same by passing a speaking order " 6. In view of the above, we set aside the order of the ld. Commissioner of Income Tax (Appeals) in this case and remit the matter to the ld. Assessing Officer with a direction to deal with the objections of the assessee in respect of reopening of the assessment and then proceed to frame the reassessment. We make it clear that we are not commenting on the merits of the case and the Assessing Officer should decide the same in accordance with law after providing opportunity of hearing to the assessee’’. Thereafter proceedings were taken up afresh by the ld. 3.

Assessing Officer. Assessees were supplied with the reasons for

reopening which read as under:-

1 Name and address of the : 1. Mr. S. Devemndran assessee 2. Mrs. Santhakumari 3. Mrs.Manjula. 4. Mrs. Pushpa 5. Mr. M.R. Prasad 6. Mr. M.R. Prakash 7. Mrs. Arun 8. M/s. Sri Manjunathan Industries 9. Late Munirathinam Naidu, 25, I.A.S. Nagar, 9. D. Nagar Thiruerumbur, Trichy 13

2 Permanent Accountant Number : 1. ABSPD3194P 2. Not available. 3. ACMPM0805B 4. ACZPP6938R 5. AAKPP4767D 6. AAKPP4768N 7. Not available 8. AALFS9108E 9. 41-PM-267 3 Status : S. No. 1 to 7 – Individual, 8 Firm. 4 District/Circle/ Range : City Ward IV(1), Trichy 5 Assessment year in respect of : 96-97, 97-98 which it is proposed to issue

ITA Nos.1218 to 1223/2017 :- 6 -:

notice u/s. 148 6 The quantum of income which : Likely to exceed �1 lakh has escaped assessment 7 Whether the provisions of : 147(a) Sec.147 (a) or 147(b) are applicable or both the sections are applicable 8 Whether the assessment is : Yes proposed to be made for the first time? If, reply is in the affirmative a Whether any voluntary return : No has already been made b If so, the date of filing the said : return. 9 If the answer to item No.8 is in : the negative, please state a The income originally assessed : b Whether it is a case of under- : assessment at too low rate, assessment which has been made, the subject of excessive relief or allowing of excessive relief depreciation. 10 Whether the provisions of Sec150(1) are applicable. If the reply is in he affirmative the : No. relevant facts may be stated against item No.11 and may also be brought out that the provisions of section 150(1) would not stand in the way for initiating 11 Assessing Officer’s remark :

In the case at sl.No.8, a survey u/s. 133A was conducted on 20.12.2002. The individual listed out in sl. Numbers 1 to 7 are all partners in different firms connected with the survey conducted on 20.12.2002. Though returns have been filed for the other firms, returns from the individuals were not filed till 27.03.2003. As all the persons are likely to have income exceeding �1 lakh during the assessment years 1996-97 and 1997-98, the assessments may be reopened u/s.

ITA Nos.1218 to 1223/2017 :- 7 -:

147 for both the assessment years by virtue of section 149(1) (b) of the Act. I solicit Additional Commissioner’s approval in this regard’’.

Assessees raised objections to the reasons wherein it was stated that

returns were filed by the assessees prior to the issue of the notices

under section 148 of the Act, and pointing out that ld. Assessing

Officer was not sure whether income escaped assessment was more

than �1,00,000/-. As per the assessees, the reopening was purely

based on presumptions and reasons recorded were vague. Assessees

also alleged that there was no live link between reasons recorded and

formation of believe for escapement of income. As per the assessees,

just because there was survey in the firms in which assessees were

partners would not mean that assessees in their individual capacity

had income exceeding �1,00,000/-. However, the ld. Assessing Officer

did not accept the above contentions. According to him, Sec. 147 of

the Act authorized the ld. AO to assess or reassess income chargeable

to tax, if he had cause or justification to know or suppose

escapement of income in the hands of the partners. Further, as per ld.

Assessing Officer, though returns were filed by the assessees for

assessment years 1991 -92 to 1997-98 prior to the date of survey,

these returns were all out of time, and non-est in the eyes of law.

ITA Nos.1218 to 1223/2017 :- 8 -:

statements filed by the assessees during the course of re-assessment.

Ld. Assessing Officer based on the closing balance as on 31.03.1997

shown by the assessees in their cash flow statements worked back to

arrive at the opening cash balance as on 01.04.1995. For this

purpose, the ld. Assessing Officer, deducted from the closing cash as

on 31.03.1997 shown by the assessees, the income returned in the

returns filed by the assessees for assessment years 1991-92 to 1997-

98 as also agricultural income shown by it for these years. As per ld.

