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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI V. DURGA RAO
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER These three appeals by assessee are directed against common order of the Commissioner of Income Tax (Appeals), Tiruchirapalli, dated 13.03.2013 for the above assessment years. Since the issue in these three appeals are common in nature, these appeals are I.T.A.Nos.1377 to 1379/Mds/2013 :- 2 -: combined, heard together, and disposed of by this common order for the sake of convenience.
The facts of the case are that the assessee was engaged in civil contract work at Karaikal and was opted to offer the business income u/s.44AD of the Income Tax Act. Return of income were filed voluntarily without notice u/s.142(1) of the Act, for the assessment year 2002-03 to 2007-08. A search u/s.132 was conducted on 09.11.2006 and notice u/s.153C was issued for the assessment years.
In response to notice, returns were filed offering the same business income for these years and as proposed at the time of search additional business income of �10,00,000/- was offered in the assessment year 2007-08 to purchase peace with the department and to cover any omission in the contract receipts to the extent of �1.25 crores. The assessment were completed u/s.143(3)r.w.s. 153C for the assessment years 2004-05 to 2006-07 and u/s.143(3) for the assessment year 2007-08 accepting the income admitted by the assessee. The Assessing Officer in contrast to the audit object has relied on the seized materials and concluded that there was an escapement of income to the extent of �13.25 lacs for assessment year 2004-05, �15.12 lacs for assessment year 2005-06, and �22.70 I.T.A.Nos.1377 to 1379/Mds/2013 :- 3 -: lacs for assessment year 2007-08 and issued notice u/s.148 on 31.03.2011. The re-assessments were completed on 22.12.2011 u/s.143(3) r.w.s 148 of the Income Tax Act. Regarding assessment year 2004-05, the Assessing Officer has noticed as per the seized material as well as appraisal report suppression of contact receipts to the tune of �13,25,000/-. Similarly for the assessment year 2005-06 an amount of �15,12,000/- was not reported out of the gross contract receipts. For the assessment year 2007-08 also, an amount of �22,70,000/- was found unreported out of the gross receipts. On noticing the discrepancy the Assessing Officer has issued notice u/s.148 of the Act for all the assessment years on 31.03.2011 treating the unreported receipts as income escaped assessment. The Commissioner of Income Tax (Appeals) found no rationale in the objections raised by the ld. Authorised Representative for assessee for reopening the assessments, therefore notice issued u/s.148 was valid in reopening the assessments for all the three years. The Assessing Officer considered that there was an escapement of income to the tune of �13,25,000/- for the assessment year 2004-05, similarly for �15,12,000/- and �22,70,000/- for the assessment years 2005-06 and 2007-08 respectively of the assessee in reopening assessment I.T.A.Nos.1377 to 1379/Mds/2013 :- 4 -: u/s.143(3) r.w.s153C r.w.s 148 of the Act. Against this, the assessee is in appeal before us.
The contention of the Authorised Representative is that when the assessment was completed u/s. 153C r.w.s 143(3,) it cannot be subjected to reopen assessment u/s. 147 of the Income-tax Act so as to issue 148 notice of the Act. In our opinion there is no merit in the argument of the assessee’s counsel section 147 of the Act permits reassessment of income that has escaped assessment income in any assessment year subject to provisions of sections 149 and 153 of the Income tax Act. Reassessment of escaped income under section 147 of the Act is made where income chargeable to tax has escaped assessment either due to the failure of the assessee to file return or failure to disclose fully and truly all material facts for the purposes of assessment or where material already on record had not been processed. In case of assessment u/s. 153C of the Income Tax Act, it cannot be envisaged as all the materials recovered in the course of the search are examined by the Assessing Officer or there can be case of non-disclosure of material facts by the assessee.
I.T.A.Nos.1377 to 1379/Mds/2013 :- 5 -:
The whole requirement is that to reopen the assessment, the following conditions laid down u/s. 147 are to be fulfilled:
(a) 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 taxpayer. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662(SC), for initiation of action under Section 147(a) (as the provision stood at the relevant time) fulfillment 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 I.T.A.Nos.1377 to 1379/Mds/2013 :- 6 -: 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 satisfaction.
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 I.T.A.Nos.1377 to 1379/Mds/2013 :- 7 -: 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. So long as the ingredients of Section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under Section 147.
After search and seizure under section 132, the Assessing Officer shall proceed under section 153A/153C of the Act and he cannot proceed u/s.148 of the Act. There is no bar on reopening all the assessments which was completed u/s. 153A/153C r.w.s. 143(3) of the Income-tax Act, if there is reason to believe that income escaped from the assessment
Being so, in our opinion, we cannot say that there is no reason to reopen the assessment and we cannot uphold the argument of the assessee’s counsel that issue of notice u/s. 148 is bad in law.
Further the ld. counsel for the assessee submitted that in the case of assessment order u/s. 143(3) r.w.s. 148 dated 22.12.2011 was passed by the Assessing Officer after analyzing the material seized I.T.A.Nos.1377 to 1379/Mds/2013 :- 8 -: during the search, he has considered all the material for the purpose of assessment and there was no escapement of income. According, to the ld. counsel only for the purpose of making re-enquiry, he has issued notice for reopening assessment which cannot be done.
