The Revenue is aggrieved by the order of the Income-tax Appellate Tribunal (ITAT) in these three appeals and contends that the Income-tax Appellate Tribunal fell into error in holding that the reassessment orders for the assessment years 2003-04, 2004-05 and 2005-06 were unwarranted. The assessee's returns were framed in all the three assessment years on scrutiny basis under section 143(3) of the Income-tax Act, 1961 (hereafter "the Act"). While so, on the basis of the information said to have been received, the Assessing Officer sought to reopen these completed assessments and issued notices under section 147/148 of the Act. The relevant reasons furnished in respect of each assessment year read as follows :
"Assessment year 2003-04
Return declaring loss of Rs. 1,99,75,520 was filed by the assessee on November 22, 2003. Assessment under section 143(3) was completed on March 24, 2006 at a total loss of Rs. 1,24,75,520.
Information was received from the Directorate of Revenue Intelligence, Regional Unit Jaipu.r and passed on this office that Central Excise Commissioner, Jaipur 1 detected bogus purchase made by the assessee company from M/s. Kashish Impex Pvt. Ltd. and the information received for the period September 17, 2002 to May 20, 2005 and the amount of purchases (bogus) for the period under consideration amounted to Rs. 1.64 crores.
In view of the above, I have reason to believe that income to the tune of Rs. 1.64 crores has escaped taxation.
Assessment year 2004- 05
Return declaring loss of Rs. 1,39,50,580 was filed by the assessee on October 29,2004. Assessment under section 143(3) was completed on December 22, 2006 at a total loss of Rs. 34,02,989. Information was received from the Directorate of Revenue Intelligence, Regional Unit Jaipur and passed on this office that Central Excise Commissioner, Jaipur 1 detected bogus purchases made by assessee company from M/s. Kashish Impex P. Ltd. and the information received for the period September 17,2002 to May 20, 2005 and the amount of purchases (bogus) for the period under consideration amounted to Rs. 6.20 crores.
In view of the above, I have reason to believe that income to the tune of Rs. 6.20 crores has escaped taxation.
Put up for approval and sanction for issue of notice under section 148 of Income-tax Act, 1961.
Assessment year 2005-06
Return declaring nil income was filed by the assessee on October 8, 2005. Assessment under section 143(3) was completed on December 22, 2006 at a total loss of Rs. 1,81,99,014.
Information was received from the Directorate of Revenue Intelligence, Regional Unit Jaipur and passed on this office that the Central Excise Commissioner, Jaipur 1 detected bogus purchases made by the assessee company from M/s. Kashish Impex Pvt. Ltd. and the information received for the period September 17, 2002 to May 20, 2005 and the amount of purchases (bogus) for the period under consideration amounted to Rs. 74.08 lakh.
In view of the above, I have reason to believe that income to the tune of Rs. 74.08 lakh has escaped taxation."
The Commissioner of Income-tax (Appeals) granted relief to the assessee in the appeals preferred by it. The Revenue approached the Income-tax Appellate Tribunal which was of the opinion that having regard to the "reasons to believe" that the Revenue relied upon, valid reassessments could not be completed. In other words, it was stated that the reasons recorded were insufficient for a legal and valid reassessment proceedings.
In this, the Income-tax Appellate Tribunal relied upon Haryana Acrylic Manufacturing Co. v. CIT [2009] 308 ITR 38 (Delhi) and Wel Intertrade Pvt. Ltd. v. ITO [2e09] 308 ITR 22 (Delhi).
At the outset, it is brought to our notice that the impugned order has been issued wrongly inasmuch as the reassessment notice for the assessment years 2004-05 and 2005-06 were not issued under proviso to section 147(1). These assessments were completed under section 143(3), and hence there was no material on the record to ~uggest that an appropriate authorisation has been received. In this regard, the order dated January 5, 2q17 was relied upon by the assessee.
It is contended by the Revenue that given the restricted mandate under section 147/148, all that the Assessing Officer was to specify was the existence of tangible material in the form of documents or other channels of information which could reasonably or potentially lead to any inference of escapement of income. It was pointed out that for the assessment year 2003-04, the reasons recorded, i.e. the information received through the Commissioner of Central Excise with regard to the bogus purchases made from a company which did not have any manufacturing facility, amounted to "tangible material" pointing to suppression of material facts. It was also submitted that for the other years as well, the conclusions of the Income- tax Appellate Tribunal that there was no authorisation is unwarranted.
In this regard, it is stated that the material was put up before the concemed authority, who took into account and authorised issuance of notice under section 147/148. Learned counsel for the respondent/assessee relied upon the judgment in Chhugamal Rajpal V. S. P. Chaliha [1971] 79 ITR 603 (SC) and contended that the mere incantation of the reasons to believe is inadequate for a valid notice. It is also submitted that the according of permission in a mechanised manner vitiates/defeats the purpose of conditions mandated under section 151(1).
6 Elaborating on this, learned counsel submitted that in scrutiny assessments, the authorisation is seen as a safeguard to protect the assessee from arbitrary exercise of powers by the Assessing Officer.
7 In the present case, no application of mind by the higher authority while granting permission resulted in an invalid notice under section 147. Though the Income-tax Appellate Tribunal granted relief, it did not record any reasons for it. In these circumstances, the order was rectified and the reasons recorded on January 5,2017. It is submitted that in all cases, especially for the assessment year 2003-04, the materials, relied upon, i.e., the information with respect to the alleged bogus transaction was one. Learned counsel points out that the details of the Commissioner of Central Excise, the date of the report and some rudimentary material contained in it are not even subject matter of the "reasons to believe" issued by th~ Assessing Officer in the present case.
8 As far as the assessment year 2004-05 is concerned, this court is of the opinion that in the reference to the bogus purchase made by the assessee from Mis. Kashish Irnpex Pvt. Ltd. and the information received for the period September 17, 2002 to May 20,2005 and the amount of bogus purchase for the period under consideration amounted to 1.64 crores was entirely based upon the information received from the Directorate of Revenue Intelligence (DRI) Regional Unit at Jaipur. This in turn was based upon information given by the Central Excise Department. While it is true that the court is conscious that the reassessment notice should not have been routinely issued, at the same time, the nature of power is wide enough that when there is an escapement of income and the Revenue has information ruling that this escapement is also relatable to suppression of material facts (which could include false claims), the power to reopen concluded assessment can validly be exercised. The consideration which ought to weigh with the Revenue and are considered valid are the existence of tangible material or information-in the light of the judgment in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC).
9. Having regard to the contents of the notice for AY 2003-04, the court is unable to agree with the findings of the ITAT. It constitutes reference to tangible material “outside” the record, i.e. information based upon the investigation of the Commissioner of Central Excise with respect to the purchases made by the assesses. However, as far as the second issue is concerned, the Court is of the opinion that even the rectified order does not address the issues squarely. Thus, arguendo such arguments could be validly raised. At the same time, the court notices that for both AYs 2004-05 and 2005-06, the note discloses the source of the information, i.e. DRI Local Unit at Jaipur, sending information based upon the Commissioner of Central Excise’s investigations. To require the Revenue to disclose further details regarding the nature of documents or contents thereof would be virtually rewriting the conditions in section 147. After all, Section 147 merely authorises the issuance of notice to reopen with conditions. If the Court were to dictate the manner and contents of what is to be written, the statutory conditions would be added as it were. In this context, it needs to be emphasized that the court would interpret the statute as they stand in their own terms, but at the same time being conscious of the rights of the citizens. So viewed, Kelvinator (supra) strikes just balance. To add further conditions to the nature of discussion/reasons that the officer authorising the notice would have to discuss in the note or decision would be beyond the purview of the Courts and would not be justified. For the above reasons, this Court is of the opinion that the impugned order – and the consequential order of 05.01.17 cannot be sustained. They are accordingly set aside. The question of law urged by the Revenue is answered in its favour. The parties are directed to be present before the ITAT on 06.03.2017. The ITAT shall proceed to hear the Revenue’s appeals on its merits and render decision in accordance with law. All rights and contentions of the parties with respect to the merits are reserved.