Assessing Officer, assessees could not furnish any collaborative

evidence for the closing balance shown by them. Further, as per ld.

Assessing Officer assessees could not furnish details of drawings in

the earlier years, if any, from the firms in which assessees were

partners and hence, could not justify the existence of the opening

balance cash as on 01.04.1995. Opening cash balance as on

01.04.1995 was added as unexplained income for assessment year

1996-97. For assessment year 1997-98, additions were made for

investments made by the assessees in M/s. Natchiyar Industrial Makes.

As per ld. Assessing Officer, assessees could not show source for such

investments. Summary of the additions made for assessment years

1996-97 and 1997-98 for each of the assessees were as under:-

ITA Nos.1218 to 1223/2017 :- 9 -:

Assessment Name Addition Reasons for addition year Amount 1996-97 M.R. Prasad 3,55,030 Opening balance as on 01.04.1995

1997-98 M.R. Prasad 1,68,750 Investments in M/s. Natchiyar Industrial Makes.

27,364 Salary and interest from the firm M/s. Natchiyar Industrial Makes.

1996-97 S. Devendran 2,76,000 Opening balance as on 01.04.1995 1997-98 S. Devendran 1,68,750 Investments in M/s. Natchiyar Industrial Makes.

25,233 Salary and interest from M/s. Natchiyar Industrial Makes.

1996-97 M.R. Prakash 1,81,330 Opening balance as on 01.04.1995

1997-98 M.R. Prakash 1,68,750 Investments in M/s. Natchiyar Industrial Makes.

27,362 Salary and interest from M/s. Natchiyar Industrial Makes.

Commissioner of Income Tax (Appeals). Apart from challenging the

merits of the additions, assessees also challenged the validity of the

reopening. As per assessees, there was no material gathered at the

ITA Nos.1218 to 1223/2017 :- 10 -:

time of survey on 20.12.2002 from the premises of the firms, which

could show that there was any escapement of income in the hands of

the assessees. Assessees also raised contentions similar to what were

taken by them before ld. Assessing Officer.

opening cash balance as on 01.04.1995 could not be considered for

addition for assessment year 1996-97. Further as per assessees they

had confirmation letters from close relatives who had given money,

apart from their own income, returned by them in the returns filed for

earlier assessment years, for justifying the opening cash.

Industrial Makes, contention of the assessees was that opening cash

balance once accepted, there was no scope for such additions.

However, it seems assessees did not press their ground against the

additions made for salary and interest received from M/s. Natchiyar

Industrial Makes.

through the submissions of the assessee, held that the reopening for

assessment year 1996-97 were valid since evidence obtained during

the survey operations indicated investments made by the assessees in

ITA Nos.1218 to 1223/2017 :- 11 -:

granite quarry business and there were no cash withdrawals for

meeting the household expenses. As per ld. Commissioner of Income

Tax (Appeals) assessees had shown only very little income for the

earlier years. As for assessment year 1997-98, ld. Commissioner of

Income Tax (Appeals) observed that evidence obtained during the

survey revealed salary and interest income received from M/s.

Natchiyar Industrial Makes apart from their unaccounted investments

in such firm. He also noted that ld. Assessing Officer had received

approval from the competent authority as per provisions u/s. 153(1) of

the Act before resorting to the reopening. He thus held that the

reopenings were validly done. As for the additions made for cash

balance on 01.04.1995, ld. Commissioner of Income Tax (Appeals)

held that assessee could not shown the source for opening cash

balance, since the returns for earlier years filed by the assessees

disclosed only meagre income. Further, as per ld. Commissioner of

Income Tax (Appeals) claim of the assessee that they had received

money from close relatives as loans/gifts were also not substantiated.

Thus, he confirmed the additions made in the hands of the assessees

for the impugned assessment years.

assailing the reopening done for the impugned assessment years

ITA Nos.1218 to 1223/2017 :- 12 -:

submitted that reasons intimated to assessee indicated an

assumption taken by the ld. Assessing Officer that income of the

assessees had exceeded �1,00,000/- for the impugned assessment

years. As per ld. Authorised Representative it was an admitted

position that returns were filed by those assessees for impugned

assessment years before 27.03.2003. Hence, according to him,

observation of the ld. Assessing Officer that assessees had not filed

returns till 27.03.2003, appearing in the reasons, was incorrect.

According to the ld. Authorised Representative belated returns could

not be considered as equal to a case of non-filing of returns.