On the other hand, the Departmental Representative relied on the order of the Assessing Officer passed u/s. 153C r.w.s. 148 of the Act. The Assessing Officer has a jurisdiction for assessment or re- assessment proceedings for all the six years to compute the total income of the assessee including undisclosed income where action have been taken against the assessee u/s.132(1) of the Act.
Proceeding initiated u/s. 153A/153C for all six years shall become a subject matter to assessment u/s.153A/153C of the Act and the Assessing officer shall have freehand, on assessment, only on the proceeding that are pending to frame the assessment afresh. But in the case where the proceedings have reached finality, the assessment u/s.153A/153C r.w.s.143(3) of the Act confined to incriminating material / document found during the search indicating undisclosed income, the addition shall have to be restricted to those documents or incrementing documents, clubbed only to assessment framed originally. As law does not permit the Assessing Officer to disturb I.T.A.Nos.1377 to 1379/Mds/2013 :- 9 -: already concluded assessment, whether on the date of intimation of search u/s.132 or requisition of books, no proceedings is pending in the search, materials found indicating incrementing materials, the Assessing Officer engrosses a jurisdiction where he has clubbed two sets of income, return income and unearthed income, had arrived at the total income. Thereafter, if he had a reason to believe the said assessment can be re-assessed u/s.148 of the Income Tax Act as discussed in the earlier paras so as to reopen the assessment, there should be sufficient materials.
In this case, the assessment was reopened for considering the seized materials and the same was not considered while framing the original assessment u/s.153C r.w.s. 143(3) of the Act for these three assessment years. Accordingly, the reasons were recorded by the Assessing Officer before issuing notice u/s.148 of the Act for these three assessment years stating that there was escapement of income and the seized materials were not properly considered. According to the ld. Authorised Representative for assessee, the seized materials vide Ann.SRK/B &D/S, Ann.SRK/Loose Sheets/S and Ann.SRK/Loose Sheets/S dated 09.11.2005 were fully considered while framing the original assessment u/s.153C r.w.s. 143(3) of the Act and notice I.T.A.Nos.1377 to 1379/Mds/2013 :- 10 -: issued u/s.148 was only change of opinion, since all the seized materials are already available with the Assessing Officer in original assessment record. The main contention of the assessee counsel is that this was only change of opinion and all materials available for assessment has already been available with the Assessing Officer in assessment record. We cannot appreciate this argument of the of the ld. Authorised Representative for assessee. The requirement for the Assessing Officer to initiate reassessment u/s.147 of the Act is explained by Supreme Court in its decision in the case of CIT vs. Kelvinator of India Limited 320 ITR 561, wherein it is held as under:-
“3. After the enactment of the Direct Tax Laws (Amendment) Act, 1987 i.e., prior to April 1, 1989, section 147 of the Act reads as under:
'147. Income escaping assessment.—If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (here after in this section and in sections 148 to 153 referred to as the relevant assessment year) :' (emphasis supplied) 4. After the Amending Act, 1989, section 147 reads as under : '147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess I.T.A.Nos.1377 to 1379/Mds/2013 :- 11 -: such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : ' (emphasis supplied) 5. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from April 1, 1989), they are given a go-by and only one condition has remained viz. that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer 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. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason to believe', Parliament reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 I.T.A.Nos.1377 to 1379/Mds/2013 :- 12 -: dated October 31, 1989, which reads as follows ([1980] 182 ITR (St.) 1, 29) : '7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression "reason to believe" in section 147.—A number of representations were received against the omission of the words "reason to believe" from section 147 and their substitution by the "opinion" of the Assessing Officer. It was pointed out that the mean ing of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression "has reason to believe" in the place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same.' (emphasis supplied)".
In view of the fact that the seized materials were not considered by the Assessing Officer while framing original assessment order u/s.153C r.w.s. 143(3) of the Act, thus, there was under assessment of the assessee and there was escapement of income. In the circumstances, in so far as assessment order passed u/s.153C r.w.s 143(3) is concerned, it does not reflect any application of mind by the Assessing Officer to the seized material. However, according to the ld. Authorised Representative for assessee in the light of enquiry made by the Assessing Officer and the reply filed by the assessee at the time of original assessment u/s.153C r.w.s. 143(3) of the Act which lead to the conclusion that the Assessing Officer has applied his mind to the same.
In our opinion production before the Assessing Officer of accounts books or other evidence from which material facts could with due I.T.A.Nos.1377 to 1379/Mds/2013 :- 13 -: diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section.
Had the Assessing Officer applied his mind to the seized document, then the assessment would have been different.
In our opinion, there is escapement of income while framing original assessment order u/s.153C r.w.s 143(3) of the Act. It is apparent that the omission of the assessee to bring it to the Assessing Officer’s notice those particulars of seized material, will amount to omission to disclose fully and truly all materials facts necessary for its assessment. In the case of Indo-Aden Salt Mfg. and Trading Co. P.
