Delhi High Court
Shri Bawa Abhai Singh vs Dy. Commissioner Of Income-Tax on 23 March, 2001
Equivalent citations: 2001IVAD(DELHI)556, 92(2001)DLT35
Author: Arijit Pasayat
Bench: Arijit Pasayat, D.K. Jain
ORDER Arijit Pasayat, CJ.
1. Challenge in this writ petition is to the notice dated 30.3.1999 issued under Section 148 of the Income-tax Act, 1961, and served on the assessed on 14.1999 and to the notices issued under section 143(2) and 142(1) of the Act dated 24.1.2001.Incidentally, challenge is also made to the order passed by the District Valuation Officer (in short, DVO) dated 19.2.1999 under section 55A of the Act read with Section 16F of the Wealth Tax Act ( in short the WT Act). It is to be noted that earlier the petitioner had filed a writ petition ( No. 1021/2000) questioning the notice issued on the purported ground that what "constitute reasons to believe" for initiation of the proceedings was not communicated. By order dated 10.2.2000 direction was given to the respondent to furnish a copy of the reasons recorded under section 148 of the Act. After the same have been furnished the present writ petition has been filed questioning legality of the action taken.
2. Factual position in a nutshell is as follows:
On 25.3.1997, assessed filed its return of income for 1995-96. Long term capital loss of Rs. 3628313/- in respect of properties situated at Delhi and Mumbai were claimed. The total income declared was Rs. 3,89,040/-. Certain reports of registered valuer indicating valuation of property were filed along with the return of income Certain documents were filed and finally, an order of assessment under Section 143(3) was passed on 1-4-1981, accepting the values of the properties as disclosed in the return. Before completion of assessment, reference was made by the assessing officer to DVO to value the properties situated at Muland in Mumbia. On 16-3-1998, DVO called upon the petitioner to produce certain documents and details. On 17-5-1998, petitioner wrote to valuation officer that as assessment has already been completed, reference was irrelevant. Nevertheless, report was submitted on 19.2.1999. On 30-3-1999, notice under Section 148 was issued by the assessing officer seeking to reopen the assessment. As indicated above, petitioner had moved this Court to know the reasons which weighed with the assessing officer to reopen the proceedings. Reasons have been supplied.
3. Main stand of the petitioner is that reopening of assessment has been done solely on the basis of DVO's report which is nothing but an opinion and that cannot constitute the foundation or an information to invest jurisdiction on the assessing officer to reopen the proceedings. That cannot form a foundation of a belief or cannot constitute a reason for reopening the assessment. It is further submitted that after completion of assessment, report of valuation officer and reference under Section 55A is of no relevance or consequence and therefore have to be completely ignored and treated as non est. Since the assessing officer has solely relied on the said elicit information of the valuation officer, the entire proceedings reopening the assessment for reassessment have no legal foundation.
Reliance is placed in support of the plea on several decisions i.e. Brig B Lall, v. Wealth-tax Officer, (1981) 127 ITR 308, Reliance Jute & Industries Ltd vs ITO, (1984) 150 ITR 643, S. Kehar Singh v CIT (1992) 195 ITR 769, and Smt Amla Das v. CIT, 146 ITR 216.
It is stated that though there are some decisions, for example, M.S. Vasudev v. CWT, (1991) 191 ITR 181, inter alia, holding that valuation report received after completion of assessment constitutes information but the same are distinguishable on facts, because they related to a proceeding under Wealth-tax Act where opinion of the valuation officer is binding but the same is not the position under the Act.
4. Learned counsel for Revenue, on the other hand, submitted that power for reopening the assessment under Section 148 in the background of Section 147 of the Act is much wider. According to him, the ITO can act on material which comes into his possession and prima facie shows that there was under-assessment of income or escapement of income from the assessment. It is submitted that most of the decisions relied upon by the learned counsel for assessed related to cases where references were after completion of assessment but the case at hand was one where the reference was made during pendency of the assessment. According to him, the fact that assessment has been completed will not stand in the way of the ITO considering report and arriving at an independent conclusion about under-assessment or escapement of income.
5. Though in some of the decisions, it has been held that valuation officer's report which has come into the possession of ITO after completion of assessment cannot form the basis to reopen the assessment, we find ourselves unable to agree with such a view. At this juncture, it is necessary to take note of Sections 147 of the Act. The provisions as they stood prior to 1.4.1989 and on or after 1.4.1989 are as follows:
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| | | | BEFORE 1.4.1989 | AFTER 1-4-1989 | | | |
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|Section 147 Income escaping assessment- | S.147. Income escaping assessment.--if- | |If the Assessing officer has reason to | | |believe that any income chargeable to tax | (a) the Assessing officer has reason to| |has escaped assessment for any assessment | believe that, by reason of the omission| |year, he may, subject to the provisions of | or failure on the part of an assessed to| |sections 148 to 153, assess or reassess | make a return under section 139 for| |such income and also nay other income | any assessment year to the Assessing| |chargeable to tax which has escaped | Officer or to disclose fully and truly| |assessment and which comes to his notice | all material facts necessary for his| |subsequently in the course of the | assessment for that year, income| |proceedings under this Section, or | chargeable to tax has escaped| |recomputed the loss or the depreciation | assessment for that year, or | |allowance or any other allowance, as the | (b) notwithstanding that there has been no| |case may be for the assessment year | omission or failure as mentioned in| |concerned (hereafter in this section and | clause (a) on the part of the assessed,| |in sections 148 to 153 referred to as the | the Assessing Officer has in| |relevant assessment year. | consequence of information in his| | | possession reason to believe that| | | income chargeable to tax has escaped| | | assessment for any assessment year. | | | | | | He may, subject to the provisions of| | | Sections 148 to 153, assess or reassess such| | | income or recomputed the loss or the| | | depreciation allowance, as the case may be,| | | for the assessment year concerned (hereafter| | | in Sections 148 to 153 referred to as the| | | relevant assessment year). |
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6. up to 31-3-1989 two conditions were to be satisfied to confer jurisdiction under Section 147(a) of the Act. They were (I) the assessing officer must have reason to believe that income, profits or gain chargeable to income-tax have escaped assessment, (II) he must have reasons to believe that such escapement occurred either (i) on account of omission or failure on the part of the assessed to make a return of his income under section 139 or (ii) omission on the part of the assessed to disclose material facts necessary for his assessment for that year. As was observed in the case of Calcutta Discount Company v. Income-tax Officer (1961) 41 ITR 191, both the conditions are conditions precedent to be satisfied before the assessing officer could have jurisdiction to have the assessment reopened under Section 147(a). Two conditions are cumulative conditions. Thus, if either of these two conditions is not fulfillled the action of the assessing officer would be without jurisdiction.
7. The crucial expression is "reason to believe". The expression predicates that assessing officer must hold a belief ... by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. As was observed in Ganga Saran & Sons (P) Ltd vs. ITO. (1981) 130 ITR 1, expression "reasons to believe" is stronger than the expression "is satisfied". Belief entertained by the assessing officer should not be irrational and arbitrary. To put it differently, it must be reasonable and must be based on reasons which are material. In S. Narayanappa v. CIT (1967) 63 ITR 219 it was noted by the Apex Court that expression "reasons to believe" in Section 147 does not mean purely a subjective satisfaction on the part of the assessing officer, belief must be held in good faith, it cannot be merely a pretence. It is open to the court to examine whether reasons for the belief have a rational nexus or a relevant bearing to the formation of belief and are not extraneous or irrelevant for the purpose of the Section. To that limited extent, action of the assessing officer in initiating proceedings under section 147 can be challenged in a court of law. As was observed by this Court in R. Dalmia v. UOI (1972) 84 ITR 616 that there should be facts before the assessing officer that reasonably give rise to a belief, as noted above, but then it may not be conclusive to support the tentative conclusion. A mere fanciful belief that income has escaped assessment which is not based on law will not justify action under Section 147. It has been observed by the Apex Court in several cases that belief of the assessing officer is as to escapement of income and belief should not be a product of imagination or speculation. There must be reason to induce belief. The same should be by reason of omission or failure on the part of assessed to disclose fully and truly his income. The position has changed after 1.4.1989.
