Madras High Court
Commissioner Of Income Tax vs Smt.Sulochana on 21 July, 2004
Author: P.D.Dinakaran
Bench: P.D.Dinakaran
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 21/07/2004
CORAM
THE HONOURABLE MR.JUSTICE P.D.DINAKARAN
AND
THE HONOURABLE MR.JUSTICE N.KANNADASAN
T.C.(Appeal) No.172 of 2004
to
T.C.(Appeal) No.175 of 2004
Commissioner of Income Tax
Chennai-IX. .. Appellant
-VS-
Smt.Sulochana
Legal rep.of Late P.Sadasiva Mudaliar
Chennai. .. Respondent
Appeal under Section 260 A of the Income Tax Act, 1961 against the
order of the Income Tax Appellate Tribunal Madras Bench "D" dated 21.0 5.2003
in I.T.A.Nos.1619,1620,1621 and 1622/MDS/98.
!For Appellant : Mr.K.Subramaniam
^For Respondent : -------
:O R D E R
(Order of the Court was made by P.D.DINAKARAN, J,.) Heard. The appeal is preferred against the order of the Income Tax Appellate Tribunal Madras Bench "D" dated 21.05.2003 in I.T.A.Nos.161 9,1620,1621 and 1622/98, holding that the reassessments for the assessment years 1972-73, 1973-74, 1974-75 and 1977-78, in the case of the assessee was completed by the assessing officer without reason to believe that such income has escaped assessment.
2. The appellant/revenue raised the following substantial question of law.
"Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in holding that the reassessments for the assessment years 1972-73, 1973-74, 1974-75 and 1977-78 in the case of the assessee were completed by the assessing officer without reason to believe that income has escaped assessment and therefore the reassessments are liable to be set aside?"
3.1. The original assessment for the assessment years 1972-73, 1973
-74, 1974-75 and 1977-78 were sought to be reopened invoking Section 147 of the Income Tax Act by issuing a notice under Section 148 of the Income Tax Act, of course based on a search said to have taken place on 20.2.1980. During the search, assessee has alleged to have admitted that she had failed to disclose certain quantity of jewellery found at the time of search and came out with an explanation that the jewellery and precious stones relied by the revenue were presented to her daughters as gift on the occasion of their marriage and the amounts of Rs.7000/- and Rs.1500/- were the income from personal drawings and commission on purchase and sale of semi-precious and precious stones respectively. After considering the evidence relied on by the assessee, the assessing officer completed the assessment with a total income of Rs.60,830/-, Rs.97,410/-, Rs.70,430/- and Rs.37313/- respectively for the assessment years 1972-73, 1973-74, 1974-75 and 1977-78.
3.2. Aggrieved by the said assessment order, the assessee preferred an appeal before the Deputy Commissioner of Income Tax (Appeals), who confirmed the above assessment by an order dated 12.11.1997, against which a further appeal was preferred by the assessee before the Income Tax Appellate Tribunal. By an order dated 21.5.2003, the tribunal held that the assessing officer failed to establish that there were reasons to believe for the purpose of reopening the completed assessment. Hence, the present appeal by the appellant/revenue on the substantial question of law referred to above.
4.1. Mr.K.Subramaniam, learned standing counsel for the revenue contends that what all the assessing officer had to appreciate at the time of reopening is whether there are materials available, but the sufficiency of the material is not so relevant. Once the materials are available for reopening the completed assessment during the search held on 22.2.1980, it cannot be said that there was no reason to believe for reopening the assessment, as the confession alleged to have been made by the respondent/assessee strongly supports the reason to believe for reopening the assessment.
