Narayan Shukla, J. - Heard Mr. Jaideep Narayan Mathur, learned Senior Counsel assisted by Mr. Vaibhav Pandey and Mr. Mudit Agarwal, learned counsel for the petitioners and Mr. Manish Mishra, learned counsel for the Income Tax Department.
2. The instant writ petition is directed against the order dated 26 November 2013 issued by Deputy Commissioner of Income Tax Range-VI Lucknow in exercise of power provided under section 147 of the Income Tax Act. The facts of the case as have been undraped are that in exercise of power under section 147 of the Act the Assessing Officer reopened the assessment proceeding for the assessment year 2006-07 on the ground that he has reason to believe that assessee has stated its income which is chargeable to tax has escaped assessment. The Assessing Officer recorded the reasons for reopening the case in the notice issued under section 148 of the Act. The reasons recorded by the Assessing Officer are quoted herein under:—
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The assessee filed return for A.Y. 06-07 on 14.03.2007 declaring total income at NIL. Net receipt from operation has been shown at NIL. No scrutiny assessment has been made for A.Y. 06-07. During the relevant year share capital increases from 4782000 (as at 31.03.2005) to 58,82,000/- included share capital of Rs.25 lacs & share application of Rs.33.82 lacs Secured loans increases from Rs.1,23,54,001/- to Rs.2,78,21,882/- i.e. increase of Rs.1,54,67,871/-Investment in building, increase from Rs.7,09,770/- to 1,50,99,423/- source of which remained unexplained. Other current assets increases from Rs.2,14,645/- to 24,10,521/- i.e. increase of Rs.21,95,876/-. The source of these share application money source of collaterals which have been hypothecated by assessee for raising secured loan of Rs.1,54,67,871/- & source of work-in-progress & other current assets are remained unexplained. |
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During the assessment proceedings for A.Y. 2008-09 then the A.O. After not being satisfied with the investment shown in institute cum hospital building of assessee Co. referred it to valuation cell for estimating cost of investment. The DVO vide its report dated 02.08.2011 estimated the total investment in the construction of Hospital building during the A.Y. 2006-07 at Rs.1,75,73,800/- against the investment declared by the assessee at Rs.1,50,99,423/- The onus lies on the assessee to establish its investment only upto Rs,1,50,99,423/- with complete bills & vouchers before the DVO but the assessee had failed to discharge its onus. The assessee has furnished nothing on the basis of which its investment at Rs.1,50,99,423/- during the relevant year may be relied upon. Therefore, I have reason to believe, that investment in the said property in A.Y. 2006-07 was Rs. 1,75,73,800/- and assessee has underestimated its investment and income. |
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In view of above, I have reason to believe that assessee has understood its income and income chargeable to tax has escaped assessment accordingly it is a fit income and income chargeable to tax has escaped assessment accordingly it is a fit case to be reopened u/s 147 of the Income Tax Act, 1961". |
3. The petitioner filed objection against the reopening of assessment submitting therein that for the assessment year 2006-07 he was only required to furnish return of income without any enclosures, however, he produced all the vouchers and receipts before the Assessing Officer. He further stated that for the period from 01.04.2007 to 31.03.2008 (assessment year 2008-09) the Deputy Commissioner of Income Tax, Range-VI Lucknow examined the records in the course of regular assessment proceeding under section 143 (3) of the Act and duly accepted it. It was also stated by him that the report of the Valuation Officer is based on no material and more over without rejection of books of accounts. The valuer report cannot be read as evidence for reopening of the case. Thus he submits that the books of accounts were not rejected. He further submitted that the opinion of the District Valuation Officer is not an opinion recognized under the law for the purpose of reopening under section 147 of the Act. The Assessing Officer was under statutory obligation to apply his own mind to form the opinion if any and express the reason of his belief to reopen the assessment. However, it was not done so far. The Deputy Commissioner of Income Tax considered the petitioner's objection but ultimately rejected it on the ground that the assessee had not maintained complete details in respect of his accounts of cost of construction and has under estimated the investment in construction of the hospital building and the income chargeable to tax in respect of source of investments has indicative of escaped assessment.
4. Learned counsel for the petitioner submits that petitioner filed its return of income for the assessment year 2005-06, 2006-07, 2007-08 and 2008-09 regularly and Books of Accounts have always been accepted with minor disallowance for assessment year 2008-09. For the assessment year 2006-07, since the hospital was under construction, the return filed by the petitioner had shown the income "Nil" and the return was proposed under section 143(1) of the Act. The details of balance sheet, profit and loss accounts including the investment made were duly incorporated in the return. It is stated by him that for the assessment year 2008-09 assessment order under section 143(3) of the Act has been passed on the basis of the figures of the loss disclosed by the petitioner without rejecting the books of accounts therefore, in the light of the several decisions of the Hon'ble Supreme Court the matter could not be open for reassessment. Through rejoinder affidavit he has also brought on record the return for the assessment year 2006-07 and submitted that from the return filed by him as well as balance sheets as on 31st March 2006 it is obvious that all the books of the capital profit and loss tally with each other. Therefore, it cannot be said that the petitioners income chargeable to tax has escaped assessment.
