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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Mahavir Singh & Shri Waseem Ahmed
आदेश/O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals), Jalpaiguri in appeal No.165/RNJ/CIT(A)/JAL/08-09 dated 16.07.2012. Assessment was framed by ITO Ward-1, Raiganj u/s 147/143(3)of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2008 for assessment year 2004-05.
In this appeal the assessee has raised several grounds of appeal but argued only on the ground based on the issue of reopening of case under section 147 of the Act.
2. Briefly stated facts are that the assessee is an individual, running a proprietorship firm under the name & style of Basanta Stores. There was survey under section 133 A of the Act at the business premises of the assessee and his father. The AO recorded the statement of the assessee and found that the assessee has taken unsecured loan of Rs. 5,90,800/- from his father proprietor, of M/s Satyam Enterprises, but the same had not been reflected in the balance sheet of the assessee for the assessment year 2004-05. On this basis the AO formed his opinion that the income of the said amount has escaped assessment, hence issued notice under section 148 and framed assessment under section 147 of the Act accordingly after making necessary addition and disallowance in the total income of the assessee.
MangilalSethia v. ITO Wd-1 RNJ Page 2
Aggrieve assessee preferred appeal to CIT(A) on certain grounds of appeal inter alia challenging the reopening of assessment under section 147 of the Act. However the Ld. CIT(A) has upheld the order of the AO by observing that the reasons recorded by the AO to initiate the proceedings under section 147 of the Act are sufficient enough for framing the income escaping assessment.
Aggrieved Assessee preferred second appeal before us on the following grounds of appeal. “1. For that the order of the Ld. CIT(A) is arbitrary, illegal and bad in law.
2. For that the Ld. CIT(A) erred in confirming the action of the AO taken u/s. 147.
3. For that the Ld. AO erred in confirming the assessment order when in ground no. 1 with reference to the non signing of the demand notice accompanying the assessment order the assessee disputed the validity of the order and the Ld. CIT(A) should have held that the assessment without raising any demand was invalid and ab initio void.
4. For that the Ld. CIT(A) erred in confirming the profit on sale of Rs.5,76,416/- by applying section 44AF when the accounts were audited and the profit declared was quite fair and reasonable.
5. For that on the facts and circumstances of the case the Ld. CIT(A) erred in confirming the amount of Rs.5,90,800/-.”
Shri Sunil Surana, Ld. Authorized Representative appearing on behalf of assessee and Shri Niloy Baran Som, Ld. Departmental Representative appearing on behalf of Revenue.
Before us the Ld AR submitted the reasons of reopening of the case under section 147 of the Act which are extracted below for the sake of more clarity and understanding : “Reason for reopening 5/2007 A survey u/s. 133A was conducted in the business premises of Sri Mangilal Sethia and Sri Poonon Chand Sethia on 13/11/2006.During the course of recording the statement of Sri Poonam Chand Sethia, it is found that the two cheque of Rs.40,000/- and Rs.5,50,800/- were deposited on 09/09/2003 and 29/9/2003 in the name of M/s Satyam Enterprises, which were received from his father Sri Magilal Sethia as unsecured loan, but the same had not reflected in his I.T. return for the A.Y. 2004-05 as debtor. So the amount of Rs.5,90,800/- is unaccounted in the A.Y. 2004-05.
Therefore, I have a reason to believe that the income of the assessee for the A/.Y. 2004-05 is escaped assessment. Hence, notice u/s. 148 issued to the assessee.”