4.2. Inter alia, learned counsel for the revenue contends that suffice it for the assessing officer to act upon the approximate quantification of the alleged escaped income. It is therefore contended that the decision of the tribunal that there are no reasons to believe for reopening the assessment, is liable to be set aside. In this regard, learned standing counsel places reliance on the decision of the Apex Court reported in 203 ITR 456 = AIR 1993 SC 2390} = {1993 4 SCC 77} PHOOL CHAND BAJRANG LAL AND ANOTHER -vs- INCOME TAX OFFICER AND ANOTHER and another recent decisions of the Apex Court reported in 236 ITR 34 {1999} RAYMOND WOOLLEN MILLS LTD -vs- INCOME TAX OFFICER AND OTHERS.
5. It is true, in Raymond Woollen Mill's case, the Apex Court, while dealing with the power of the revenue under Section 147 of the Income Tax Act for reassessing the case held that sufficiency of the material relied on by the revenue is not relevant, inasmuch as, the same cannot be a criteria for the purpose of reopening the assessment under Section 147 of the Income Tax Act. But, the Apex Court in the very same case also held that for the purpose of reopening the assessment, what is required to be seen is whether there were prima facie material on the basis of which the department could reopen the case even though the sufficiency of the material is not a thing to be considered at that stage.
6. It is trite law that the subsequent information based on which the reassessment was proposed should be definite, specific, relevant and reliable and then only such material would constitute to satisfy the test of reason to believe, because such reason to believe should not be construed as a reason to suspect. In other words, what is relevant is whether the material has got any rational connection or live link for the purpose of reason to believe. To put otherwise, if the information which forms the basis for the reason to believe for the department to reopen the assessment are materials which lacks specific, relevant and reliable criterions, such materials are liable to be rejected only on the ground that they may be reason to suspect, but not reason to believe, vide Phool Chand Bajrang Lal's case reported in 203 ITR 456 {AIR 1993 SC 2390} {1993 4 SCC 77}.
7. The above proposition is also supported by another decision of the Apex Court reported in 103 ITR 437 (INCOME TAX OFFICER -vs- LAKHMANI MEWAL DAS)= (1976) 3 SCC 757 = AIR 1976 SC 1753, wherein it was held as follows:-
"The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression ' reason to believe' does not mean a purely subjective satisfaction on the part of the income tax officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous, irrelevant for the purpose of the Section."
"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 income tax officer 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......
The powers of the income tax officer 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 the instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income tax authorities after the assessment has been completed."
8. It is, therefore, essential that before such action of reopening the assessment is taken, requirement of law such as the live link or close nexus between the material coming to the notice of the income tax officer and the formation of his belief that there has been escapement of the income of the assessee should be satisfied. Otherwise, the power conferred under Section 147 of the Income Tax Act would amount to arbitrary and unreasonable exercise. Hence, while making it clear that the authorities do have the power to reopen the assessment under Section 147, the materials relied for such purpose should not be vague but it should be definite, specific, relevant and reliable.
9. In the instant case, the assessing officer relied upon the confession alleged to have been made by the assessee obtained on the date of search ie., on 20.2.1980 to the effect that she had failed to disclose certain income and jewellery at the time of search. However, the tribunal, without relying upon the confession statement, took cognizance of the explanation offered to that viz., that the jewellery and precious stones were presented as gift on the occasion of the marriage of the assessee's daughters and the amounts of Rs.7000/- and Rs.150 0/- per year were the personal drawings and the commission on purchase and sale of semi-precious and precious stones respectively.
10. In any event, since the issue whether there were materials for the appellant/revenue to invoke Section 147 of the Income Tax Act are sufficient, bonafide, definite, relevant and reliable is purely a matter of fact, finding no substantial question of law, the appeals are dismissed.
Index : Yes KST.
To:
1.The Assistant Registrar, Income Tax Appellate Tribunal Madras Bench "D", Rajaji Bhavan III Floor, Besant Nagar, Chennai-90.
2.The Secretary, Central Board of Direct Taxes, New Delhi.
3.The Deputy Commissioner of Income Tax (Appeals),Madras-34.
4.The Income Tax Officer, Special Investigation Circle III, Madras-34 .