Income Tax Appellate Tribunal - Patna
Deputy Commissioner Of Income Tax vs Murrah Live Stock Agency on 4 March, 2004
Equivalent citations: (2004)84TTJ(PAT)547
ORDER
K.K. Gupta, A.M.
1. These appeals have been filed by the Department raising common issue for all the assessment years on the basis of CIT(A)'s order having allowed framing of the assessment under Section 143(3)/147 of the Act which grounds have been narrated hereinafter. We are taking these appeals together for the sake of convenience and gravity inasmuch as arising out of a common order of the learned CIT(A).
2. The learned Departmental Representative submitted that the learned CIT(A)-II, Patna, was not right in holding that the basic primes on which the assessment had been reopened in the aforesaid assessment years, i.e., the filing of case RC 55(A)/96-Patna against the assessee was non-existent. The CIT(A) had stated that since the name of the appellant did not figure as co-accused in the charge-sheet filed by the CBI in the above case the registration of case No. RC 55(A)/96-Patna cannot be the basis for initiation of proceedings under Section 147 of the Act. It is submitted that at the time of initiation of proceedings under Section 147, the AO had in his possession information about filing of an FIR against the assessee and its sister concern on the grounds of criminal connivance in drawing fake bills of supply to the AHD, Government of Bihar. The AO also had information regarding the payment made to the assessee in relation to this specific FIR in case No. RC 55(A)/96-Patna lodged against the assessee. Thus, the basis of initiation of proceedings under Section 147 was valid since filing of the FIR gave a valid reason to believe that the assessee had claimed false purchases and transportation, expenses against its receipt from the AHD, Government of Bihar. The income-tax proceedings are separate proceedings from the criminal proceedings launched by the CBI and once they are validly initiated they have a separate existence of their own irrespective of the findings made in the criminal charge-sheet of the CBI. As such it cannot be said that the basis of initiation of proceedings under Section 147 was non-existent at the time of initiation.
3. The learned Departmental Representative further argued that the learned CIT(A) had misdirected himself in holding that the Dy. CIT has nowhere given any specific finding in the assessment order relating to bogus supply and that no specific instances of inflating expenses or purchases were detected by the AO. It is apparent from the discussion in the assessment order itself that the assessee did not make any compliance with terms of notice under Section 142(1), did not file any details of purchases and other expenses and did not file any supporting bills or vouchers or books of account. Thus, the stand of the CIT(A) that the AO has nowhere given any specific finding about inflating expenses or purchases is not borne out from the record. It is clear from the assessment order itself that the assessee had not been able to substantiate any of the expenses or purchases claimed in its P&L a/c filed with the return.
4. The learned counsel for the assessee submitted that the learned CIT(A) had gone through the detailed order of the learned AO and considered the facts and circumstances of the case leading to his finding that the assessments which have been reopened on the basis of RC 55(A)/96-Patna against the assessee-appellant was non-existent. Materials available on record show that the name of the appellant does not figure as co-accused in the charge-sheet filed by the CBI in the above case. Therefore, there was no basis for proceedings under Section 147. No specific instances of inflating expenses or purchases had been detected by the AO. The AO had simply complied with the provisions of Section 145(1) estimating the GP at 20 per cent of the declared sales. The learned CIT(A) observed that proceedings under Section 147 cannot be initiated for applying a higher rate of GP than that disclosed by the assessee. Furthermore, the learned counsel made us go through the order of the AO wherein he pointed to the various submissions and counter-submissions which can be presumed to be groping in the dark and trying to unearth something which may not be there. He has tried to justify his rejection of profit declared by the assessee on whims and fancies which he concluded on his own were there, but at the same time not informed for initiation of proceedings under Section 147. The learned counsel relied on the findings of the learned CIT(A) that no estimation of GP on the sales which remained the same is not within the proceedings under Section 147. Disallowance of expenses and unexplained cash credit can also not be considered as adequate ground for initiation of proceedings under Section 147.
5. We have considered the submissions of the parties before us. We have also gone through the orders of the lower authorities carefully and on perusal thereof we find that the AO has not done his job in accordance with law. The facts and circumstances leading to initiation of proceedings have not been brought out in the manner which could find favour with the CIT(A). The CIT(A) has given a very well reasoned order setting aside the orders of the AO for all these years, in view of the fact that the assessee was never a party in filing of case RC 55(A)/96-Patna and the Department has in its own pleadings submitted that the income-tax proceedings are separate proceedings from the criminal proceedings lodged by the CBI and once they were validly initiated they have a separate existence on their own irrespective of the findings made in the criminal charge-sheet of the CBI. Here is a case wherein the AO has not arrived at any basis where proceedings under Section 147 were rightly cancelled by the CIT(A). In our view the basis of initiation of proceedings under Section 147 was not there as rightly held by the CIT(A). Therefore, we do not have any hesitation in dismissing the appeals filed by the Department.
6. In the result, all these appeals filed by the Department are dismissed.
Dr. R.K. Yadav, J.M.:
20th March, 2002
1. Order recorded by the, learned AM has been perused. I have discussed the matter with him. When record is scrutinised, it emerges that on 10th Feb., 1998, the AO had recorded reasons for reopening the assessment. It is expedient to extract the reasons so recorded which are reproduced thus :
"Subsequent to transfer of jurisdiction the case records of the assessee have been received from the Asstt. CIT, Inv. Circle-10(1), New Delhi. The partners of the assessee as per records are Sandeep Malik and Kamal Malik who are family members of Shri Vijay Malik. As this concern M/s Malik Enterprises is prominent accused person in the case filed by the CBI relating to misappropriation of funds from the AHD, Government of Bihar, for instance in the case RC No. 32(A)/96-Patna, it has been found on inquiry that the purchases claimed by M/s Malik Enterprises for the financial year 1995-96 were bogus and the parties from whom purchases were claimed to have been made admitted to have given an accommodation entry of purchases against commission to M/s Malik Enterprises. A similar case has also been registered against the assessee in which it has been alleged that fraudulent withdrawals were made from AHD, Government of Bihar, without actual supply. One of such cases is RC No. 55(A)/96-Patna.
The filing of these cases against the assessee and related concerns/individuals gave rise to a reasonable belief that it has received payments from AHD, Government of Bihar, against little or no supply. It also gave rise to a reasonable belief that the expenses incidental to supply such as purchases and expenses on transportation were wrongly claimed by the assessee to avoid a higher returned income and higher incidence of tax. As per return for asst. yr. 1989-90 filed and available on record the assessee has shown to have received a total payment of Rs. 79,93,500 against sales whereas the purchases and freight expenses have been claimed at Rs. 59,58,454 and Rs. 5,80,594 respectively. The assessment for asst. yr. 1987-88 was not made under Section 143(3) or 147 of the Act.
On account of above, I have reason to believe that the assessee has understated its profit for this financial year by inflating purchases and other expenses as a result of which a large portion of its income escaped assessment within the meaning of Section 147 of the IT Act."
While adjudicating the appeals, the CIT(A) came to the conclusion that conditions precedent for assumption of jurisdiction under the provisions of Section 147 of the IT Act, 1961 (in short the Act), were not satisfied in these cases. Accordingly, initiation of proceedings under the provisions of Section 147 of the Act was held to be bad in law. In view of these facts it becomes incumbent on this Tribunal to articulate as to whether standards of initiation of proceedings under the provisions of Section 147 of the Act existed or not. For an answer to this proposition the provisions of Section 147 of the Act are to be taken into account, The provisions of Section 147 of the Act empower the AO to reassess any income chargeable to tax, which escaped assessment by reason of failure (amongst other grounds) on the part of the assessee to declare fully and truly all material facts for his assessment for any assessment year. Non-disclosure of material facts by the assessee becomes relevant when an assessment made under Sub- section (3) of Section 143 of the Act or Section 147 is sought to be reopened after expiry of 4 years from the end of the relevant assessment year. The words "escaped assessment" used in the provisions of Section 147 of the Act, are apt to cover the case of discovery of a mistake in the assessment caused either by an erroneous construction or the transaction or due to its non-consideration, or caused by a mistake of law applicable to such transfer or transaction even when there has been a complete disclosure of all relevant facts upon which a correct assessment could have been passed.
2. Essential requirement for initiating reassessment proceedings under Section 147 r/w Section 148 of the Act is that the AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Second limb of the requirement is that the AO shall record his reasons before issuing notice as contemplated by the provisions of Sub-section (2) of Section 148 of the Act. The requirement necessarily postulates that the AO must record his reasons in writing as to why he holds an opinion or belief that income has escaped assessment. In case an AO holds an opinion that on account of nondisclosure of material facts fully and truly, income has escaped assessment, he must disclose as to by what process or reasoning he holds such belief that nondisclosure of material facts fully and truly resulted in escapement of income from being assessed.
3. Where the AO has a cause or justification to think that income had escaped assessment he can be said to have reason to believe that such income has escaped assessment. The words "reason to believe" cannot mean that the AO should have finally ascertained the facts by legal evidence. These words only mean that on examination of facts from experienced eye of an officer well equipped to interpret the suspicious circumstances, the officer in the matter is of reasonable belief as to existence or non-existence of a fact or situation, in the light of those circumstances. On such examination of facts, if the officer feels satisfied that taxable income has escaped assessment, the officer is said to have reason to believe that such income has escaped assessment, A belief, though justified for the purpose of initiation of proceedings under Section 147 of the Act, should not be tested on the standards for final adjudication in the matter. Law to this effect was laid in Praful Chunnilal Patel v. M.J. Makwana, Asstt. CIT (1999) 236 ITR 832 (Guj), wherein the AO had over-looked something at the first assessment as a result of which taxable income has escaped assessment that could itself provide a cause or justification for a belief to the AO that such income had escaped assessment and in the case the AO was held to be ex facie justified in initiating the proceedings on such basis.
4. Now it will be taken into consideration as to whether there were reasons to believe with the AO to proceed with the reassessment under the provisions of Section 147 of the Act. He takes into consideration that as per the returns filed for the asst. yr. 1989-90, the assessee has shown to have received a total payment of Rs. 79,98,500 against sales, whereas the purchases and freight expenses have been claimed at Rs. 5,95,84,554 and Rs. 5,80,594 respectively. He also takes into consideration that the case was registered against the assessee wherein it was alleged that fraudulent withdrawals were made by the assessee-firm from AHD, Government of Bihar, without actual supply. He details that the case was registered as bearing RC No. 55(A)/96-Patna. He was also not oblivious of the fact that the partners of the assessee-firm are Sandeep Malik and Kamal Malik who are family members of Shri Vijay Malik. It also haunted in his mind that Shri Vijay Malik and his concern known as M/s Malik Enterprises were prominent accused persons in the case filed by the CBI relating to misappropriation of funds from AHD, Government of Bihar. He took into consideration that case RC No. 32(A)/96-Patna was registered on the count that M/s Malik Enterprises had withdrawn funds from AHD, Government of Bihar, and purchases claimed by it for the financial year 1995-96 were found to be bogus. The parties from whom purchases were claimed to have been made admitted to have given an accommodation entry for purchases against commission. Contents of FIRs sounded in the mind of the AO and on the basis of the facts revealed on inquiry, he formed an opinion that the assessee-firm had withdrawn money-from AHD, Government of Bihar, against little or no supply. He quotes the example that in the asst. yr. 1989-90 the assessee had shown to have received a total payment of Rs. 79,98,500 from AHD, Government of Bihar and claimed expenses on purchases and freight to the tune of Rs. 59,58,454 and Rs. 5,80,594 respectively, to bring it over the record the process of his reasoning as to how he holds a belief that non-disclosure of material facts fully and truly had resulted into escapement of income from being assessed.