5. Percontra Mr. Manish Mishra, learned counsel for the Income Tax Department submitted that it is not in dispute that for the assessment year 2006-07 the return was proposed under section 143(1) of the Act, but no copy of the balance sheet, profit and loss accounts etc were filed, rather those have been mentioned in the return for 2006-07 annexed with rejoinder affidavit itself. Since the assessment is still under process, it is obvious that no order of assessment has been passed. However, at this stage there is no question to challenge the examination of balance sheet, profit and loss accounts etc. He further submitted that the proceeding of each and every assessment year is independent. Therefore, the books of accounts loans etc. have been examined for the assessment year 2007-08 has no concerned with the assessment year 2006-07. He further stated that since the assessee did not furnish any detail to establish and substantiate its declared investment therefore, the amount of Rs.1,50,99,423/- has been taken as under estimated income and since this amount has escaped from assessment in the assessment year 2006-07 the same is taken into account. He further submitted that no scrutiny was done under section 143(1) of the Act for the assessment year 2006-07, what ever has been filed by the assessee was simply examined by the department without verifying the same. It is further stated by him that the notice issued under section 147 of the Act is not based on District Valuation Report. It has categorically been stated by the department that since the source of share application money, source of collaterals and other investments have been unexplained for the assessment year 2006-07 and came to the knowledge of the respondent department only when the assessee/petitioner filed his returned for the assessment year 2008-09 as during scrutiny the petitioner showed the complete books of accounts from which it emerges that there is an unexplained income which amounts to escape assessment for the assessment year 2006-07 and this was the foundation of reason to belief of the assessing officer, and this material fact had not been examined by the department in any assessment year. Thus, he submits that prima facie there is a material on the basis of which the Assessing Officer has reason to reopen the proceeding.
6. Learned counsel for both the parties cited some decisions in their supports which are quoted as under:—
Cases cited by the leaned counsel for the petitioner.
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CIT v. Orient Craft Ltd. [2013] 354 ITR 536/215 Taxman 28/29 taxmann.com 392 (Delhi). "In this case the Delhi High Court have discussed the significance of the source "reason to believe" in the light of the decisions of the Hon'ble Supreme Court rendered in the case of CIT v. Kelvinator of India Ltd. [2010 ]320 ITR 561/187 Taxman 312. as well as on the basis of another case of the Hon'ble Supreme Court i.e. Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P). Ltd. [2007] 291 ITR 500/161 Taxman 316 in which Hon'ble Supreme Court held that even proceedings under section 147 are to be taken with regards to the intimation framed earlier under section 143(1), the ingredients of section 147 have to be fulfilled. The ingredient is that there should exist "reason to believe" that income chargeable to tax has escaped assessment. The said judgment has been upheld by the Hon'ble Supreme Court by dismissing the Special Leave Petition being SLP No. 15859 of 2013". |
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Sargam Cinema v. CIT [2010] 328 ITR 513/[2011] 197 Taxman 203 (SC) in this case the Hon'ble Supreme Court has held as under:— |
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"In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance place on the report of the DVO was misconceived." |
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Asstt. CIT v. Dhariya Construction Co. [2010] 328 ITR 515/[2011] 197 Taxman 202 (SC). "In this case the Hon'ble Supreme Court held that having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purpose of reopening assessment under section 147 of the Income-tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment. Cases cited by the learned counsel for the respondents: |
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Jorawar Singh Baid v. Asstt. CIT [1992] 198 ITR 47 (Cal.) In this case the Calcutta High Court discussed the scope of initiation of the reassessment proceeding under section 147, the Cal. High Court expressed its opinion as under:— |
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"In our view, the power that can be exercise under section 143(2) to correct the assessment made under section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under section 147 if the ingredients of section 147 are satisfied. It is open to the Assessing Officer to invoke the jurisdiction under section 147, notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment under section 147 is vitiated because the Assessing Officer failed to invoke his power to correct the assessment already completed under section 143(1) by issuing a notice under section 143(2) of the Act." |
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Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC). In this case Income Tax Officer, Azamgarh subsequent to the completion of original assessment proceeding on making an enquiry from jurisdictional Income Tax Officer at Calcutta learnt that the Calcutta Company from whom the assessee claimed to have borrowed the loan of Rs.50,000/- in cash had not really lent any money, but only its name to cover up a bogus transaction was mentioned and after recording his satisfaction as required by the provisions of section 147 of the Act proposed to reopen the assessment proceedings, the Hon'ble Supreme Court held as under:— |
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"From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income Tax 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which where not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if one the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted CIT v. Burlop Dealer Ltd. [1971] 79 ITR 609 (SC) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly." |