Further, according to him, there was no live link between survey

conducted in the premises of the firm on 20.12.2012 and the reasons

mentioned by the ld. Assessing Officer. According to him, reopening

was purely based on presumptions and the requirement of law was not

met. Relying on the judgment of Hon’ble Bombay High Court in the

case of CIT vs. Jet Airways (I) Ltd 331 ITR 0236 and that of Hon’ble

Jurisdictional High Court in the case of M/s. Martech Peripherals Pvt

Ltd vs. DCIT (W.P. No.10710 of 2014, dated 04.04.2017), ld.

Authorised Representative submitted that unless there was a clear

indication as to what was the income which escaped assessment there

could be no valid reassessment.

ITA Nos.1218 to 1223/2017 :- 13 -:

was that opening cash balance as on 01.04.1995 could not be

considered for addition for assessment year 1996-97, especially when

assessees had filed returns for preceding very many assessment years.

As per ld. Authorised Representative if the opening cash balance was

accepted there was no case for any addition for both the assessment

years.

supporting the orders of the authorities below submitted that ld.

Assessing Officer had clearly given the reasons for reopening. As per

ld. Departmental Representative earlier returns filed by the assessees

were all out of time and hence could not be considered as valid

returns under the eye of law. Thus, according to him, Explanation (2)

to Sec. 147 of the Act could be applied and ld. Assessing Officer was

justified in deeming that income chargeable to tax had escaped

assessment. Further, as per ld. Departmental Representative

assessees could not file any evidence for the opening cash balance as

on 01.04.1995 and therefore the additions were rightly done.

orders of the authorities below. Reasons for reopening furnished to the

assessees has been reproduced at para 3 above. It has not been

ITA Nos.1218 to 1223/2017 :- 14 -:

disputed by the Revenue that assessees had filed the returns for the

impugned assessment years prior to the date of survey. Contention of

the Revenue is that these returns were filed out of time and hence

non-est in the eyes of law. Be that as it may, there is no dispute that

the earlier returns even if considered as valid, were only subject to a

processing u/s. 143(1) of the Act. The question of validity of a

reopening when the original return was only subject to a processing

u/s. 143(1) of the Act, had come up before the Hon’ble Supreme

Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd 291

ITR 500. Their Lordship has held as under at para 12 to 18 of the

judgment:-

‘’12. What were permissible under the first proviso to section 143(1)(a) to be adjusted were, (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/ disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief. 13. One thing further to be noticed is that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the

ITA Nos.1218 to 1223/2017 :- 15 -:

right of the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from April 1, 1989, and March 31, 1998, the second proviso to section 143(1)(a), required that where adjustments were made under the first proviso to section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till June 1, 1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, 1998, and May 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word "intimation" as substituted for "assessment" that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 between June 1, 1994 and May 31, 1999, and under section 264 between October 1, 1991, and May 31, 1999. It is to be noted that the expressions "intimation" and "assessment order" have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes "the computation of income", sometimes "the determination of the amount of tax payable" and

ITA Nos.1218 to 1223/2017 :- 16 -:

sometimes "the whole procedure laid down in the Act for imposing liability upon the tax payer". In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the Departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J.) in Apogee International Limited v. Union of India [1996] 220 ITR 248 (Delhi). It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any "assessment" is done by them ? The reply is an emphatic "no". The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. 14. Additionally, section 148 as presently stands is differently couched in the language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Amendment) Act, 1987, the provision read as follows : "148. Issue of notice where income has escaped assessment.—(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice containing all or

ITA Nos.1218 to 1223/2017 :- 17 -:

any of the requirements which may be included in a notice under sub-section (2) of section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." 15. Section 147 prior to its substitution by the Direct Tax Laws (Amendment) Act, 1987, stood as follows : "147. Income escaping assessment.—If—

(a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assess ment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (here after in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—

(a) where income chargeable to tax has been underassessed ; or

ITA Nos.1218 to 1223/2017 :- 18 -:

(b) where such income has been assessed at too low a rate ; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) ; or

(d) where excessive loss or depreciation allowance has been computed. Explanation 2.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer 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 [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. 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 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 formed 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 Assessing Officer is within the realm of subjective

ITA Nos.1218 to 1223/2017 :- 19 -:

satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). 17. The scope and effect of section 147 as substituted with effect from April 1, 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 Assessing Officer 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 omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued’’.

Thus where a return was subject only to a processing u/s. 143(1) of

the Act, only one condition has to be satisfied for a valid reopening.