5. Surprisingly, this transparency in the action of the AO was misconceived by the CIT(A). Contents of FIR, which provided momentum to the AO to generate the process of his reasoning, had not at all weighed upon the CIT(A). He was of the view that the name of the assessee-firm does not figure in the charge-sheet of case No. RC 55(A)/96-Patna, He seems to have proceeded with the process of weighing the standards of reopening of an assessment with the standards which are to be applied at the time of final adjudication. He was oblivious of the fact that when a case is registered against the assessee with allegations that fraudulent withdrawals were made by it, without making any supply to a Government Department, it is a situation or circumstance which surcharges the atmosphere. Common populace take such situation with anxiety and look for the result of the investigation and in many cases the result of the trial. Such instances have a bearing in the mind of the public and they form an opinion about the instances, the person involved in the act and the surrounding circumstances. The AO, being a responsible public servant, was under an obligation to take note of such situations, which persuaded him to form a belief, as done in the case. When process of law was in momentum, it ignited the thoughts of the AO to consider as to whether the facts regarding income chargeable to tax were disclosed fully and truly by the assessee. In making a chain of events he went through the contents of the FIRs registered, noted the payments received by the assessee-firm and the expenses claimed by it in asst. yr. 1988-89. All these facts and circumstances led him to form an opinion that income chargeable to tax has escaped assessment on account of failure of the assessee to disclose fully and truly all material facts for its assessment for asst. yr. 1989-90. This satisfaction of the AO was not denounced by the CIT(A). He was led astray by the facts that on conclusion of investigation, name of the assessee-firm was not there in the charge-sheet filed in RC 55(A)/96-Patna. He remained oblivious of the fact that the names of the partners of the assessee-firm were there in the charge-sheet filed in respect of RC No, 45(A)/96-Patna. Therefore, it sounds that the decision of the CIT(A) is devoid of merits.
6. While rejecting the process of assessment, the CIT(A) commented on the method of computation of income adopted by the AO. If the CIT(A) would have proceeded a step ahead and then discarded the final income, this process would have been in accordance with the legal norms, but rejecting the case at this very threshold of reopening under the provisions of Section 147 of the Act, he cites example from the final outcome. This makes it clear that he was assessing the standard to be applied for reopening on the standard of final adjudication of an assessment process. It resulted into miscarriage of justice.
7. In view of the foregoing reasons I would conclude that there were reasons with the AO to reopen the assessment and the first appellate authority had gone wrong in cancelling the assessments made for the asst. yrs. 1987-88, 1988-89, 1989-90, 1990-91 and 1991-92.
REFERENCE UNDER SECTION 255(4) OF THE IT ACT, 1961 Dr. R.K. Yadav, J.M.:
March, 2002
1. As we differ in our views in the abovementioned IT Appeals, we refer the below given question for consideration of Third Member as provided in Sub-section (4) of Section 255 of the Act and request the Hon'ble President accordingly.
Question for reference:
"Whether registration of a case with the CBI, on the allegation that the assessee received a sum of Rs. 79,98,500 from AHD, Government of Bihar, without making any supplies and obtaining accommodation entries of purchases against commission and surrounding circumstances, would be sufficient for an AO to form an opinion that on account of non-disclosure of material facts fully and truly income has escaped assessment?"
K.K. Gupta, AM.:
20th March, 2002
1. As we differ in our views in the above mentioned IT appeals, we refer the below given question for consideration of Third Member as provided in Sub-section (4) of Section 255 of the Act and request the Hon'ble President accordingly.
2. Question for reference:
"Whether on the basis of information available on account of registration of charge-sheet by the CBI in the case of assessee's relatives and their concerns would be sufficient for an AO to form an opinion that on account of nondisclosure of material facts regarding fake withdrawals from AHD, Government of Bihar, full and true income has escaped assessment in the case of the assessee?"
M.A. Bakshi, Vice President (As Third Member):
22nd Jan., 2004
1. The appeals of the Revenue for the asst. yrs. 1987-88 to 1989-90 had come up for decision before the Patna Division Bench. However, since there was a difference of opinion between the Members of the Bench, I was nominated by the Hon'ble President as Third Member for a decision in regard to the point of dispute-in these appeals of the Revenue.
2. The learned Members of the Division Bench have identified the point of dispute separately as under:
Point of dispute as per learned JM:
"Whether registration of a case with the CBI, on the allegation that the assessee received a sum of Rs. 79,98,500 from AHD, Government of Bihar, without making any supplies and obtaining accommodation entries of purchases against commission and surrounding circumstances, would be sufficient for an AO to form an opinion that on account of non-disclosure of material facts fully and truly income has escaped assessment?"
Point of dispute as per learned AM :
"Whether on the basis of information available on account of registration of charge-sheet by the CBI in the case of assessee's relatives and their concerns would be sufficient for an AO to form an opinion that on account of nondisclosure of material facts regarding fake withdrawals from AHD, Government of Bihar, full and true income has escaped assessment in the case of the assessee?"
3. In my considered view, the point of difference between the Members of the Bench is as to whether on the facts and in the circumstances of the case the reopening of assessment in the case of the respondents was validly initiated by the AO under Section 147 of the IT Act, 1961?