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Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46/[1997] 94 Taxman 124 (All.). In this case the question for consideration was "whether any assessment was made under section 143(1) (a) and whether the intimation sent to the petitioner by the Assessing Officer could be expressed with character of assessment. |
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In this case the Hon'ble Supreme Court held as under:— |
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"There is much difference difference between an assessment and the intimation as contemplated by section 143(1)(a) and if it were not so, then Parliament would not have used the word intimation as a substitute for assessment. While making assessment, the Assessing Officer is free to make any addition, subject to course of giving an opportunity of being heard. By making adjustment under the proviso to section 143(1) (a), no addition not permitted by the information given in the return, can be made by the Assessing Officer. The reason is that under section 143(1) (a), no hearing is given to the assessee and the Assessing Officer proceeds on his own on the basis of the return, filed by an assessee. Otherwise also, no addition on enhancement can be made without giving an opportunity of being heard. The provision of opportunity being given under section 143(1)(a) has not been made, because the Assessing Officer has to proceed accepting the return and the adjustments which can make, are only of such a nature which fully record with the information furnished in the return. It means that the Assessing Officer cannot do nothing detrimental to an assessee under section 143(1)(a) and if he wants to do for cogent reasons, then he will have to make a regular assessment under section 143(3) giving a due notice sub section (2) of section 143." Under section 147, if the Assessing Officer, has reason to believe tat any income chargeable to tax had escaped assessment then he is free to initiate reassessment proceedings. The only requirement of section 147 is that the Assessing Officer must have good reason to believe that some income had escaped assessment. Once this belief is well founded, recourse to reassessment proceedings cannot be said to be illegal." |
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Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). In this case the Hon'ble Supreme Court held that "in this case we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs". |
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Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) in this case para 17 is reproduced as under:— |
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"17. The scope and effect of section 147 as substituted with effect from 1st April, 1989, as also sections 148 and 152 are substantially different from the previsions as they stood prior to such substitution. Under the old provisions of section 147, separate clause (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the AO must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (I) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under section 148 r/ws. 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the both proviso to section 147. The case at hand is covered by the main provision and not the proviso." |
7. Section 147 of the Act speaks that, 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 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.
8. In the light of the aforesaid provisions when we go through the decisions cited above we find that power that can be exercised under section 143(2) to cover the assessment made under section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under section 147, subject to availability of ingredients of section 147. Therefore, we are of the view that it cannot be accepted that reassessment under section 147 is vitiated, because the Assessing Officer failed to invoke his power to correct the assessment period completed under section 143 (1) by issuing a notice under section 143(2) of the Act.
9. The purpose of section 147 appears to us to be to ensure that a party cannot get up by making false or untrue statement at the time of original statement and when that falsity comes to notice the assessee cannot turned around and say that since "you accepted my lie, now your hands are tied and you can do nothing". It would be a travesty of justice to allow the assessee that latitude".
10. In order to proceed under section 147, if the, Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment then he can proceed for reassessment. The only requirement of section 147 is that the Assessing Officer must have good reason to believe that some income had escaped assessment.
11. A bare perusal of letter dated 14.05.2013 (Annexure No.4) written by the Deputy Commissioner of Income Tax Range-VI Lucknow shows that in the return filed by the petitioner for assessment year 2006-07 the petitioner declared its total income "Nil". However, during the said year share capital increases from Rs. 4782000 to Rs.58,82,000/- and secured loan increases from Rs.1,23,54,001/- to Rs. 2,78,21,882/- which shows the increase of Rs. 1,54,67,871/-Investment in building increased from Rs.7,09,770/-to Rs.1,50,99,423/- but the petitioner did not explain the source of increasement, similarly other current assets also increased. Therefore, apart from District Valuer Report we find that there are sufficient reasons for the Assessing Officer to believe that the income chargeable to tax has escaped assessment. Thus we find that ingredients of section 147 is available to reopen the proceeding of assessment for the assessment year 2006-07. It is worth to mention here that this is not a stage for a deep consideration of the case by the assessing officer rather the prima facie opinion of the Assessing Officer is sufficient to proceed for reassessment which is available in the matter and also is based on reasons recorded in the order. Therefore, we do not find reason to interfere with the proceeding for assessment year 2006-07 initiated under section 147(1) of the Act.
12. In the result the writ petition is dismissed.
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