Delhi High Court
Cit vs Vardhman Estates Ltd. on 19 July, 2007
Author: V.B. Gupta
Bench: Madan B. Lokur, V.B. Gupta
JUDGMENT V.B. Gupta, J.
1. Short question involved in the present appeal is whether the assessing officer was justified in reopening the assessment proceedings for the assessment year 1996-97 in the case of the present assessed.
2. The Income Tax Appellate Tribunal (for short as 'Tribunal'), Delhi Bench vide impugned order dated 21-2-2005 in ITA No. 404/Delhi/2005, allowed the appeal of the assessed holding reassessment proceedings to be bad in law.
3. Aggrieved with the order passed by the Tribunal, the revenue has come in an appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'Act') before this Court.
4. For the assessment year 1996-97, the assessed filed its return declaring income of Rs. 23,552 and the same was accepted under Section 143(1) of the Act. The loan in the name of M/s. Visa Fin Cap Ltd. was also accepted. Subsequently, the assessing officer took proceedings under Section 147 of the Act and issued a notice under Section 148 of the Act to the assessed-company on 25-11-2002. The basis of initiating the reassessment proceedings was the statement of Sh. V.K. Jain, Director of M/s. Visa Fin Cap Pvt. Ltd. who had stated that his company was indulging in money laundering business and provided merely adjustment entries and not genuine loans to different persons,
5. In the reassessment proceedings it was held by the assessing officer that the loan taken from M/s. Visa Fin Cap Pvt. Ltd. has not been proved and this was assessed's income from undisclosed sources. The assessing officer did not accept share application money in the accounts of Shri Raman Chawla (Rs. 50,000), Mrs. Sushila Jain (Rs. 50,000) and Shri Padam Sain Jain (Rs. 50,000) and the same was also treated as assessed's income from undisclosed sources and this way addition of Rs. 15,76,247was made in the income of the assessed.
6. The assessment order was challenged by the assessed in an appeal before the Commissioner (Appeals) but he remained unsuccessful and thereafter he took the matter before the Tribunal.
7. The Tribunal decided the matter in favor of the assessed and in this manner the present appeal is before us.
8. The contentions of learned Counsel for the revenue are that as per record the assessing officer had reasons to believe that income chargeable to tax has escaped assessment. The assessed did not challenge there assessment proceedings nor did he file any objection before him.
9. In the present case, the only basis for initiating the reassessment proceedings by the assessing officer was the statement of Sh. V.K. Jain, Director of Visa Fin Cap Pvt. Ltd.
10. The Tribunal after perusing the statement of Sh. V.K Jain held that:
On a careful perusal of the statement, we find that, the facts mentioned in the 'reasons' are de hors the facts available on record. The relevant portion of the statement of V.K. Jain dated 18-2-2002 read as under:
Q. 5. Can you give the names and addresses of the above persons from whom you were receiving cash and giving entries thereafter?
Ans. The names and addresses of the persons concerned are the same as shown as loan creditors in the balance sheet filed during the assessment year 1995-96. At present the list along with addresses is not available with me. It will be provided on the next date of hearing. To reconcile the above amount sometimes my name along with the name of my wife were also used.
Evidently, the statement is too general. It does not mention any name much less the name of the petitioner. It is not the stand of respondents that a list of the creditors, which included the name of the petitioner was furnished by V.K. Jain subsequently and the same was forwarded to the assessing officer of the petitioner. Applying the aforenoted settled principles, governing an action under Section 147 of the Act, we have no hesitation in holding that there was no information on record, which could provide foundation for the assessing officer's belief that petitioner's transaction with M/s. Visa Fin Cap Ltd. was not genuine and its income had escaped assessment on the account. Therefore, the impugned action of the assessing officer cannot be sustained.
11. In the entire statement of Sh. V.K. Jain, there is no mention of the name of present assessed and admittedly reassessment proceedings have been initiated only on the basis of statement of Sh. V.K. Jain.
12. In a similar matter, that is, United Electrical Co. (P) Ltd. v. CIT (2002) 125 Taxman 775 (Del), this Court was concerned with the same statement of Shri V.K Jain. While dealing with the provisions of Section 147 of the Act, it was held that:
Section 147 of the Act authorises the assessing officer to assess or reassess income chargeable to tax, if he has reason to believe that the said income for any assessment year has escaped assessment. The power conferred under the said section, particularly after 1-4-1989, is no doubt very wide but it cannot be said to be plenary. True, the amended provisions of Section 147 are contextually different from the pre 1989 provision, inasmuch as the cumulative conditions spelt out in Clause (a) of old Section 147 namely, that income chargeable to tax had escaped assessment by reason of (i) omission or failure on the part of the assessed to make a return of his income under Section 139 of the Act for any assessment year, or (ii) failure to disclose fully and truly all material facts necessary for his assessment for that year, are not present in the new main section but the crucial expression 'reason to believe' still exists in the new provision. The amended Section 147 provides that where the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of Sections 148 to 153 and assess or reassess the income which has escaped assessment. For the present purpose, only Sections 148 and 151 are relevant. Sub-section (2) of Section 148 of the Act mandates that before issuing notice to the assessed under Sub-section (1), for filing the return, the assessing officer shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the assessing officer can reopen the completed assessment. Proviso to Sub-section (1) of Section 151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under Section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the assessing officer concerned, that it is a fit case for the issue of such notice. These are some inbuilt safeguards to prevent arbitrary exercise of power by an assessing officer to fiddle with the completed assessment.
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14. Thus, existence of tangible material, for the formation of opinion is a prerequisite for initiation of action under Section 147 of the Act. Therefore, what Section 147 of the Act postulates is that the assessing officer must have reason to believe that income has escaped assessment. There should be facts before him that reasonably give rise to the belief, but the facts on the basis of which he entertains the belief need not at this stage be rebuttably conclusive to support his tentative conclusion. In case of challenge, it is open to the court to examine whether there was material before the assessing officer, having rational connection or relevant bearing to the formation of the belief that is claimed to have been held at the time when he issued the notice. But the court cannot for the purpose of ascertaining validity of the notice examine the sufficiency of the reasons for the belief in S. Narayanappa v. CIT .
13. The present case is fully covered by the earlier decision of this Court in United Electrical Co. (P) Ltd. s case (supra). In the instant case also, there is no mention of any name much less the name of the present assessed in the statement of Sh. V.K. Jain and as such we have no hesitation in holding that the reassessment proceedings under Section 147 of the Act were not initiated in accordance with law and we have no reason to disagree with the reasoning given by the Tribunal.
14. No substantial question of law arises for our consideration in the present case and the present appeal is, hereby, dismissed with costs of Rs. 5,000 which should be deposited by the appellant within four weeks with the Delhi High Court Legal Services Committee.