4. Parties have been heard and record perused. For the sake of convenience, relevant facts may be briefly stated even at the cost of repetition. The respondent was a firm constituted of two partners, viz., Sri Sandeep Malik and Smt. Kamal Malik. The firm is engaged in the business of supplies to the Government departments. The partners of the firm are members of Malik family and the various members of the family under different business names are engaged in the business of supply of fodder, livestocks, etc., to Government Departments. The respondents had filed the returns of income in regard to the supplies of livestock to the Animal Husbandry Department (in short AHD), Government of Bihar. In the year 1996, the cases relating to misappropriation of funds from the AHD popularly known as Animal Husbandry Scam came to the fore and many FIRs alleging fraudulent withdrawals against bogus and forged vouchers and receipt of money without supply were registered by the CBI in regard to the payments made from various treasuries and AHD offices of Government of Bihar. A public interest litigation was filed in the High Court of Patna and the Hon'ble High Court vide order dt. 11th March, 1996, in CWJC No. 602/1996(R) directed the CBI to investigate the cases relating to misappropriation of Government funds by officers and suppliers of AHD, Government of Bihar. The IT Department was also directed to take action against the suppliers for bogus supplies and withdrawal of money from AHD of Government of Bihar. The aforesaid order of the Hon'ble Patna High Court was confirmed by the Hon'ble Supreme Court in its judgment dt. 19th March, 1996 in SLP No. 58(A)/1996. The directions contained in the said order of the Hon'ble High Court in the case of Sushil Kumar Modi v. State of Bihar 1996 (1)(1) PLJR 561 at p. 581 being relevant are reproduced hereunder :
"I would, accordingly, direct the Central Bureau of Investigation (CBI) through the director, to enquire and scrutinise all cases of excess drawals and expenditure in the department of Animal Husbandry in the State of Bihar during the period 1977-78 to 1995-96 and lodge cases where the drawals are found to be fraudulent in character, and take the investigation in those cases to its logical end, as early as possible, preferably, within four months. The investigations by the State police in cases already instituted shall remain suspended in the meantime.
I would also direct the IT Department through the Chief CIT, Bihar, to initiate such action as may be considered fit, necessary and expedient under the IT Act, WT Act, etc., against persons whom he reasonably thinks to be involved in the 'scam' and possess unaccountable wealth and property, and take the proceedings to their logical conclusions.
The State Government shall provide all necessary facilities to both the CBI and the IT Department in discharge of their duties pursuant to this order."
5. Doranda Police Station, Ranchi, Bihar, had earlier registered a case vide FIR No. 080, dt. 10th March, 1996, which was taken over by the CBI. The FIR was registered by the CBI for commission of offences punishable under Section 409/420/467/468/471/472/474/120B IPC and Section 13(2) r/w Section 13(1)(c) and (d) of Prevention of Corruption Act, 1988. This FIR is numbered as RC 55(A)/96-Patna, dt. 17th April, 1996. The following persons are described as accused in the said FIR :
(1) All Regional Directors, Animal Husbandry, Ranchi, posted during the period 1980 to 1990.
(2) All Asstt. Directors, Animal Husbandry, Ranchi, posted during the period 1980 to 1990.
(3) Concerned officers and employees posted in the office of regional director, Animal Husbandry, Ranchi, during the period 1980 to 1990.
(4) All concerned firms who made supply to AHD during the period 1980 to 1990.
(5) And other unknown.
6. On investigation by the CBI, it transpired that the supplies made by some concerns of Malik family to the AHD were bogus. The AO received information that in regard to one of the concerns of Malik family, namely, M/s Malik Enterprises, the CBI has found bogus supplies made to AHD in asst. yr. 1995-96 and the parties from whom purchases were claimed to have been made admitted to have given accommodation entries of purchases against commission to the said Malik Enterprises. On the basis of the public interest litigation, directions of the Hon'ble Patna High Court, registration of FIR No. 55(A)/96-Patna against various persons including all the suppliers of AHD, Government of Bihar, information about bogus supplies by some of the members of Malik family and the accommodation entries of purchases having been given on payment of commission, to the sister concern of the assessee, viz., Malik Enterprises, the AO initiated proceedings under Section 147 purportedly on the belief that income of the assessee assessable for asst. yrs. 1987-88 to 1991-92 had escaped assessment. The reasons recorded by the AO for reopening of the assessment have been reproduced by the learned JM in his order and, therefore, it may not be necessary to reproduce the same. The AO issued notices under Section 148 for the respective assessment years on 10th Feb., 1998, which were served on the assessee on 2nd March, 1998. The assessee asked the AO to give reasons for reopening of the assessments for the respective assessment years. The assessee was asked to file the return of income after which the reasons for reopening of the assessee would be communicated to it by the AO. The assessee informed the AO that the return originally filed may be treated in response to the notice under Section 148 and again demanded the reasons for reopening of the assessment. After some correspondence between the AO and the assessee, it is not disputed that the reasons for reopening the assessment as recorded by the AO were communicated to the assessee. The assessee was asked to produce the books of account and other documents for the purpose of assessing the escaped income. On the failure of the assessee to produce the books of account and other relevant material, the AO proceeded to make the assessments on estimate basis by applying a profit rate of 20 per cent on supplies and by making disallowance of some of the expenditure.
7. The assessee appealed to the CIT(A) against the decision of the AO. The CIT(A), Central-II, Patna, vide consolidated order dt. 1st Feb., 2001, held that the basic premises on which the AO had reopened the assessments is the FIR filed by CBI, viz., RC 55(A)/96-Patna in which the name of the assessee does not figure as co-accused. He has, accordingly, held that proceedings under Section 147 are without jurisdiction. The CIT(A) has also pointed out in the impugned order that the AO has not recorded any finding about the bogus purchases/supplies and withdrawal of money from the AHD for such supplies by the assessee.
8. The Revenue appealed against the order of the CIT(A) to the Tribunal. Whereas the learned AM has agreed with the view expressed by the CIT(A) that the reopening of assessments for the respective assessment years is without jurisdiction, the learned JM has held that the reopening of assessments made by the AO is in accordance with law. There is no opinion expressed by the learned Members about the merits of the assessments as the CIT(A) had also refrained from giving his opinion on merits in the light of his quashing orders of reassessments on legal grounds.