Ltd. vs CIT 159 ITR 624(SC) held that mere production of evidence before the Assessing Officer is not enough. There may be a failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the Assessing Officer. The assessee knows all the material and relevant facts -- The Assessing Authority might not.
Testing the facts of the present case in the light of the aforesaid principles, as noted hereinabove, the Assessing Officer in the assessment order has not discussed the seized documents. The I.T.A.Nos.1377 to 1379/Mds/2013 :- 14 -:
Assessing Officer while recording the reasons has formed an opinion that under assessment of income of the assessee and on that reason assessment was re-opened. Further a perusal of the material on record does not indicate that the assessee had drawn the attention of the Assessing Officer to the fact that the reasons mentioned for re- assessment at the time of completion of original assessment.
According to the ld. Authorised Representative for assessee it is not necessary for the assessee to point out the above set of facts to the Assessing Officer merely because the Assessing Officer mentioned in assessment order passed u/s.153C r.w.s 143(3) about seized documents, it does not mean the Assessing Officer is examined the seized documents. Thus, the Assessing Officer while framing the original assessment u/s.153C r.w.s. 143(3) of the Act does not appear to have formed an opinion with regard to seized documents and he has accepted the claim of the assessee, as the assessee wanted to be accepted by the Assessing Officer. The assessee having failed to draw the attention of the Assessing Officer regarding seized documents, it cannot be said that there is no violation of provisions of the Act.
Further, when no opinion has been expressed in the assessment order and no details or explanation in relation to the seized document has been called for by the Assessing Officer, it is not possible to accept the I.T.A.Nos.1377 to 1379/Mds/2013 :- 15 -: contention of the assessee that the Assessing Officer has applied his mind to the said aspect. In the light of the aforesaid discussion, we are of the view that in the light of the reasons recorded by the Assessing Officer, there was sufficient material for Assessing Officer to form the requisite belief that income has escaped assessment for the assessment year under consideration. The assumption of jurisdiction under section 147 by issuance of notice under section 148 of the Act is valid and legal and as such no case is made out for intervention by this Tribunal. Therefore, the assessee fails in this ground. This ground is rejected.
12.1 The ld. Authorised Representative for assessee also contended that the reassessment were time barred as per provision u/s.149. The introduction of section 153A of the Act, there is departure from the proceeding under chapter XIV B of the Act u/s 153A of the Act, the Assessing Officer has been given the power to assess or reassess the total income of the assessment years for the last six preceding assessment years in question in separate assessment orders.
Consequently, there would be only one assessment order in respect of six assessment years in which the total disclosed or undisclosed income would be brought to tax. Even though assessment order I.T.A.Nos.1377 to 1379/Mds/2013 :- 16 -: passed under section 143(1)(a) or under section 143(3) of the Act, the Assessing Officer would be required to reopen these proceedings and reassess the total income taking notice of undisclosed income even found during the search and seizure operation. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under section 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time limit within which the notice under section 148 can be issued, as provided in section 149 has also been made in applicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under section 148 has also been excluded in a case covered by section 153A/153C of the Act. The time limit prescribed for completion of an assessment or reassessment by section 153 has also been done away with in a case covered by section 153A. With all the stop having been pulled out, the Assessing Officer under section 153A/153C has been entrusted with the duty of bringing to tax the total income of an assessee who case is covered by section 153A/153C, by even making reassessments subject to provision u/s.153B of the Act. Accordingly, the contention of the ld. I.T.A.Nos.1377 to 1379/Mds/2013 :- 17 -:
Authorised Representative for assessee is that the assessment is time barred is rejected.
Regarding quantum of income, the ld. Authorised Representative for assessee submitted that entire unaccounted contract receipts cannot be considered as undisclosed income of the assessee. Further, he pointed out that the Assessing Officer has not given the basis of computation of gross contract receipts.
According to the Departmental Representative, it is as per the seized materials gross contract receipts has been considered as income as business expenditure which has already been taken care by regular books of accounts while computing the income in regular assessment.
Thus, the total unaccounted gross receipts has been considered as undisclosed income of the assessee.
We have heard both the parties on this issue. In our opinion, it is not appropriate to consider the entire unaccounted gross receipts as income of the assessee. The assessee has to incur certain expenditure for the unaccounted receipts also. Being so, in our opinion, it is appropriate to consider only gross profits on this unaccounted contact receipts as the income of the assessee. The I.T.A.Nos.1377 to 1379/Mds/2013 :- 18 -:
Assessing Officer is directed to adopt the last three years average gross profits rate disclosed by the assessee in immediate preceding years to determine the income from unaccounted contract receipts.
Further, we make it clear that the assessee shall be given an opportunity to go through the seized materials on the basis of which the Assessing Officer determine the unaccounted gross receipts of the assessee before arriving the unaccounted gross contract receipts.
With these observations, this issue for limited purpose is remitted back to the file of the Assessing Officer for quantification of income in all these three assessment years. 16. In the result, the assessee’s appeals are allowed for statistical purposes.
Order pronounced on Thursday, the 9th day of July, 2015, at Chennai.