up to 31.3.1989 two conditions were required to be fulfillled to confer jurisdiction on the assessing officer to act under Section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order; and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under-assessed or assessed at too low a rate or has been made the subject of excessive relief.
After 1-4-1989 the position is somewhat different. Section 147 w.e.f 1-4-1989 provides that where assessing officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year he may apply the provisions of Section 148 to 153. He may assess or re-assess the income which has escaped assessment. It is to be noted that Section 147 as it stands w.e.f. 1.4.1989 not only merges clauses (a) and (b) of the pre-amended Section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre-amended Section. Conditions precedent for initiation of action under section 147(a) or 147(b) of the pre-amended situation, is highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of Section 147 prior to amendment, are not present in the amended provision. The only condition for action is that assessing officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assessed as contemplated in the pre-amended Section 147(a) of the Act and assessing officer can under the amended provisions legitimately reopen the assessment in respect of an income which has escaped assessment. Viewed in that angle power to reopen assessment is much wider under the amended provision and can be exercised even after assessed has disclosed fully and truly all the material facts. To similar view were the conclusions of this Court in Rakesh Aggarwal v. Asstt CIT (1977) 225 ITR 493. It is to be noted at this juncture that twin conditions must be fulfillled if the case is one which is covered by the proviso to Section 147 operative w.e.f. 1.4.1989.
8. It is to be noted that decision to initiate proceedings is not to be preceded by any judicial or quasi judicial enquiry. Reasons which may weigh with the assessing officer may be the result of his own investigation and may come from any source that he considers reliable. Formation of his belief is not a judicial decision but is an administrative decision. Nevertheless, he is required to act fairly and judiciously. His belief must have substance and must not be a mere shadow. The expression information in the context in which it appear in pre-amended Section 147(b) was held to be instruction or knowledge derived from an external source concerning facts or particular or to the law relating to matter having a bearing on the assessment. (See. CIT vs. A. Raman & Co. (1968) 67 ITR 11). In Indian & Eastern Newspaper Society v. CIT 119 ITR 996 true concept of the "information" was elaborately dealt with by the Apex court. It was observed that by its inherent nature the fact has concrete existence. It requires no further authority to make it significant. Its quintessential value lies in its definitive vitality.
9. The reasons which were recorded for initiation of proceedings as communicated to the assessed are as follows:-
"True extract of reasons recorded u/s 148 for assessment year 1995-96 on 5.3.1999.
Valuation report for the property at Mulund, Mumbia received from the Distt Valuation Officer-I, IT Department, 22nd Floor, Piramal Chamber, Parel, Mumbai. The property has been valued at Rs. 39,92 lakhs as on 1/4/1981, as against the value taken by the assessed at Rs. 1,42,53,000/-. From this it appears that the assessed ahs understated the capital gains for A.Y. 1995-96.
Therefore, I am satisfied that the case for A.Y. 1995-96 be re-opened and hence notice u/s 148 is issued A.Y. 1995-96."
10. It will be seen from the extracted reasons recorded under Section 148 of the Act that the assessing officer has referred to the valuation report. The valuation indicated and after considering the valuation, the assessing officer has come to a conclusion that the assessed has understated the capital gains. The conclusion made by the assessing officer is also a part of the record. It cannot be said that the report of the valuation officer containing his conclusions abut the valuation cannot constitute information or have to be totally excluded from consideration, even if it is held that the report is of no consequence after the assessment has been completed. Even if accepted that report received results in the proceedings which have become inoperative after passing of the order of assessment yet it is not totally useless or worthless. It is trite law that even materials recovered in an illegal search are capable of being used for several purposes. It has been held that they have evidentiary value. That being the position, we do not find any substance in the plea that the assessing officer could not have taken into account the valuation report. What is really necessary to be adjudicated in a case of this nature is about existence of relevant material which form foundation of a belief and constitute reasons for entertaining a belief about escapement of an income. We may take note of a decision of the Apex Court in ITO v. Selected Dalurband Coal Co Pvt Ltd.(1996) 217 ITR 597. It was observed that notice under section 148 read with Section 147(a) of the Act (as it stood prior to amendment) can be issued only where ITO has reason to believe that the income, profits and gains chargeable to tax has been under assessed or escaped assessment and further that such escapement or under assessment was occasioned by reason of failure of the assessed to disclose fully and truly all material for the assessment years. There must be relevant material before the assessing officer on the basis of which he may form a belief. Formation of belief is essentially within his subjective satisfaction at the stage of issue of notice and the question is whether there was relevant material on which a reasonable person could have formed a reasonable belief. In that case the ITO had referred to a communication received from the officers of the Mining Department showing underreporting and raising figures. That was held to be sufficient by the Apex Court. It was observed as follows:
"whether the facts stated in the letter are true or not is not the concern at this stage. It may well be that assessed may be able to establish on facts stated in the letter are not true but that conclusion can be arrived at only after making necessary enquiry. At the state of issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief".
The observations are clearly applicable to the facts of the present case.
11. It would also be relevant to take note of certain observations made by this Court in L.R.Gupta v Uol, (1992)194 ITR 32 in the background of Section 132 of the Act. It was noted in the said case as follows:-
"The expression "information" must be something more than a mere rumour or a gossip or a hunch. There must be some material which can be regarded as information which must exist on the file on the basis of which the authorizing officer can have reason to believe that action under section 132 is called for any of the reason mentioned in clauses (a), (b) or (c). When the actin of issuance of an authorization under section 132 is challenged in court, it will be open to the petitioner to contend that, on the facts or information disclose, no reasonable person could have come to the conclusion that action under Section 132 was called for. The opinion which has to be formed is subjective and, therefore, the jurisdiction of the court to interfere is very limited. A court will not act as an appellate authority and examine meticulously the information in order to decide for itself as to whether action under section 132 is called for. But the court would be acting within its jurisdiction is seeing whether the act issuance of an authorisation under Section 132 is arbitrary or mala fide or whether the satisfaction which is recorded is such which shows lack of application of mind of the appropriate authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then, is such a case, action taken under section 132 would be regarded as bad in law.:
The logic indicated by this court in the background of Section 132 is equally applicable to a case under Section 147. At the cost or repetition we may say that information must be something more then a rumour or gossip or hunch. There must be some material which can be regarded as information, on the basis o f which the assessing officer can have reason to believe that action under Section 147 is called for. Jurisdiction of the Court to interfere is very limited, as Court does not act as appellate authority. No meticulous examination of the information by the Court is permissible to decide for itself as to whether action under Section 147 is called for. The "reason to believe" must be tenable in law. Only if the information or the reason has no nexus with the belief or there is no material or tangible information for forming of requisite belief, then only the Court can interfere, otherwise not.
12. Information means the communication or reception of knowledge or intelligence. It includes knowledge obtained from investigation study or insurrection. To inform means to impart knowledge. A detail available in the papers filed before the Income-tax Officer does not be its mere presence or availability become an item of information. It is transmuted into an item of information only if and when its existence is realised and its implications are recognised. Whether a particular fact or material constitutes information in a particular case has to be decided with reference to the facts of that case and there cannot be a definite or rule of universal application as to when a particular material will be taken to be an information.
Above being the position, we find no merit in this petition which is accordingly dismissed. Interim order dated 1st March, 2001 stands vacated.