9. The learned counsel for the assessee has filed an application before me pointing out that as per the order of the Tribunal in the case of Hindustan Livestock Agency, Delhi (a sister concern of the assessee), the AO was on election duty to Kerda between 7th April, 2001 and 15th May, 2001. This appeal has been signed by the same AO on 20th April, 2001. According to the learned representative of the assessee, when the AO was not available in Patna and was away on election duty, how he could have signed the memo of appeal in the case of the respondent on 20th April, 2001, at Patna.
10. This objection has not been taken by the assessee before the Division Bench and is not the subject-matter of difference of opinion before me. Since the Third Member has limited jurisdiction in regard to the point of difference, I refrain from giving any opinion about the claim made by the assessee's learned representative before me for the first time.
11. As is evident from the facts stated above, the whole issue revolves around the validity of reopening of assessments for the respective assessment years. There seems to be a doubt about the absence of the name of the respondent in the FIR No. RC 55(A)/96-Patna expressed by the CIT(A). The AO as well as the learned JM have specifically pointed out that the assessee is co-accused in FIR No. RC 55(A)/96-Patna. The CIT(A) has recorded a finding to the contrary. I have reproduced the names of the accused mentioned in FIR No. RC 55(A)/ 96-Patna, in para 5 above. It is evident from the names of the accused that whereas no specific name of the suppliers has been mentioned in the said FIR, all the concerned firms who made supplies to AHD, Government of Bihar during the period 1980 to 1990 are referred to as the co-accused in FIR No. RC 55(A)/96-Patna, dt. 17th April, 1996. Since the respondent-firm has admittedly made supplies to AHD during the relevant period, it was wrong on the part of the CIT(A) to hold that the assessee was not one of the co-accused in the FIR, referred to above. Apart from the above, there is no dispute on facts. During the course of hearing of this appeal, on my enquiry, the following information was disclosed in writing and I consider the same as relevant.
That there was a CBI search and seizure operation in the premises of the respondent on 6th July, 1997 and again in July, 1998. What documents were seized during the course of such search and seizure operation by the CBI is not borne out from the records. The reopening of assessment was initiated on 10th Feb., 1998. With these facts in mind, I proceed to consider as to whether the AO was justified to reopen the assessments for the respective assessment years on the basis of the information available to him on the date of recording the reasons for reopening such assessments.
12. Section 147 enables the AO to reopen an assessment after the expiry of four years if the AO has reason to believe that by reason of omission or failure on the part of the assessee, the income assessable to tax has escaped assessment. It is well-settled principle of law that the AO should have material on the basis of which he could form a bona fide belief that the income assessable to tax has escaped assessment for the relevant assessment years. Before embarking upon the task of scrutiny of reasons for reassessment, it would be necessary to refer to some relevant decisions of the Supreme Court and the Calcutta High Court in regard to the meaning of the words "reasons to believe" for the purpose of reopening of assessments.
13. In the case of Johri Lal (HUF) v. CIT (1973) 83 ITR 439 (SC), their Lordships of the Supreme Court held as under :
"The formation of the required belief by the ITO before proceedings can be validly initiated under Section 34(1)(a) is a condition precedent: the fulfilment of this condition is not a mere formality, it is mandatory and failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief is not the only requirement: the officer is further required to record his reasons for taking action under Section 34(1)(a) and obtain the sanction of the Central Board or the CIT, as the case may be."
14. In the case of ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), their Lordships of the Supreme Court held as under :
"The reasons for the formation of the belief contemplated by Section 147(a) of the IT Act, 1961, for the reopening of an assessment must have a rational connection 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. 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 the 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 the 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 a mere pretence."
15. In the case of CIT v. T.S. PL. P. Chidambaram Chettiar (1971) 80 ITR 467 (SC), their Lordships of the Supreme Court held as under :
"The assessee's father, a money-lender, had advanced various sums of money to P on promissory notes. On 6th July, 1932, the principal stood at Rs. 1,38,535 and interest thereon came to Rs. 1,34,965, Taking a further loan of Rs. 2,500, P executed a mortgage of some of his properties for a sum of Rs. 2,76,000. Of this only a small amount was repaid. In December, 1940, a suit was instituted against P for recovery of a sum of Rs. 5,50,573 inclusive of interest. In September, 1943, the claim was compromised and on 5th Oct., 1943, a compromise decree was passed for the sum of Rs. 3,50,000 in full satisfaction of the mortgagee's claim. The amount of the decree was payable by 1st Oct., 1944, and the debt due under the decree was subsequently discharged. For the asst. yr. 1944-45, the assessee was assessed to tax as Karta of his HUF by the ITO, Trichy. Pending the assessment proceedings, that officer received information from the ITO, Erode, that P had paid secretly to the mortgagee during the relevant accounting period a sum of Rs. 1,50,000 which was not included in the compromise decree. The assessee, however, denied having received that amount. Referring to the assessee's denial the AO recorded in the order-sheet on 27th May, 1945 : "The ITO, Erode, should be asked to give further details and to ask P to produce evidence of payment. In any event, this should come for consideration only in the asst. yr. 1945-46 as only the excess over Rs. 2,76,000 plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation." The AO completed the assessment on 12th Feb., 1946, without including that amount. Thereafter, the officer made further inquiry and on 9th March, 1953, issued a notice under Section 34(1)(a) of the IT Act, 1922, for reassessment and included the sum of Rs. 1,50,000 in the income of the assessee for the asst, yr. 1944-45. The AAC, on appeal, set aside the order and directed the officer to redo the assessment after giving the assessee an opportunity to cross-examine the parties examined by the officer. The ITO, without issuing a fresh notice of reassessment, enquired further into the matter : P's books of accounts were produced to prove the payment to the assessee, some witnesses were examined in the presence of the assessee and a fresh order of assessment was made. This order was affirmed by the Tribunal. On a reference, the High Court held that the reassessment was valid and that the officer had acted rightly in giving effect to the order of the AAC, but that the sum of Rs. 1,50,000 was not taxable income of the relevant year of account, because the amount secretly received must be deemed to have been kept in suspense and as the debtor had not given any direction about the appropriation of that amount it was open to the creditor to appropriate it towards the principal, On appeal to the Supreme Court by both the parties :
Held, (i) that the reassessment proceedings were valid as the requirements of Section 34(1)(a) were fully satisfied. The fact that there was some vague information before the officer at the time of the original assessment that the assessee's father had secretly received a sum of Rs. 1,50,000 from the mortgagor was by itself not sufficient to bring to tax that amount particularly in view of the fact that the assessee had denied the fact. The fact that the officer could have made further inquiry into the matter but did not do so did not take the case out of Section 34(1)(a) as the assessee had failed to place truly and fully all the material facts before him. The remarks made by the officer in the order-sheet did not amount to a decision taken by him on the basis of facts found but had to be treated as casual observations."