Such condition is that ld. Assessing Officer has cause or justification

ITA Nos.1218 to 1223/2017 :- 20 -:

to know or suppose that assessee had income escaping assessment.

On the touch-stone of above law laid down by Hon’ble Apex Court, we

need to make an analysis of the reasons cited by the ld. Assessing

Officer for reopening the assessments for the impugned assessment

years. What I first notice is that ld. Assessing Officer was under a

completely wrong impression that assessees had not filed any returns

till 27.03.2003. May be returns filed were belated, but this by itself

would not translate to a situation where assessees had not filed any

returns. As per the ld. Assessing Officer assessees were partners in

different concerns and they were likely to have income exceeding

�1,00,000/-. Can we say that being partner in a firm is a reason to

have income exceeding �1,00,000/-? I am afraid this can never be a

reason; to harbour such a belief. The vital live link between the

survey and the reason why ld. Assessing Officer found assessees likely

to have income exceeding �1,00,000/- is missing. If we look at the

additions finally made, these were confined to opening cash balance as

on 01.04.1995 and investments made by the assessees in M/s.

Nachiyar Industrial Makes for assessment year 1997-98, apart from

salary & interest from the said firm, which aggregated much less than

�1,00,000/-. If the opening cash balance is not disputed there was no

room for any addition. Ld. Assessing Officer has not spelled out the

reasons that prompted him to believe that income had escaped

ITA Nos.1218 to 1223/2017 :- 21 -:

assessment in the hands of the assessee on account of the above

and what came out of the survey which indicated so. What could be

the subject matter of an addition in areassessment proceedings has

been explained by the Hon’ble Bombay High Court in the case of Jet

Airways (I) Ltd (supra) what was held by the lordship at para 22 is

reproduced hereunder:-

‘’22. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147 and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh [2008] 306 ITR 343 . Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147 as they stood after the amendment of April 1, 1989, continue to hold the field’’. Observation of Hon’ble Jurisdictional High Court in the case of M/s.

Martech Peripherals Pvt. Ltd (supra) is also apposite. Para 21 & 22 of

this judgment is reproduced hereunder:-

‘’21. To my mind, a careful reading of Section 147 of the Act would show that it empowers an Assessing Officer to

ITA Nos.1218 to 1223/2017 :- 22 -:

reopen the assessment, if, he has reason to believe, that any income chargeable to tax has escaped assessment for the relevant year, ''and also bring to tax", any other income, which may attract assessment, though, it is brought to his notice, subsequently, albeit, in the course of the reassessment proceedings. 21.1.To put it plainly, the purported income discovered subsequently during the course of reassessment proceedings, can be brought to tax, only, if the escaped income, which caused, in the first instance, the issuance of notice under Section 148 of the Act, is assessed to tax. 22. Explanation 3, to my mind, supports this approach, which emerges upon a plain reading of the said provision, along with the main part of Section 147 of the Act. The emphasis in this behalf is on the expression ''and also bring to tax'' appearing in the main part of Section 147 in relation to the right of the Revenue to assess taxable income discovered during reassessment proceedings. In my view, Explanation 3, clearly, expounds that the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment and such other issue, that comes to his notice subsequently, albeit, in the course of proceedings held under Section 147 of the Act. In other words, if, notice for reopening of the assessment was issued on one aspect, and in the course of reassessment proceedings another aspect was discovered, the reassessment order would be valid, only if, the aspect, which led to the reopening of assessment, continues to form part of the reassessed income’’.

Coming to the Explanation (2) to Sec. 147 of the Act, no doubt this

gives a deeming power to the ld. Assessing Officer, where no return

of income was furnished, and where income exceeded maximum

amount which was not chargeable to tax. As already mentioned by me,

assessees here had filed their returns prior to the date of survey

though the returns were beyond the time stipulated under the Act.

ITA Nos.1218 to 1223/2017 :- 23 -:

reasons given for reopening the assessment of the assessees for

impugned assessment years, did not satisfy the primary condition laid

down u/s. 147 of the Act. I have no hesitation to hold that reopening

for the impugned assessment years were invalid. Ex-consequenti the

assessments for impugned assessment years are set side. Since I

have set aside the assessment on jurisdictional aspect the merits of

the addition are not dealt with.

assessment years are allowed.

Order pronounced on Thursday, the 17th day of August, 2017, at Chennai.

Sd/- (अ�ाहम पी. जॉज�) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:17th August, 2017 KV

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF