Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income Tax vs O.P. Chawla on 29 May, 2006
Equivalent citations: (2008)116TTJ(DELHI)755
ORDER
P.N. Parashar, J.M.
1. This appeal, preferred by the Revenue, is directed against CIT(A)'s order dt. 9th Feb., 2001 relating to asst. yr. 1995-96. The only ground taken in this appeal by the Revenue is as under:
Based on facts and circumstances of the case, the learned CIT(A) has erred in holding the assessment order dt. 30th March, 2000 to be bad in law and ab initio null and void and annulling the same without going into the merits of the addition of Rs. 28,90,000 made by the AO under Section 68 on account of unexplained NRE gifts.
2. Shri B.D. Kharab, CIT-Departmental Representative along with Shri R.P. Meena, senior Departmental Representative appeared for the Revenue whereas Shri Rahul Khare, advocate, appeared on behalf of the assessee.
3. The facts concerning this matter are as under:
3.1. The assessee derived income from house property, from salaries, short-term capital gains and other sources. He filed return of income for the assessment year in question on 30th March, 1996 showing income at Rs. 4,42,350. The return was processed under Section 143(1)(a) vide order dt. 20th Sept., 1996. Thereafter, a notice under Section 148 dt. 2nd March, 1998 was served upon the assessee. The assessee vide letter dt. 20th Dec, 1999 submitted that the return already filed on 30th March, 1996 be treated as the return filed in response to the notice under Section 148.
3.2. The assessee challenged the validity of the notice issued under Section 148 and also the validity of the assessment proceedings on that basis and in this regard following grounds were taken before the learned CIT(A):
1. That assessment order framed under Section 147/148/143(2) is absolutely illegal and without jurisdiction.
2. That under the facts and circumstances of the case, learned AO wrongly invoked the provisions of Section 147 of the IT Act and consequently, the notice issued under Section 148 of the IT Act is also illegal, without jurisdiction and uncalled for. There exists no such circumstance which authorizes the learned AO to initiate the proceeding under Section 147 r/w Section 148 of the Act.
3. That without prejudice to above, the notice issued under Section 148 is grossly defective and no assessment proceedings can take place on the basis of said notice.
4. That without prejudice to above grounds of appeal, the assessment order framed is bad in law since the reasons recorded for reassessment proceedings have never been communicated to the assessee.
3.3 Before the learned CIT(A) it was pointed out that the assessee duly filed the balance sheet along with the return wherein the receipt of gift of Rs. 28,90,000 was shown and the AO processed the return on the basis of the said balance sheet. In this regard the further submission of the assessee, as reproduced in para 2.2 of the order of learned CIT(A) was as under:
It was simply a fact which was evident from the balance sheet itself duly filed by the assessee himself originally along with the return which showed that the assessee received gift of Rs. 28,90,000. It is purely a statement of fact which is apparent from the return. From this fact, it cannot be inferred by any stretch of imagination that this gift is in fact escaped income of the assessee. We really fail to appreciate as to how the fact of receipt of gift can be believed to be as escaped income. Further, the learned AO has also mentioned in the reasons that no details have been filed in respect of this gift. In this connection, it is submitted that as per the requirements of return from and Section 139(9) assessee is not at all required to file any other detail in respect of the receipt of gift.
3.4 It was vehemently argued on behalf of the assessee that the AO reopened the assessment only on the basis of suspicion as there was no evidence or material or information available with the AO which could suggest that the gift of Rs. 28,90,000 represented the assessee's escaped income. It was also submitted that the expression "reason to believe" has to be strictly interpreted. In support of this submission, on behalf of the assessee, reliance was placed on the following decisions:
(i) ITO v. Lakhmani Mewal Das ; and
(ii) Anant Kumar Saharia v. CIT .
3.5 The learned CIT(A) accepted the contention of the assessee by holding that the AO had acted illegally and in unwarranted manner in issuing notice under Section 148 when he had no reason to believe that income had escaped assessment. He also observed that notice under Section 148 could not be issued in making roving enquiries on the basis of vague suspicion. He thus annulled the assessment order dt. 30th March, 2000 by holding that the same was bad in law and was ab initio null and void. The relevant observations of the learned CIT(A) as per para 3.1 of his order on this issue are as under:
3.1. Keeping in view the above mentioned observations I have no hesitation in holding that while the AO might have had a faint 'reason to suspect' that income has escaped assessment, it cannot be said that he had 'reason to believe' that the income has escaped assessment. I cannot over emphasise that the requirements of law, specially when it comes to taking action under Section 147/148, have to be met within letter and spirit. The AO would do well to bear this in mind in future. In this case, there is no doubt that the AO has acted illegally and in an unwarranted manner in issuing notice under Section 148 when he had no reason to believe that income has escaped assessment. Notice under Section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above the assessment order dt. 30th March, 2000 is annulled as the same is bad in law and is ab initio null and void. These grounds are decided in favour of the appellant.
4. Before us the learned Departmental Representative submitted that the AO had recorded detailed reasons and issued notice under Section 148 and in view of the reasons recorded, the issuance of notice under Section 148 was fully justified. According to him, since the assessee had not given details of gifts received, the conclusion of the AO that income had escaped assessment was legally correct. According to him, the AO has wide power to reopen assessment and in view of the amended provisions as contained under Section 147 this power has further been widened. The learned senior Departmental Representative also submitted that sufficiency of reasons could not be questioned as it is for the AO to consider the material before the issuance of notice under Section 148 and on the basis of reasons recorded by him he has to come to the conclusion that income of the assessee has escaped assessment. In support of these submissions the learned Departmental Representative placed reliance on the following decisions:
(i) 97 ITR 237 (sic);
(ii) V. Jaganmohan Rao v. CIT ;
(iii) Nawabganj Sugar Mills Co. Ltd. and Ors. v. CIT ;
(iv) Raymond Woollen Mills Ltd. v. ITO and Ors. ;
(v) Phool Chand Bajrang Lal v. ITO ; and
(vi) Sri Krishna (P) Ltd. v. ITO .
5. The learned Counsel for the assessee, on the other hand, supported the order of learned CIT(A). He specifically pointed out that in the balance sheet the assessee had disclosed the receipt of gift of Rs. 28,90,000. According to him, the assessee had disclosed the material facts while filing the return and on that basis the return was processed under Section 143(1)(a). He further submitted that on the basis of same material, issuance of notice under Section 148 could not be justified. In support of his submissions, the learned Counsel placed reliance on the following decisions:
(i) CIT v. Foramer France ;
(ii) CIT v. Kelvinator of India Ltd. (2002) 174 CTR (Del) (FB) 617 : (2002) 256 ITR 1 (Del)(FB);
(iii) Oil & Natural Gas Corporation Ltd. v. Dy. CIT ;
(iv) G.B. Bros. & Konda Rajagopala Chetty Beedi Factory (P) Ltd. v. ITO ;
(v) Ajanta Pharma Ltd. v. Asstt. CIT and Ors. ; and
(vi) CIT v. R.S. Sibal .
6. We have carefully considered the entire material on record and the rival submissions. The assessee had filed copy of balance sheet as on 31st March, 1995 with the original return. As per this balance sheet the assessee had disclosed receipt of gift of Rs. 28,90,000. A copy of the balance sheet is available at p. 13 of the paper book. Even for the reasons recorded in issuing notice under Section 148 it is mentioned that the balance sheet of the assessee revealed that the assessee had received a gift of Rs. 28,90,000. Thus it is undisputed that the assessee had given the narration regarding receipt of gift of Rs. 28,90,000 while filing the original return. The return was processed under Section 143(l)(i) on 22nd Feb., 1996.
6.1 The reasons recorded by the AO for reopening the assessment have been reproduced in para 2.1 of the order of learned CIT(A). Regarding the receipt of gift of Rs. 28,90,000 the AO has observed as under:
The assessment under Section 143(1) has been completed on 22nd Feb., 1996. The balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. The assessee has given loan to Sadar Bazar Leasing (P) Ltd. from which he has shown interest income of Rs. 2,40,838. There are also house withdrawals from the party and it is not shown how these withdrawals have been invested. The assessee has received interest from Vipual Motors and Alfa Automobiles. The details of the same have not been filed. The assessee is having salary from Sadar Bazar Leasing (P) Ltd. for which he has invested huge amounts. The assessee has shown drawing at Rs. 2,55,150 which means that he has made certain investments out of withdrawals which have been reflected. The assessee has shown a rental income of Rs. 66,000 but it is not shown as to when this property was purchased. The balance sheet reveals that the assessee has made investment in Chawla Properties (P) Ltd., Nav Durga Jewellers, whereas no interest from these parties have been declared. Further, the assessee has investment of Rs. 11,95,100 in farm account. When this farm was purchased and what is the nature of investment is also not disclosed. The assessee has also advanced Rs. 1,25,000 against shop which shows that the assessee has been dealing in properties. The assessee has invested a sum of Rs. 7,45,000 on car booking. The details of car booking are not given which need thorough investigation. Another advance of property at Rs. 10,40,000 has been made but no profits from property dealings have been disclosed. A sum of Rs. 1,00,000 has been advanced to Propular Ventures for purchase of property and sum of Rs. 3,50,000 has been shown against Pitam Pura shop. These transactions clearly reveal that the assessee is dealing in properties on which the income has been declared. Further, the assessee has loaned a sum of Rs. 2,00,000 to Anupam Komal and a sum of Rs. 4 lacs to Prem Bhatla. No interest has been declared which leads to the conclusion that the assessee has not declared income from these sources nor he has filed any valuation of properties purchased and sold. The income, therefore, escaped assessment. The assessment is reopened under Section 147.
6.2 The assessment under Section 143(1) had been completed on 22nd Feb., 1996. The balance sheet of the assessee reveals that the assessee had received a gift of Rs. 28,90,000, for which no details had been filed. In view of the above it is clear that the assessee had disclosed receipt of gift in his return. As the assessment was being framed under Section 143(1)(a) and further as the AO did not call for details from the assessee, the assessee had no responsibility or liability to furnish the details.
6.3 On perusal of the reasons recorded and the assessment order made under Section 143(3)/147 it is found that the AO had not received any other information or material suggesting concealment of any income on the part of the assessee. In the reasons recorded the AO has mentioned that the assessee had not filed details regarding receipt of gift. Thus, for want of details of gifts the AO had believed that the income of the assessee had escaped assessment. In the reasons recorded other transactions have also been mentioned but for those transactions also, the proceedings for reassessment have been initiated for want of details.
6.4 The contention of the assessee before us was that the assessee had disclosed fully and truly all material facts and that on the basis of the same material if notice for reassessment is issued, then it would amount mere change of opinion. We do find force in this submission.
6.5 In the case of Jindal Photo Films Ltd. v. Dy. CIT , it was ruled out that a mere change of opinion, even under the new law i.e. in view of amendment w.e.f. 1st April, 1989 under Section 147, the words "reason to believe" have been continued and in view of this continuance the requirement prior to the law as on 1st April, 1989 has not been dispensed with. The position was further explained by the Hon'ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (supra). In that case the following observation was made by the Hon'ble Court:
The scope and effect of Section 147 as substituted w.e.f. 1st April, 1989; by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989, as also of Sections 148 to 152 have been elaborated in Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1]. A perusal of Clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression 'reason to believe' from Section 147 would give arbitrary powers to the AO to reopen past assessments on a mere change of opinion. It is, therefore, evident that even according to the CBDT a mere change of opinion cannot form the basis for reopening a completed assessment.
6.6 In the case of CIT v. Foramer France (supra), approving the decision of the Hon'ble Allahabad High Court in the case of Foramer v. CIT , it was held by the Hon'ble Supreme Court of India that the notice under Section 148 is bad as assessment cannot be reopened on the basis of change of opinion. It was pointed out that the law was the same before and after amendment by Direct Tax Laws (Amendment) Act.
6.7 So far as the "failure to disclose material facts necessary for assessment" is concerned, in the case of G.B. Bros. & Konda Rqjagopala Chetty Beedi Factory (P) Ltd. v. ITO (supra), the Hon'ble Andhra Pradesh High Court has held as under:
The duty of the assessee does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessments.
6.8 We have also considered the ratio of decision of Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. v. Chariman, CBDT . In that case the scope and effect of Section 147 of the IT Act, as substituted w.e.f. 1st April, 1989 was considered by the Hon'ble High Court. In that case the petitioner was incorporated as a limited company for the purpose of establishment, maintenance and working of telephone services for various authorities and for effecting the same, licenses were granted by the Government of India initially for five years and the same were subsequently extended from time to time. The petitioner was paying license fee of Rs. 101 in terms of license from financial years 1986-87 to 1992-93, which was subsequently enhanced to Rs. 800 and further to Rs. 900 w.e.f. asst. yr. 1995-96. A return of income for asst. yr. 1994-95 was filed and the sum of Rs. 1,24,85,60,000 was claimed as license fee. There was no such claim for preceding year. Intimation under Section 143(1) of the Act was given to the petitioner. Subsequently, a notice under Section 148 of the Act was issued in response to which the assessee was required to file the return. The action of the AO for issuing notice under Section 148 on the ground that he had reason to believe that petitioner's income for concerned year 1994-95 had escaped assessment within the meaning of Section 147 was challenged through a writ petition. The Hon'ble High Court, dismissing the writ petition, held that though statutorily reasons were not required to be communicated to the assessee prior to the submission of the return in response to notice under Section 148, but pursuant to the directions of the Hon'ble Court the reasons for proceeding under Section 147 had been indicated. The Hon'ble High Court has further observed that on examination of the return of income it was revealed that a sum of Rs. 1,24,85,60,000 had been claimed as license fee as against nil in the immediately preceding assessment year. It is further observed that while finalizing the assessment for asst. yr. 1996-97 under Section 143, on 23rd March, 1999, it was found that the claim made by the assessee was erroneous and should have been disallowed. It was so on account of the fact that the expenditure was application of income and did not amount to diversion of income by overriding title. In view of these facts, the notice issued under Section 148 was held to be valid.
6.8.1 On going through the ratio of decision in the case of Mahanagar Telephones Nigam Ltd. (supra), it is found that the facts of that case and the case in hand are distinguishable. In the case of MTNL the AO had additional material or supplementary material for reopening the assessment. This material was gathered on examination of assessment in the case of the assessee for earlier year and subsequent year. It was during the course of assessment for the subsequent assessment year that the AO found that the assessee had made a wrong or incorrect claim. Thus, the opinion of the AO for reopening the assessment was based on some other material than the material disclosed by the assessee in the return of income for the assessment year involved. However, in the present case, there was no other material before the AO except the entry in the balance sheet in which receipt of gift was disclosed. The AO has reopened the assessment only on the ground that the assessee did not give details of the gift. As observed earlier, the assessee was not required to do so. To reiterate, the AO had no other material or information except the information given by the assessee himself and on the same information the AO just in order to make a roving enquiry, has initiated the reassessment proceedings which course is not justified.
6.9 In view of the above decisions, the position is clear that assessment cannot be reopened merely on the basis of change of opinion. So far as the present matter is concerned, the AO had taken a different view on the same material i.e. receipt of gifts, which will tantamount to change of opinion only and in view of the above decisions assessment cannot be reopened on the basis of mere change of opinion. Accordingly, we do not find any reason to interfere in the order of learned CIT(A) and the same is upheld by us.
7. In the result, Revenue's appeal stands dismissed.
B.R. Jain, A.M. 25th Nov., 2005
1. I am unable to. agree with my learned Brother and therefore proceed to write a separate order. The assessment in this case was reopened after recording reasons as under:
The assessment under Section 143(1) has been completed on 22nd Feb., 1996. The balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. The assessee has given loan to Sadar Bazar Leasing (P) Ltd. from which he has shown interest income of the party and it is not shown how these withdrawals have been invested. The assessee has received interest from Vipul Motors and Alfa Automobiles. The details of the same have not been filed. The assessee is having salary from Sadar Bazar Leasing (P) Ltd. for which he has invested huge amounts. The assessee has shown drawing at Rs. 2,55,150 which means that he has made certain investments out of withdrawals which have been reflected. The assessee has shown a rental income of Rs. 66,000 but it is not shown as to when this property was purchased. The balance sheet reveals that the assessee has made investment in Chawla Properties (P) Ltd. and Nav Durga Jewellers, whereas no interest from these parties has been declared. Further, the assessee has investment of Rs. 11,95,100 in farm account. When this farm was purchased and what is the nature of investment is also not disclosed. The assessee has also advanced Rs. 1,25,000 against shop which show that the assessee has been dealing in properties. The assessee has invested a sum of Rs. 7,45,000 on car booking. The details of car booking are not given which need thorough investigation. Another advance of property at Rs. 10,40,000 has been made but no profits from property dealings have been disclosed. A sum of Rs. 1,00,000 has been advanced to Popular Ventures for purchase of property and sum of Rs. 3,50,000 has been shown against Pritam Pura shop. These transactions clearly reveal that the assessee is dealing in properties on which no income has been declared. Further, the assessee has loaned a sum of Rs. 2,00,000 to Anupam Komal and a sum of Rs. 4,00,000 to Prem Bhatia, No interest has been declared which leads to the conclusion that the assessee has not declared income from these sources nor he has filed any valuation of properties purchased and sold. The income, therefore, escaped assessment. The assessment is reopened under Section 147.
2. In response to notice under Section 148 the assessee furnished a letter dt. 20th Dec, 1999 stating therein that the return already filed on 30th March, 1999 may be treated as return in response to notice under Section 148 of the Act. The original return was filed by the assessee declaring total income at Rs. 4,42,347. The balance sheet was also annexed with the return of income. In the capital account shown in the balance sheet the assessee included an amount of Rs. 28,90,000 on account of gift. During reassessment proceedings the assessee was given sufficient opportunity to substantiate the capacity of the donor and the genuineness of the gift. As the requisite information was not forthcoming from the assessee, the AO requisitioned information about the donor from Bank of America where the donor maintained a NRE account. From the copy of passport supplied, the AO observed that the photograph of the donor does not match with the copy of photograph contained in the information provided by the assessee. In enquiry proceedings the respondent assessee was not able to recognize the donor from his photograph. The AO also noticed from the bank account of the donor that he is a professional donor and has made gifts aggregating to more than Rs. 3 crores in the year under consideration to more than 50 persons. Few names of such donees to whom alleged gifts have been made by the same donor are also stated in the assessment order as under:
Name Amount Cheque No. Date 1. Smt. Suneeta Gupta. 10,00,000 009331 11.3.94 2. Shri CB Gupta 2,00,000 101182 18.4.94 3. S. Harbhajan Singh. 5,00,000 007155 4.3.94 4. Smt. Ganga Devi. 10,00,000 011733 17.6.94 5. -do- 1,50,000 011915 27.9.94 6. -do- 3,50,000 011758 20.6.94 7. -do- 4,00,000 012140 4.7.94 8. Sh. Vasudev Agarwal. 6,00,000 009664 25.3.94 9. -do- 6,00,000 009750 29.3.94 10. Sh. VinaySurya. 5,00,000 009764 8.3.94 11. -do- 5,00,000 009332 11.3.94 12. -do- 5,00,000 011949 28.6.94 13. Ms. Asha Singhal. 9,99,000 010934 17.5.94 14. Sh. Ravindar Singhal. 9,99,000 011172 26.5.94
3. Being not satisfied with the capacity and genuineness of the gift the AO treated the amount of gift of Rs. 28,90,000 as income from undisclosed sources and assessed the income at Rs. 33,32,350.
4. The learned CIT(A) after considering the written submissions of the assessee and the material on record held the assessment as bad in law without going into the merits of the quantum addition. The basis of decision reached by the learned CIT(A) at paras 3 and 3.1. is reproduced hereunder:
I have carefully considered the matter. To my mind it is very clear that the AO has not appreciated the gravity of the onus that rested on him under Section 147 on forming a 'reason to believe' that any income chargeable to tax has escaped assessment. In this case, the AO only had reason to suspect that income has escaped assessment. In fact, a bare perusal of the reasons recorded under Section 147 reveals that the AO has simply narrated the various facts mentioned in the statement of accounts, without in any way trying to show from where stems the belief that income has escaped assessment. Accordingly, I am constrained to observe that the AO has acted in an arbitrary manner in issuing the notice under Section 148 for he had no reason to form a belief that income chargeable to tax has escaped assessment. The provisions of Section 147 cannot be invoked on the basis of conjectures or surmises or by simply presuming that income has escaped assessment. The Hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das has observed as under:
As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts.' 3.1. Keeping in view the abovementioned observations I have no hesitation in holding that while the AO might have had a faint reason to suspect that income has escaped assessment, it cannot be said that he had reason to believe that the income has escaped assessment, I cannot over emphasise that the requirements of law, specially when it comes to taking action under Section 147/148 have to be met in letter and spirit. The AO would do well to bear this in mind in future. In this case, there is no doubt that the AO has acted illegally and in an unwarranted manner in issuing notice under Section 148 when he had no reason to believe that income has escaped assessment. Notice under Section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above, the assessment order dt. 30th March, 2000 is annulled as the same is bad in law and is ab initio null and void. These grounds are decided in favour of the appellant.
5. After hearing the parties and careful perusal of material on record, I find that the respondent assessee in his capital account has included an amount of Rs. 28,90,000 on account of gift. There were no details as to the amount of said gift. Mere mention of gift in the capital account,cannot be said to be a disclosure of "true" and "full" facts by the assessee. The genuineness of the gift, the capacity of the donor, the necessity of making gift by the donor, his name, identity, nature and source were the material facts which were not disclosed in the return of income. There was also no material with the return to show as to whether the essentials of valid gift had been satisfied. From the primary facts that there was a receipt of Rs. 28,90,000 included in the capital account, a reasonable belief could be formed that there is non-disclosure of material facts. The assessee's statement that he received gift of Rs. 28,90,000 was a material before him to form a reasonable belief that the income had escaped assessment and since the AO had reason to believe, it was sufficient to confer jurisdiction to take action under Section 147 r/w Section 148 of the Act.
6. Furthermore, there is yet another reason for reopening the assessment. The return of income filed on 30th March, 1999 was processed under Section 143(1) of the Act. There was thus no application of mind on the return of income so processed. Under Section 143(1) of the Act, the AO makes only such adjustments as are required to be done within the framework of Section 143(1) of the Act itself. There is no scrutiny at all. The presence of assessee is not required nor any document or evidence in support of the return is required to be produced. No enquiry relating to the income of an assessee is made and the processing is confined to provisions of adjustments specified in that section. The AO, therefore, cannot be held to have formed any opinion on the facts disclosed. If no opinion was formed by the AO then question of change of opinion would not arise. I, therefore, hold that processing of return of income so done under Section 143(1) of the Act purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceedings.
7. It is to be noted that substantial changes have been made to Section 143(1) w.e.f. 1st June, 1989. Section 143(1) as it stood between 1st April, 1989 and 31st May, 1999 required the AO to send an intimation whether or not any adjustment has been made as provided under first proviso to that section notwithstanding the fact that no tax or interest is due from the assessee. The first proviso to Section 143(1)(a) allowed the Department to make certain adjustments in the income or loss declared in the return of income. They were as follows:
(a) an arithmetical error in the return, accounts and documents accompanying it was to be rectified.
(b) any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents was, prima facie admissible, but which was not claimed in the return was to be allowed.
(c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed.
From the above, it is evident that, what was permissible was correction of error apparent on the basis of documents accompanied the return. The AO had no authority to make adjustment or to adjudicate upon any debatable issue. In other words, the AO had no power to go behind the return, amount, or documents either in allowing or in disallowing deductions, allowance or relief. Furthermore, the intimation under Section 143(1)(a) of the Act was to be given without prejudice to the provisions of Section 143(2) of the Act. Since sending of intimation under Section 143(1)(a) was mandatory, the use of word "intimation" as substituted for assessment conveys that two different concepts have emerged by making adjustment in the first proviso of Section 143(1)(a). It was not permissible by the assessing authority to make any addition on the basis of information contained in the return. The obvious reason for this is that under Section 143(1)(a) no opportunity is granted to the assessee and the AO has to carry out the adjustment within the scope as prescribed under that section. In the scheme of things therefore the intimation under Section 143(1)(a) cannot be treated to be an order of assessment, though 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 provision relating to recovery of tax applicable. By such an application only recovery indicated to be payable in the intimation became permissible. Nothing more than this can be inferred from the deeming provision. In view of this as there is no assessment under Section 143(1)(a), the question of change of opinion does not arise. Such a view has also been taken by the Hon'ble High Court of judicature at Delhi in the case of Mahanagar Telephone Nigam Lid. v. Chairman, CBDT (supra) at p. 183 as under:
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.
8. Section 147 of the Act also authorizes and permits the AO 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 AO has cause or justification to know or to suppose that income had escaped assessment, it can be said to have reason to believe that income has escaped assessment. In the substituted Section 147 as applicable in the year under consideration if the AO for whatever reason has reason to believe that income had escaped assessment, it shall confer jurisdiction to reopen the assessment. At the initial stage, what is required is "reason to believe" but not established fact of escapement of income. Whether the material would conclusively prove the escapement is not the concern at the initiation stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction. This is so stated by the Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. (supra) with reference to the judgment of the Supreme Court in the case of ITO v. Selected Dalurband Coal Co. (P) Ltd. and also in the case of Raymond Woollen Mills Ltd. v. ITO (supra). The relevant passages of these two judgments are reproduced hereinbelow. In ITO v. Selected Dalurband Coal Co. (P) Ltd. (supra) at p. 599, the Hon'ble Court has stated as under:
It is well-settled by various decisions of this Court that the notice under Section 148 r/w Section 147 can be issued only where the ITO has reason to believe that the income, profits or gains chargeable to tax had been under assessed or escaped assessment and whether that such escapememnt or underassessment was occasioned by reason, the failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. We are not concerned with Sub-section (b) of Section 147 here but only with Clause (a). In other words, there must be relevant material before the AO upon which must reasonably and rationally form the requisite opinion (belief). The question therefore is whether the letter of the Chief Mining Officer aforesaid does not constitute relevant material upon which the ITO would have formed the requisite belief. It must be remembered that the formation of belief by the ITO is essentially within the subjective satisfaction.
Likewise in Raymond Woollen Mills Ltd. (supra) at p. 35 the apex Court has given guidelines and stated the law in the following words:
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.
9. In the light of aforesaid legal position so long as the ingredients of Section 147 are fulfilled the AO is free to initiate proceedings under Section 147 of the Act and failure to take steps under Section 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation under Section 143(1) had been issued. A similar view has been taken in A. Pusalal v. CIT .
10. In the case of ITO v. Lakhmani Mewal Das (supra) heavily relied upon by the learned CIT(A), it was held that there must be reason to believe that such income has escaped assessment and the duty which is cast upon the assessee is to make a true and full disclosure of the primary and material facts at the time of original assessment. This case also supports the decision taken by the assessing authority since the respondent has not made true and full disclosure of material facts and thus there was a definite reason to believe that income of the assessee has escaped assessment. The learned CIT(A), however, appears to have shown over enthusiasm in saying that the AO only had reason to suspect that income has escaped assessment and held that the AO has acted illegally and in unwarranted manner in issuing notice under Section 148 of the Act. There was also no material with the learned CIT(A) to hold that the AO has acted in an arbitrary manner in issuing notice under Section 148 of the Act for he has reason to form a belief that income chargeable to tax has escaped assessment even though there was primary material that from the mere accounting entry in the balance sheet enclosed with the return a reasonable person could have formed a requisite belief as entertained by the assessing authority.
11. The respondent assessee also placed reliance on various judgments as also referred by my learned Brother in his order. All these judgments however do not support his case since the ratio of all these judgments is that a mere change of opinion cannot form the basis for reopening of completed assessment. In CIT v. Kelvinator of India Ltd. (supra), CIT v. Foramer France (supra) and Jindal Photo Films Ltd. v. Dy. CIT (supra), referred at Bar, the assessments were completed under Section 143(3) of the Act after examination of the issue and verification of relevant material and documents on record. Thus, there was an application of mind and opinion was formed for accepting the claim of the assessee. Subsequent thereto, the examination of those very claims by issuing notice under Section 147/148 was held to be on change of opinion. In the present case, the sending of intimation could not be termed as completed assessment. It has also clearly been elucidated that the AO did not form any opinion at the time when he processed the return under Section 143(1) of the Act or sent an intimation as per provision below Section 143(1)(a) of the Act. On a similar issue where question of change of opinion was being contested and I was also a Member, the Delhi Bench of the Tribunal took a similar issue. Such a decision was taken in the case of Legato Systems India (P) Ltd. v. ITO . The Delhi Bench of the Tribunal has also taken a similar view in another case of N.C. Gupta v. Asstt. CIT by holding as under:
Held that the provisions of Section 147 were amended w.e.f. 1st April, 1989. After the amendment, there is no condition precedent that the escapement of income must be found on the basis of 'information' coming to the possession of the AO. The assessment can be reopened if the AO has reason to believe that income chargeable to tax had escaped assessment. Such reason to believe can be founded on the basis of any material and cannot be restricted to 'information' coming to the possession of the AO. The notice of reassessment was valid.
12. Keeping in view the entire conspectus of the case, legal position and precedents on record and since ingredients of Section 147 are fulfilled and there are several reasons spelled out in the reasons recorded and led into formation of belief, I hold that the AO was justified in law in initiating action under Section 147/148 of the Act and the learned CIT(A) is found to have erred in annulling the assessment as bad in law by stating the same to be void ab initio, I, therefore, set aside his decision and restore the decision taken by the assessing authority.
13. In the result, the appeal of Revenue stands allowed.
Reference Under Section 255(4) Of The IT Act, 1961 30th Nov., 2005 Since there is difference of opinion between the two Members, we hereby refer the following questions for the opinion of the Hon'ble President:
(1) Whether, on the facts and in the circumstances of the case and on the basis of material available before AO at the time of initiation of proceedings under Section 147 of the Act, the AO was legally justified in having reason to believe that income of the assessee chargeable to tax, has escaped assessment?
(2) Whether the action of the AO to reassess the income of the assessee, in the facts and on the circumstances of this case, was based merely on the change of opinion and was, therefore, bad in the eyes of law?
(3) Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in holding that the reopening of assessment was not valid and as such the reassessment made was void ab initio and bad in the eye of law?
R.V. Easwar, Vice President 29th May, 2006
1. The following points of difference have been referred to me by the Hon'ble President under Section 255(4) of the IT Act for decision:
1. Whether, on the facts and in the circumstances of the case and on the basis of material available before AO, at the time of initiation of proceedings under Section 147 of the Act, the AO was legally justified in having reason to believe that income of the assessee, chargeable to tax, has escaped assessment?
2. Whether the action of the AO to reassess the income of the assessee, in the facts and on the circumstances of this case, was based merely on the change of opinion and was, therefore, bad in the eye of law?
3. Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in holding that the reopening of assessment was not valid and as such the reassessment made was void ab initio and bad in the eye of law?
2. The facts, as recorded in the orders of the learned Members, are briefly these. The assessee is an individual deriving income from house property, salaries, short-term capital gains and from other sources. He filed the return on 30th March, 1996 showing income of Rs. 4,42,350 which was processed under Section 143(1)(a) of the Act. A notice under Section 148 was thereafter issued on 2nd March, 1998 and served on the assessee seeking to reopen the assessment in response to which the assessee filed a letter dt. 20th Dec, 1999 stating that the return already filed on 30th March, 1996 may be treated as a return filed in response to the notice. The AO completed the reassessment on a total income of Rs. 33,32,350 which included a sum of Rs. 28,90,000 assessed as "income from undisclosed sources", being the aggregate of two gifts received by the assessee from one Mohan Singh Makkar, a non-resident Indian. I am not concerned with the reasons for making the addition of the gifts as stated in the reassessment order, except to say that the AO was not satisfied with the evidence adduced by the assessee in support of the gifts, since they are not relevant for my purpose.
3. An appeal was taken to the CIT(A) against the reassessment and it was challenged on various grounds including the' ground that it was without jurisdiction. It was also pointed out that the assessee was not required to file any details in support of the gifts along with the return of income and therefore, the reason recorded by the AO to the effect that the assessment was being reopened since the assessee did not furnish any details in support of the gift along with the return was not germane to the issue of the notice under Section 148. The CIT(A) accepted the assessee's contention and held that though there may be "reason to suspect" that income had escaped assessment there was no "reason to believe" so and that the assessment was reopened merely to conduct roving enquiries on the basis of vague suspicions. He accordingly annulled the reassessment as being ab initio void.
4. The Department preferred an appeal to the Tribunal. The learned JM, who wrote the leading order, after reproducing the reasons recorded by the AO to reopen the assessment, held that the assessee had disclosed the gift in the return, that there was no duty on him to furnish further details since the return had been processed under Section 143(1)(a), that the reopening was prompted by want of details regarding the gifts and not on the ground of any information or material showing concealment of income and that therefore the notice was issued on the basis of a mere change of opinion which was not permissible as held by the Hon'ble Delhi High Court in Jindal Photo Films Ltd. v. Dy. CIT . He also referred to the judgment of the Full Bench of the Hon'ble Delhi High Court in CIT v. Kelvtnator of India Ltd. (2002) 174 CTR (Del) 617 : (2002) 256 ITR 1 (Del). The learned JM was of the view that in this respect--that is, that the assessment cannot be reopened on the basis of a mere change of opinion--the law was the same both before and after 1st April, 1989 when Section 147 was amended, as held in the above decisions. The learned JM also sought to distinguish the judgment of the Hon'ble Delhi High Court in Mahanagar Telephone Nigam Ltd. v. Chairman CBDT on the ground that in that case the AO had noticed that the licence fee claimed by the assessee as a deduction and allowed while processing the return under Section 143(1) (a) was in excess of the licence fee claimed and allowed as a deduction for the other years and thus there was prima facie material to show escapement of income. He noted that in the present case, there was no such material or information and the only ground for reopening the assessment was that the assessee did not file any details in support of the gifts. According to the learned JM, the assessee was not required to do so. He held that the AO, by reopening the assessment, wanted to make a roving enquiry into the gifts which was not permissible. In this view of the matter, he dismissed the appeal of the Department.
5. The learned AM dissented and observed that during the enquiry conducted in the course of the reassessment proceedings several materials and information came into the possession of the AO to show that the gifts were not real and genuine, that the donor was a "professional donor" and that he did not have the capacity to make the gifts. Further, the assessee did not furnish full details about the gift in the return and the mere mention of the fact that he received gifts during the year which were shown in his capital account does not amount to furnishing of information fully and truly. According to the learned AM, the assessee ought to have disclosed the capacity of the donor to make the gifts, the need for making the gift, the identity of the donor and the source of his income in the return. There was also nothing to show whether the essentials of a gift were satisfied. According to the learned AM, the very statement of the assessee that he received a gift of Rs. 28,90,000 which was included in his capital account could constitute the material for the formation of the belief that income chargeable to tax had escaped assessment. The learned AM further held that when a return is merely processed under Section 143(1)(a) the AO does not form any opinion on the facts disclosed since he cannot conduct any enquiry and all he can do is to make the statutory adjustments to the income returned and nothing else and further the presence of the assessee is not required nor any document or evidence in support of the return is required to be produced. Thus, according to the learned AM, if no opinion can be said to have been formed by the AO while processing the return without any application of mind that would itself confer jurisdiction upon the AO to reopen the proceedings. In this connection the learned AM observed that "substantial changes" have been made to Section 143(1) w.e.f. 1st June, 1989 and that an "intimation" under Section 143(1)(a) cannot be treated as an "order of assessment" except to the limited extent of enforcing the demand notice under Section 156. Therefore, an intimation passed under Section 143(1)(a) is not an "assessment" and therefore, the question of any change of opinion does not arise. He relied on the judgment of the Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. (supra), a decision which was sought to be distinguished from the present case by the learned JM. Criticising the CIT(A) for having shown "over enthusiasm" the learned AM held that the judgment of the Supreme Court in the case of ITO v. Lakhmani Mewal Das relied on by the CIT(A) to hold that the AO only had "reason to suspect" and not "reason to believe" was inapplicable to the present case since in the present case "there was primary material that from the mere accounting entry in the balance sheet enclosed with the return a reasonable person could have formed a requisite belief as entertained by the assessing authority". The judgments of the Hon'ble Delhi High Court in Jindal Photo Films Ltd. 's case (supra) and Kelvinator of India Ltd. 's case (supra) and certain other judgments of the Supreme Court referred to by the learned JM were sought to be distinguished on the ground that in those cases the assessments were originally made under Section 143(3) after examination of the issues and verification of the "relevant material and documents on record and thus there was application of mind and formation of an opinion by the AO which was sought to be changed by him without any further material or evidence. The learned AM also referred to his own order in the case of Legato System India (P) Ltd. v. ITO where he had taken a similar view. For all these reasons, he held that the AO was justified in law in initiating action under Section 147/148 of the Act. He thus restored the reassessment.
6. The learned Members having thus differed, the matter is before me under Section 255(4). I have considered the rival contentions very ably put forth by both the side Section
7. I agree with the learned CIT-Departmental Representative as well as the learned AM to the extent they say that the reassessment cannot be invalidated on the ground of a mere change of opinion, since the return was never brought to "assessment" under Section 143(3) but was merely "processed" under Section 143(1)(a) without any enquiry and without hearing the assessee and at that stage, there was no question of the AO forming any opinion about the taxability of the NRI giftSection The distinction between the processing or accepting a return under Section 143(1)(a) and making an assessment under Section 143(3) has been brought out by the Hon'ble Delhi High Court in Mahanagar Telephone Nigam Ltd.'s case (supra). In the light of the binding judgment, and with respect, I hold that the reassessment cannot be said to have been prompted by a mere change of opinion. I may add that in Kelvinator of India Ltd.'s case (supra), the Full Bench of the Hon'ble Delhi High Court was not concerned with an "intimation" under Section 143(1)(a), but was concerned with a regular assessment order passed under Section 143(3). It was therefore held that "a presumption can be raised that such an order has been passed on application of mind" (p. 19 of the Report). Therefore, the reliance placed on this judgment by the learned JM to hold that this is a case of a mere change of opinion, in my humble view and with respect, appears to be inapposite. I therefore hold that the notice under Section 148 cannot be held invalid on the ground of a mere change of opinion. I accordingly answer question No. 2 referred to me in the negative.
8. I now move on to examine the case with reference to the other two questions referred to me. The first question raises the specific point of the existence of "reason to believe" for reopening the assessment. The third question is couched in broad and general language and appears to be consequential. So far as the first question is concerned, the legal position, as it appears to me, is that the fact that the notice of reopening was not prompted by a mere change of opinion cannot save the notice if the AO had no "reason to believe" but had only "reason to suspect" that income chargeable to tax had escaped assessment. With the advent of Section 143(1)(a), under which the AO is empowered to accept the return without any enquiry and subject only to the power of making very limited adjustments prescribed by the statute itself, it is no doubt not permissible to hold that he formed an opinion about the taxability of a particular receipt or the allowability of a particular expenditure when he accepted the return. I have already noticed this aspect. But at the same time, it seems clear to me that the law laid down with reference to Section 147 as it existed before 1st April, 1989, to the effect that the AO can reopen the assessment only if he has "reason to believe" that income chargeable to tax had escaped assessment and not merely "reason to suspect" so, remains the same even after the amendment with effect from the said date with the result that the AO's action to reopen the assessment can still be struck down if this condition is not satisfied even though the action is not the result of a mere change of opinion. I may first refer to the judgment of the Supreme Court in Lakhmani Mewal Das' case (supra), in which His Lordship Justice H.R. Khanna, speaking for the Court, observed at pp. 448-449 as under:
As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material fact Section It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far- fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information' which were there in Section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in Section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be mere pretence.
The powers of the ITO to reopen assessment, though wide, are not plenary. The words of the statute are 'reason to believe' and 'not reason to suspect'. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the IT authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi judicial proceeding Section It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the ITO in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment.
In Ganga Saran & Sons (P) Ltd. v. ITO the Supreme Court, speaking through His Lordship Justice P.N. Bhagwati (as His Lordship then was) observed that the expression "reason to believe" is stronger than the expression "is satisfied" and that the belief entertained by the ITO shall not be arbitrary or irrational, that it should be reasonable or in other words it must be based on reasons which are relevant and material. Earlier, in Section Narayanappa v. CIT a three-Judge Bench of the Supreme Court speaking through His Lordship Justice J.C. Shah held that the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO, that the reason must be held in good faith, that it cannot be merely a pretence and that though the Court cannot examine the sufficiency of the reasons for the formation of the requisite belief it can examine whether the reasons recorded had a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. There is no need to multiply authorities on the meaning of the expression "reason to believe".
9. Now, when Section 147 was substituted w.e.f. 1st April, 1989, by the Direct Tax Laws (Amendment) Act, 1987 the legislature sought to do away with the expression "reason to believe" and conferred power to reopen an assessment if the AO "for reasons to be recorded by him in writing, is of opinion" that income chargeable to tax had escaped assessment. But, there were representations against the proposal and so by Direct Tax Laws (Amendment) Act, 1989, which also took effect from 1st April, 1989, the original expression was restored in the section. The representations were to the effect that the omission of the expression "reason to believe", which had been explained in a number of Court rulings in the past and the meaning of which was well-settled, would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. With the restoration of the original expression in the section, the earlier Court rulings continued to apply. This position has been recognised by the CBDT in its Circular No. 549, dt. 31st Oct., 1989 1(1990) 82 CTR (St) 1 : (1990) 182 ITR (St.) 1]. This circular was relied upon by the Full Bench of the Hon'ble Delhi High Court in Kelvinator of India Ltd. (supra). It is true that in that case, the Court held that even after 1st April, 1989 when Section 147 was substantially amended the AO cannot reopen the assessment on a mere change of opinion, but from that it cannot, in my opinion, be contended, as it was sought to be contended before me by the learned CIT (Departmental Representative), that the ruling of the Full Bench would apply only to a case of a mere change of opinion. The true ratio of the judgment, in my humble understanding, and with respect, is that the law laid down by the Courts under Section 147 before its amendment so far as the expression "reason to believe" is concerned, remains the same and the earlier rulings would continue to apply with reference to the interpretation of the said expression. Their Lordships of the Full Bench were concerned with Section 147 as it stood after the amendment from 1st April, 1989 but nevertheless have relied heavily on the judgments of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO , Indian & Eastern Newspaper Society v. CIT and S. Narayanappa v. CIT which were all decided with reference to either Section 34 of the 1922 Act or Section 147 of the new Act as it stood before the amendment, in order to hold that the meaning of the expression "reason to believe" continues to be the same even after the amendment. When a particular expression used by the legislature has been judicially interpreted in a particular way to denote a particular meaning and content and if the same expression is continued to be used in the same provision despite other substantial amendments to the provision, I believe it to be the correct rule of interpretation that the expression must be given the same meaning as was given to it before the amendment. The amendment to Section 147, so far as the expression "reason to believe" is concerned, is "a fortiori" because an attempt was made to drop the expression but bowing to representations it was restored expressly acknowledging that the expression has been interpreted in a particular manner by Courts and to do away with the same would amount to conferring arbitrary powers upon the AO to reopen the assessment Section
10. The learned CIT (Departmental Representative) would however contend that the reintroduction of the expression "reason to believe", as explained by the circular (supra) is only to ensure that assessments will not be reopened on a mere change of opinion and that in the present case--the assessment not having been reopened on a mere change of opinion--there being no formation of an opinion in the first place when the return was processed under Section 143(1) (a)--no other ground for invalidating the notice under Section 148 was available to the assessee. This argument, with respect, overlooks several aspect Section First, though the present case is not a case of a change of opinion, as noted earlier it must still conform to the basic requirement of the section, viz., that there should be "reason to believe" and that belief should not be a pretence, that it should be held in good faith, that it should have a direct and rational connection with the formation of the requisite belief or a live link or nexus with the same and that it should not be vague, distant, indefinite, far-fetched and remote. This requirement has been recognised by the Hon'ble Delhi High Court, with reference to the amended Section 147, in Bawa Abhai Singh v. Dy. CIT (2001) 168 CTR (Del) 521 : (2000) 253 ITR 83 (Del) where it was held that though the. amended section is contextually different in the sense that the cumulative conditions spelt out in Clauses (a) and (b) of the section are not present in the amended section, "the only condition for action is that the AO should have reason to believe that income has escaped assessment" and that the powers to reopen are wider under the amended section in the sense that they can be exercised even if the assessee has disclosed fully and truly all material particulars necessary for his assessment. This position has also been recognized by the Hon'ble Delhi High Court in Mahanagar Telephone Nigam Ltd. (supra) where (at p. 185 of the Report) it has been observed that under the amended section the existence of "reason to believe" suffices for reopening the assessment. Thus in both the judgments it has been held that even under the amended section it is essential for the validity of the notice of reopening that there must be "reason to believe". Therefore, the requirement cannot be done away with merely because the case is not one of a mere change of opinion, as contended by the learned CIT (Departmental Representative).
11. Secondly, a "change of opinion"--a relook or review of the facts without any further facts or a change in the lawdoes not exhaust the meaning and content of the expression "reason to believe". It is only one facet or illustration of what does not amount to "reason to believe". There may be several other facets or cases or illustrations or fact-situations of what cannot be construed as "reason to believe". For example, there can be a case of a reopening based merely on suspicion, gossip or rumour [as in the case of A.N. Lakshman Shenoy v. ITO There can be a case of a mere pretence, masquerading as a reason to believe as in the case of Chhugamal Rqjpal v. S.P. Chaliha . The decided cases on the point afford myriad instances of what cannot be held to be "reason to believe". A change of opinion on the same facts and legal position is only one instance of what is not "reason to believe". Therefore, merely because the present case for whatever reason is not covered by the yardstick of a mere change of opinion it does not automatically follow that it fulfils all the requirements of the expression "reason to believe".
12. Thirdly, even though no opinion was formed by the AO when he processed the return under Section 143(1)(a) and therefore, it cannot be a case of a mere change of opinion unsubstantiated by fresh facts or change in law coming to his notice, still an attempt to probe the return further on the part of the AO is certainly not taken in by the expression "reason to believe". The consequences of condoning such an attempt would be grave. I am not to be understood as holding that despite fresh facts or material or information, or a change in the legal position, the AO cannot reopen the assessment where the return had only been processed under Section 143(1)(a). There has to be a distinction between cases whereafter the processing or acceptance of the return under Section 143(1)(a) some fresh facts or information or materials have come to the possession of the AO, or there has been a change in the legal position, and cases where there is no such development. In the former class of cases the notice for reopening the assessment would be valid. But, in the latter class of cases, the AO cannot assume powers to issue the notice under Section 148 first and then make enquiries in an attempt to unearth escaped income. This would put assessees to unwarranted hardship and disturb the finality of assessments without any justification. Where a return has been accepted/processed without enquiry under Section 143(1)(a) and thereafter the AO comes across evidence or material to show escapement of income, he may form the requisite belief and proceed to issue notice under Section 148 after recording reasons indicating the nexus or live link or rational connection between the material before him and the formation of the belief. In such a case, he does have "reason to believe" and not merely "reason to suspect". But, if he has no such material or evidence, and merely wants by his ipse dixit to take up the return for further probe, it will be a case of "reason to suspect". In addition, it will be a case of an arbitrary exercise of the power to reopen the assessment. It is significant to note that the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) deprecated the practice of reopening the assessment, where the original assessment was completed under Section 143(3), even though the AO had not recorded detailed reasons in the original assessment order on an analysis of the materials on record, describing the submission to the contrary made on behalf of the Department as "fallacious" and holding that if such a power to review his own assessment order is given to the AO "the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong". In the case of Section 143(1)(a), the statute itself forbids the AO from enquiring into the return and permits him to carry out only a very limited category of "prima facie adjustments" to the return. The case of the AO not recording a detailed analysis of the materials produced to show why and how he has come to accept the claim or contention of the assessee in the order of regular assessment passed under Section 143(3) and the case of the statute forbidding the AO from enquiring into the claims and contentions of the assessee and mandating him to accept the return as it is (subject to very limited adjustments allowed by the statute), in my humble understanding, do not manifest any substantial difference so far as the power to reopen the assessment is concerned. In both the cases, what is permitted is a notice to reopen the assessment which should be based on fresh facts or evidence or material which has come to the possession of the AO or a change in the legal position brought to his notice after the passing of the regular assessment order under Section 143(3) or the passing of the intimation on the processing of the return under Section 143(1)(a). In the absence of such a condition, the reassessment notices in both the cases would be without jurisdiction.
13. In the light of the above discussion, if I look at the reasons recorded by the AO in the present case to reopen the assessment (reproduced in the orders of both the learned Members), what I find is that the only reason stated therein is that "the balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed." There is no reference to any investigation carried out in the assessee's own case or in the case of the donor or any other evidence or material collected as a result of any investigation carried out by any investigating agency including the IT Department in any case which could have afforded the required nexus or live link or rational connection with the belief that income chargeable to tax had escaped assessment. The AO has merely referred to the absence of any details filed with the return in support of the gifts. This aspect of the matter has been highlighted by the learned JM in his order. I have been taken through Section 139(9) to show that there is no requirement therein that the details in support of the gifts should be filed in the return of income and it was also pointed out on behalf of the assessee that the AO rightly did not treat the return as a "defective" return and call upon the assessee to remove the defects. The contention was that if there is no obligation in law to file the details in support of the gifts in the return itself--and this has also been pointed out by the learned JM--then the so-called omission itself cannot be given as a reason for reopening the assessment. It was also pointed out that the learned AM has contradicted himself on this aspect when he held in para 5 of his order that the return was not accompanied by the details of the gift and therefore a "reasonable belief could be formed that there is non-disclosure of material facts" while at the same time holding in para 6 of his order that when the return is processed under Section 143(1)(a) the "presence of the assessee is not required nor any document or evidence in support of the return is required to be produced". I see force in the contention. To hold otherwise would be to give an unbridled power to the AO to first process or accept the return under Sectionl43(l)(a) and later on issue notice under Section 148 in order to verify the correctness of the return. This would mean that the provisions of Section 147 would be rendered a substitute for Section 143(2), an object which that section was not intended to achieve. It would also permit the AO to accept the return under Section 143(1)(a) in the hope that if he at any time in future wanted to verify and probe into the same he can always rely on Section 147 and Section 148, a situation which would tend to make a mockery of a legal provision which can be invoked only after strictly fulfilling the stringent conditions precedent.
14. In an early case decided by the Madras High Court in Presidency Talkies Ltd. v. Addl. ITO , it was observed that the object and purpose behind the requirement of recording reasons for reopening the assessment and communicating them to the assessee were to "safeguard the interests of the assessee against any hasty action on the part of the ITO under Section 34 or an action without any justification". The Supreme Court while approving the judgment of the Madras High Court on a different point in the case of S. Narayanappa (supra) observed that the reasons recorded must be held in good faith and shall not be a mere pretence. I am inclined to hold that the reasons recorded in the present case by the AO for reopening the assessment are a mere pretence, an excuse to enquire into the gifts received by the assessee, without any material or evidence coming into his possession after he processed the return under Section 143{l)(a). The learned AM, with respect, in para 2 of his dissent, seems to have referred to facts which were gathered by the AO post-notice under Section 148. These facts were not present before the AO before the issue of the notice. The case thus also does not satisfy the legal requirement laid down by the Supreme Court in MP Industries Ltd. v. ITO that a notice under Section 148 cannot be issued merely to make "fishing inquires" into the return.
15. The learned CIT (Departmental Representative) placed very strong reliance on the recent judgment of the Division Bench of the Hon'ble Delhi High Court in Consolidated Photo & Finvest Ltd. v. Dy. CIT and submitted that even after the judgment of the Full Bench in Kelvinator of India Ltd. (supra) the Division Bench has held that merely because an assessment order has been framed under Section 143(3) it does not follow that the AO has applied his mind and that it is further necessary to show that all the materials and explanation to the questionnaire, etc. adduced by the assessee in the course of the assessment proceedings have been analysed in the assessment order itself to demonstrate that the AO has applied his mind and merely because the materials/evidences/explanations are found in the assessment record it cannot be assumed, without a decision recorded in the assessment order with reference to them, that the AO has applied his mind. It has been further held that in such a case the AO cannot be said to have formed an opinion as to the allow ability of the claim or contentions of the assessee, with the result that if a notice under Section 148 is issued later it cannot be challenged on the ground of change of opinion. This case relates to change of opinion. I have already held in the beginning of my order that the case on hand is not one of change of opinion, agreeing with the learned CIT (Departmental Representative) and therefore, there is no need to pursue the point any further. That apart, that judgment has nowhere held that the requirement of "reason to believe" can be done away with. The judgment reinforces my view that a reassessment prompted by a mere change of opinion is only one manifestation--one "Avatar"--of what is not "reason to believe" and there are several other manifestations (or "Avatars") of what is not "reason to believe" which have to be dealt with on their own terms.
16. For all the above reasons, I answer the first point of difference referred me in the negative, that is to say, that the AO did not have "reason to believe" that income of the assessee chargeable to tax has escaped assessment. Consequently, the third point of difference is answered in the affirmative, that is to say, that the CIT(A) was justified in holding that the reopening of the assessment was not valid and therefore, the reassessment made was void ab initio and bad in the eyes of law. The second question is answered in the negative, that is to say that the reopening was not based on a mere change of opinion. The case will now be placed before the Division Bench for passing orders in conformity with my opinion.