16. In the case of H.A. Nanji & Co. v. ITO (1979) 120 ITR 593 (Cal), their Lordships of the Calcutta High Court held as under :
"At the time of issue of the notice of reassessment it is not incumbent on the ITO to come to a finding that income has escaped assessment by reason of the omission or failure of the assessee to disclose fully and truly all material facts necessary for assessment. The belief which the ITO entertains at that stage is a tentative belief on the materials before him which have to be examined and scrutinised on such evidence as may be available in the proceedings for reassessment. There must be some grounds for the reasonable belief that there has been a non-disclosure or omission to file a true or correct return by the assessee resulting in escapement of assessment or in wider-assessment. Such belief must be held in good faith and should not be a mere pretence or change of opinion on inferential facts or facts extraneous or irrelevant to the issue and the material on which the belief is based must have a rational connection or live link or relevant bearing on the formation of the belief."
17. In the case of Sheo Nath Singh v. AAC (1971) 82 ITR 147 (SC), their Lordships of the Supreme Court held as under :
"The words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court."
18. The Hon'ble Supreme Court in the case of Sri Krishna (P) Ltd. v. ITO (1996) 221 ITR 538 (SC) held as under :
"The ITO can issue notice under Section 148 of the IT Act, 1961, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment The existence of the reason(s) to believe is intended to be a check, a limitation, upon his power to reopen the assessment. Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reasons for such reopening by the ITO. Section 151 imposes yet another check upon the said power, viz., the CIT or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the ITO, that it is a fit case for issuance of such a notice. The power conferred upon the ITO by Sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the AO. The idea was to save the assessees from harassment resulting from mechanical reopening of assessments but this protection avails only to those assessees who disclose all material facts truly and fully. Every disclosure is not and cannot be treated to be a true and full disclosure, A disclosure may be a false one or a true one. It may be a full disclosure or it may not be. A partial disclosure may very often be a misleading one. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. All the requirements stipulated by Section 147 must be given due and equal weight.
The enquiry at the stage of finding out whether the reassessment notice is valid is only to see whether there are reasonable grounds for the ITO to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind."
19. In the case of Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC), their Lordships of the Supreme Court held as under :
"In determining whether commencement of reassessment proceedings was valid it has only to be seen 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.
Held, that the case of the Revenue was that the assessee was charging to its P&L a/c, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceedings. The commencement of reassessment proceedings was valid."
20. In the case of S. Narayanappa v. CIT (1967) 63 ITR 219 (SC) at p. 222, it was held as under :
"....... the sufficiency of the grounds which induced the ITO to act is not a justiciable issue. It is of course open for the assessee to contend that the ITO did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief, Again the expression "reason to believe" in Section 34 of the IT Act does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the Court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section."
21. In the case of Ganga Saran & Sons (P) Ltd. v. ITO (1981) 130 ITR 1 (SC) at p. 11, their Lordships of the Supreme Court held as under :
"It is well-settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under Section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under Section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the, Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid."
22. In the case of Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC) at p. 477, their Lordships of the Supreme Court held as under :
"From a combined review of the judgments of this Court, it follows that an ITO acquires jurisdiction to reopen an assessment under Section 147(a) r/w Section 148 of the IT Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any of his income, profits or gains chargeable to income-tax has escaped assessment."
It was further held at p. 478 of 203 ITR by the Hon'ble Supreme Court :
"We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act, and is against the settled law laid down by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude."
23. The legal principles that emerge from the aforementioned decisions may be summarised as under :
(i) That for valid reopening of assessment after four years, the AO should have reason to believe that the income of the assessee had escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It is a condition precedent for assumption of jurisdiction under Section 147(a).
(ii) The condition that the AO had reason to believe that the income of the assessee had escaped assessment is question of jurisdiction, a vital thing which can always be investigated by Court. The words 'has reason to believe' in Section 147 are stronger than the words 'is satisfied'. The belief entertained by the AO must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material.
(iii) The 'reason to believe' does not mean 'reason to suspect'. The expression 'reason to believe' in Section 147 does not mean purely subjective satisfaction on the part of the AO. The belief must be held in good faith; it cannot be merely a pretence. There must be a rational connection between the reasons for the belief and the relevant material.
(iv) The belief of the officer should not be a product of imagination or speculation. There must be reason to induce the belief. The belief must be of an honest and reasonable person based upon reasonable grounds.
(v) The officer may act on direct or circumstantial evidence, but his belief must not be based on mere suspicion, gossip or rumour.
(vi) The belief that is required for reopening of assessment is that of the AO. The sufficiency of the reasons for the belief cannot be investigated by the Court.
(vii) At the time of issuing of reassessment notice, it is not necessary for the AO to come to a conclusive finding that the income has escaped assessment. Such belief obviously at that stage is a tentative belief on the materials before him to be examined and scrutinised on such evidence as may be available in the proceedings for reassessment. But there must be some ground for reasonable belief that there had been a non-disclosure, etc. of material facts resulting in escapement of income.
(ix) For determining whether initiation of reassessment proceeding was valid, it is only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case.
(x) The sufficiency or the correctness of the material is not a thing to be considered at this stage. Since the belief is that of the AO, the sufficiency of the reasons for forming the belief is not for the Court to judge, but it is open to an assessee to establish that there, in fact, existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information.
24. On the analysis of the above legal principles, it emerges that whereas the 'reason to believe' cannot be equated with the 'reason to suspect', it is equally not necessary that there should be ample evidence on record to establish the actual escapement of income so as to form a reasonable belief that the income of the assessee has escaped assessment. One has to keep in mind the distinction between suspicion and belief and between belief and conclusive finding based on evidence. The 'belief' falls in between the suspicion and conclusive finding based on evidence. In order to determine as to whether the AO had a bona fide belief about the escapement of income of the assessee, it has to be considered as to whether the facts and circumstances justify the formation of the belief in contrast to suspicion, There has to be some material on record on the basis of which the AO formed a bona fide belief that the income of the assessee has escaped assessment. In other words, the material on the basis of which belief is formed must be in the nature of prima facie evidence, direct or circumstantial, giving rise to belief in the mind of the AO about the escapement of income. Testing the facts and circumstances of this case in the light of the aforementioned principles of law, one will necessarily have to consider the reasons recorded by the AO for reopening of the assessments. The reasons recorded for asst. yr. 1988-89 have been quoted by the learned JM in his order. At this stage these may be reproduced hereunder for the sake of ready reference :
"Subsequent to transfer of jurisdiction the case records of the assessee have been received from the Asstt. CIT, Inv. Circle-10(1), New Delhi. The partners of the assessee as per records are Sandeep Malik and Kamal Malik who are family members of Shri Vijay Malik. As this concern M/s Malik Enterprises is prominent accused person in the case filed by the CBI relating to misappropriation of funds from the AHD, Government of Bihar, for instance in the case RC No. 32(A)/96-Patna, it has been found on inquiry that the purchases claimed by M/s Malik Enterprises for the financial year 1995-96 were bogus and the parties from whom purchases were claimed to have been made admitted to have given an accommodation entry of purchases against commission to M/s Malik Enterprises. A similar case has also been registered against the assessee in which it has been alleged that fraudulent withdrawals were made from AHD, Government of Bihar, without actual supply. One of such cases is RC No. 55(A)/96-Patna.
The filing of these cases against the assessee and related concerns/individuals gave rise to a reasonable belief that it has received payments from AHD, Government of Bihar, against little or no supply. It also gave rise to a reasonable belief that the expenses incidental to supply such as purchases and expenses on transportation were wrongly claimed by the assessee to avoid a higher returned income and higher incidence of tax. As per return for asst. yr. 1989-90 filed and available on record the assessee has shown to have received a total payment of Rs. 79,98,500 against sales whereas the purchases and freight expenses have been claimed at Rs. 59,58,454 and Rs. 5,80,594 respectively. The assessment for asst. yr. 1987-88 was not made under Section 143(3) or 147 of the Act.
On account of above, I have reason to belief that the assessee has understated its profit for this financial year by inflated purchases and other expenses as a result of which a large portion of its income escaped assessment within the meaning of Section 147 of the IT Act."
25. The reasons for other assessment years are more or less same. Question before me is as to whether on the basis of facts of this case the AO had reason to believe that the income of the assessee had escaped assessment. It is not disputed that in the year 1996, the cases relating to misappropriation of funds from Animal Husbandry Department, Government of Bihar, came to the fore and many FIRs alleging fraudulent withdrawals against bogus and forged vouchers and receipt of money without supply were registered by the CBI in regard to the payments made from various treasuries and AHD of Government of Bihar. A public interest litigation had been filed in the High Court of Patna and the Hon'ble High Court had issued directions to the CBI and the IT Department to initiate action as may be considered fit. The direction of the Patna High Court was confirmed by the Hon'ble Supreme Court in the judgment dt. 19th March, 1996, in SLP No. 58(A)/1996. The directions of the Hon'ble High Court have been reproduced by me in para 4 of this order. In pursuance of the directions of the Hon'ble High Court, CBI had registered a case against various officers of the AHD and all concerned firms which had made supplies to AHD during the period 1980 to 1990. The assessee being one of the suppliers it is futile to dispute that the assessee-firm was one of the accused in FIR No. 55(A)/96. The payments received by the assessee from AHD in asst. yrs. 1987-88 to 1991-92 are as under :
Asst yr. Payment received 1987-88 35,77,035 1988-89 82,53,500 1989-90 79,98,500 1990-91 42,29,700 1991-92 42,29,700
The appellant-firm is one of the concerns of Malik family. In respect of Malik Enterprises and Hindustan Livestock Agency, Delhi, not only material was collected by the CBI about the fraudulent withdrawals from AHD, Government of Bihar, but partners of the firm had also accepted that they were involved in the fraudulent withdrawals. Some parties had also certified that Malik Enterprises, one of the concerns of the Malik family, had paid commission for getting bogus bills for the purchase of goods purportedly supplied to AHD, Government of Bihar. The question for consideration is as to whether in this background any person could have a reasonable belief that assessee, a concern of Malik family, was also involved in withdrawal of money from AHD against little supplies or no supplies. I have referred to various decisions of the Supreme Court wherein it has been specifically laid down that the power to reopen an assessment by the AO is subject to the condition that he has reasons to believe that the income has escaped assessment. It is also established from judicial principles laid down by the Hon'ble Supreme Court referred to elsewhere in this order that the formation of belief need not necessarily result into reassessment. The material sufficient for formation of the belief need not be sufficient for making the assessment/reassessment. The AO should not act arbitrarily, nor should he pretend of having a reasonable belief for reopening of an assessment, Reopening is also not valid if there is no live link or nexus between the material relied upon and the perception of the belief.
26. In this case, the fodder scam had become well known not only in the State of Bihar but because of its publicity all over India. The Hon'ble High Court had also admitted the public interest litigation and directed the CBI and the IT Department to investigate and initiate such action as may be considered fit. There was evidence on record to establish the involvement of members of the Malik family in the scam. The assessee had withdrawn substantial amount from AHD, Government of Bihar. When all the concerned officers of the AHD have been booked for fraud in regard to the payments made for bogus supplies or little supplies, when the Hon'ble High Court had directed the CBI and the IT Department to take action against the officers and the suppliers, when the members of the Malik family had admitted to be involved for the fraudulent withdrawals, when some of the parties had confirmed that they had accommodated one of the concerns of Malik family of giving bogus bills on payment of commission, was it reasonable for the AO to believe that the assessee, one of the concerns of the Malik family, would not have indulged in any such fraudulent withdrawals for no supply or little supplies to the AHD, Government of Bihar. In my considered view, it would not have been reasonable for the AO to believe that the assessee was an exception to the fraudulent withdrawals from AHD, Government of Bihar. In the light of large scale fraud detected in the Department of Animal Husbandry, Government of Bihar, the belief of the AO that the assessee had inflated purchases and expenses was a reasonable belief of a prudent person on the facts and in the circumstances of this case.
27. As has been laid down by the Hon'ble Supreme Court in several cases referred to elsewhere in this order, the material on the basis of which a reasonable belief is formed that income has escaped assessment need not necessarily result into assessment/reassessment. The material available at the time of formation of belief may not be sufficient for making the reassessment. But one has to consider as to whether the said material was sufficient for formation of the belief, the belief of an honest person. As pointed out earlier, the provisions of Section 147 require that the AO should have reason to believe that any income chargeable to tax has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the AO has a cause to think or suppose that income had escaped assessment he can be said to have reason to believe that such income had escaped assessment. The reason to believe cannot mean that the AO should have finally ascertained the facts by legal evidence. The justification for his belief is not to be adjudged from the standard of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under Section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of intervening scrutiny. At that stage where he finds cause or justification to believe that such income has escaped assessment, the AO is not required to base his belief on any final adjudication of the matter. In my considered view, on the facts of this case, any reasonable person would believe that the assessee-firm, a unit of Malik group, would not be an exception to the fraudulent withdrawals from the AHD, Government of Bihar. As pointed out earlier, validity of initiation of proceedings is dependent on the formation of the belief. It gives the AO the right to reopen a completed assessment. The provisions of the IT Act clearly provide the procedure for making the reassessment after the initiation has validly been made. Provisions of Section 143(2) and (3) are applicable in respect of making a reassessment after having been validly initiated. Even where proceedings are reopened validly, the assessee is given an opportunity to establish that there has been no escapement, as perceived by the AO. In this case also after the proceedings were initiated by the AO, it was open to the assessee to establish by necessary evidence that the perception of the ITO about the escapement of income on the basis of the information available with him was incorrect and/or that in any case the assessee had not inflated the purchases or expenses or made withdrawals from AHD, Government of Bihar, without supplies. That could be done by production of evidence of purchases, expenses and supplies to the Department. So, it is not that when the proceedings are validly initiated, the assessee loses the right of defence. It is in the light of this position of law, one has to consider the validity of the initiation of proceedings for reopening of an assessment. One may not be confused to test the basis for reopening with the final outcome of reassessment on the basis of the material on which the AO formed the belief that income had escaped assessment.
28. Taking the totality of the facts and circumstances of this case into consideration, in the light of the legal principles laid down by the Hon'ble Supreme Court referred to elsewhere in this order, I am of the considered view that the AO was justified in forming the belief that the income of the assessee had escaped assessment for the respective assessment years. The CIT(A) has quashed the reassessments on the legal ground and has not deliberated upon the merits of assessments. The learned Members of the Division Bench have also decided the legal issue only. My jurisdiction being limited to the point of difference between the Members, I have expressed the opinion about the validity of the initiation of the proceedings only and not about the merits of the addition. My conclusion is that on the basis of circumstantial evidence available with the AO at the time of initiation of proceedings, any reasonable person would believe that the income of the assessee in regard to supplies to AHD, Government of Bihar, had escaped assessment for the respective assessment years especially when there was no material on record to suggest that the assessee-firm would be an exception to the general trend of withdrawals from the said Department. I, therefore, agree with the conclusion of the learned JM that the reopening of assessment for the respective assessment years has validly been initiated.
29. The records may be placed before the Division Bench for announcing the majority judgment.
By the Bench:
4th March, 2004
1. There was a difference of opinion between the Members of the Bench and the following questions were referred to the Third Member for his opinion:
"Point of dispute as per learned JM :
Whether registration of a case with the CBI, on the allegation that the assessee received a sum of Rs. 79,98,500 from AHD, Government of Bihar, without making any supplies and obtaining accommodation entries of purchases against commission and surrounding circumstances, would be sufficient for an AO to form an opinion that on account of non-disclosure of material facts fully and truly income has escaped assessment."
"Point of dispute as per learned AM :
Whether on the basis of information available on account of registration of charge-sheet by the CBI in the case of assessee's relatives and their concerns would be sufficient for an AO to form an opinion that on account of nondisclosure of material facts regarding fake withdrawals from AHD, Government of Bihar, full and true income has escaped assessment in the case of the assessee."
2. The learned Third Member has agreed with the order of learned JM that the reopening of assessment for the respective assessment years has validly been initiated. Therefore, in accordance with the majority view, the issue is decided in favour of the Revenue and the appeals of the Revenue are allowed.