The Ld AR has submitted the bank statement of the assessee, ledger account of party from whom the loan was taken and the certificate of the bank certifying that the loan taken has been returned. The Ld AR demonstrated that the reason for reopening the case is not tenable as it is not as per the provisions of the income tax. The Ld. AR further submitted that merely on the basis of bank entry found at the time of survey does not give the rise to have the reason to belief that the income has escaped assessment. The Ld AR also submitted that the AO has failed to appreciate that the same loan has been repaid within the same financial year. So the question to reflect the same amount loan in the balance sheet at the yearend does not arise. The Ld. AR of assessee has supported various case law in support of his claim in the of Hon’ble Bombay High Court in the case of Hindustan Lever MangilalSethia v. ITO Wd-1 RNJ Page 3 Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income-Tax and Others (No.1) 268 ITR 332 (Bom), where held that:- “that the notice was clearly beyond the period of four years. The reasons recorded by the Assessing Officer nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, the Assessing Officer had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed.”
And the judgment of Hon’ble Supreme Court in the case of Commissioner of Income-Tax v. (1) Kelvinator of India Ltd. (2) Eicher Ltd. 320 ITR 561 (SC) wherein it has been held:- “Therefore, poste-1st-April, 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 fulfillment of certain pretended on behalf of the Department, then, in thee garb of reopening the assessment, review would take place. Once must treat the concept of “change of opinion” as an in-build test to check abuse of power by the Assessing Officer.”
The learned counsel also cited the decision of this court of in the case of CIT v. Usha International Ltd. (2012) 348 ITR 485 (Del.) as also the decision of the Supreme Court in the case of CIT Vs. Kelvinator of India Ltd.: (2010) 320 ITR 561 (SC), in support of his contention that reassessment proceedings cannot be initiated on a mere change of opinion. On the other hand, Ld. DR vehemently supported the order of the lower authorities below.
We have heard rival parties and perused the materials available on record. From the aforesaid discussion we find that the AO has framed the assessment under section 147 of the Act as he believed that the loan taken by the assessee has not been shown in balance sheet. From the record and documents submitted it is very much clear that the claim of the assessee that the loan has been repaid during the same financial year is correct. But a careful analysis shows that the loan was not repaid to the party directly but to the creditors of the party. However it does not make any difference in the accounting books and balance sheet. Any way if we see the provisions of the law to reopen the case under section 147 of the Act for the income escaping assessment, there has to be live link between income which escaped assessment and the reasons to believe that the income has really escaped assessment. Merely reopening the case under section 147 of the Act on surmise, premise does not hold good. For the better understanding the relevant extract of the section 147 is reproduced below : “147, If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment fr 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 (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
The expression reasons to believe refers to the belief which prompts the Assessing Officer to apply to Sec.147 to a particular case. It will depend on the facts of the each case. The belief must be of an MangilalSethia v. ITO Wd-1 RNJ Page 4 honest and reasonable person based on reasonable grounds. The Assessing Officer is required to act, not on mere suspicion, but on direct or circumstantial evidence.
In this present case, we find no live link between the reason to believe and reopening of case u/s 147 of the Act. It was a loan entry in the books of the assessee and the same was also settled within the same year. Therefore, this amount will not be showed in the balance sheet of the assessee during the yearend. It is a well established practice that a case can be reopened u/s 147 of the Act only if there is real intention of the assessee to escape from tax liability. In this case the AO is to form a belief that there is a live link between the reason to belief and income escaped assessment. In the present case, AO collected information at the time of survey that loan it was given has not been shown in the book of accounts. Therefore, issued a notice u/s 148 of the Act and AO did not consider the fact that it is not the case, in case the loan has been repaid will not be shown in assessee’s book of accounts, where simply treating the loan entry as income which has escaped from assesment is not appropriate. We are also relying on the judgment mentioned above by Ld. AR of assessee in the case of Kelvinator of India Ltd. (2) Eicher Ltd. (supra). Therefore, we are inclined to quash the proceedings u/s 147 of the Act made by AO on the basis of gathering information at the time of search and those information were never duly verified by AO. Hence, this ground of assessee’s appeal is allowed. Since the matter got adjudicated on the ground of challenging the ground of reopening u/s. 147 of the Act, other remaining grounds in the appeal of assessee do not require further adjudication.