Income Tax Appellate Tribunal - Lucknow
Balaji Motors (P) Ltd. vs Dy. Cit on 30 July, 2003
Equivalent citations: (2004)91TTJ(LUCK)604
ORDER
Phool Singh, J.M.:
As these two appeals of the assessee are involving common grounds, these were heard together and are being disposed of by this composite order.
2. At the very outset, it may be pointed out that the assessee constructed a factory building in Noida, Distt. Ghaziabad, now in Gautam Budh Nagar. Due to certain circumstances, the assessee could not carry on the manufacturing activities in the factory building and let it out to one party and received the amount of rent for assessment year 1995-96, the assessee had shown the income from rent and after claiming 1/5th as deduction, the remaining amount of rent was shown as income from property. For assessment year 1996-97, the assessee changed its stand and started showing the rental income under the head "Business". Both the assessments appeared to have been completed. In assessment year 1997-98, there was objection raised by the internal audit party to the effect that the entire receipt of the assessee was from rent and the same was assessable under the head "Income from house property". It appears from record that on the basis of objection of the internal audit party, the assessing officer issued a notice under section 154 of the Act to rectify the alleged mistake.. The assessee raised objection to the effect that the issue was debatable and was outside the purview of the scope of section 154 of the Act. The assessing officer noted that the objection of the assessee was justify and accordingly he started proceedings of reassessment and served a notice under section 148 of the Act. Several pleas were raised by the assessee in both the assessment years, but those did not find favour with the assessing officer, who after rejecting the objection of the assessee that income was from business and no notice under section 148 of the Act was served, computed the income under the head "Income from property" and did not allow the expenses claimed by the assessee in the original return for want of necessary evidence and completed the assessment for both the assessment years.
3. The assessee came in appeal and several pleas were raised. One of the pleas was that no notice under section 148 of the Act was served upon the assessee, but the Commissioner (Appeals) noted that the assessee had mentioned to the assessing officer that the return filed earlier may be treated as return in pursuance to the notice under section 148 of the Act. The Commissioner (Appeals) also took a note of the fact that the assessee had appeared before the assessing officer. The assessee had also raised the plea about the jurisdiction of the assessing officer on the ground that factory building was situated in Ghaziabad, which was outside the jurisdiction of the assessing officer. All the books of accounts were lying in Ghaziabad and none of the director was residing in Kanpur. All these pleas were also rejected on the ground that the assessee himself had shown the address of the assessee- company at Kanpur and subjected himself for assessment before the concerned assessing officer. This plea was also rejected. The last plea of the assessee that income was from business and not from the house property was also repelled on the basis of case law discussed in the order, which is or both the assessment years recorded by Commissioner (Appeals)-II, Kanpur, dated 8-3-2002, which is assailed by the assessee through these two appeals. The assessee raised several pleas against the impugned order of the Commissioner (Appeals) and during the course of hearing, an application was also moved raising the following additional ground :
"The initiation of proceedings under section 147/148 of the Income Tax Act, 1961, by the assessing officer and wrongly confirmed by the Commissioner (Appeals) is illegal, bad in law and void ab initio as the only basis for initiation of the proceedings as stated in the assessment order, in the present case, is the objection by the audit party, which in view of the Apex Court judgment cannot be material/information for the assessing officer to have reason to believe that income has escaped assessment and hence the initiation of proceedings by issuance of notice under section 147/148 and any order passed in consequence thereof will also be illegal, void ab initio, contrary to law laid down by the Supreme Court and hence liable to be quashed."
4. This application was heard on merit and ultimately the Bench allowed it on 18-6-2003.
5. Learned counsel while arguing on this newly added ground submitted that both the assessments were completed by the assessing officer and the very basis of reopening is the objection of the internal audit party as apparent from the body of the assessment order. The assessing officer initiated proceedings under section 154 of the Act, which was dropped, when assessee raised objection and later on the assessing officer initiated proceedings of reassessment by serving a notice under section 148 of the Act. About legal plea, the learned counsel for the assessee submitted that in view of the decision of Hon'ble Supreme Court of India in the case of Indian & Eastern Newspapers Society v. CIT (1979) 119 ITR 996 (SC), objection of internal audit party of the IT department on a point of law cannot be regarded as 'information' within the meaning of section 147(b) of the Act, as it was existing prior to 1-4-1989. The same view was taken by Hon'ble Madras High Court in the case of CIT v. Lucas TVS Ltd. (1998) 234 ITR 296 (Mad), in which it was also laid down that opinion of the audit party regarding application or interpretation of law does not constitute information. The decision of Hon'ble Madras High Court stands confirmed by Hon'ble Supreme Court of India in the case of CIT v. Lucas TVS Ltd. (2001) 168 CTR (SC) 311.
6. The learned counsel also referred to the decision of Gujarat High Court in the case of Adani Exports v. Dy. CIT (1999) 240 ITR 224 (Guj), in which assessment year 1993-94 was involved and their Lordships have laid down that it is the satisfaction of the assessing officer for the purpose of reopening an assessment and in case the assessee is able to demonstrate that, in fact, the assessing officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be an abuse of such authority. On the basis of the above case law, the learned counsel for the assessee submitted that the assessing officer has no reason to believe at his own end, but reopening of the assessment for assessment years 1995-96 and 1996-97 was merely on the basis of objection of internal audit party and, thus, there was no sufficient ground for reopening of the assessment and both the assessments should be quashed.
7. As against it, the learned senior Departmental Representative placing reliance on the order of assessing officer submitted that it is not merely by objection of the internal audit party, which was the basis for making reopening the assessment orders involved, but the assessing officer has made up his mind on the factual position available on record as apparent from pp. 1 to 3 of the assessment order in which the assessing officer has looked into the factual aspect as well as legal aspect of the matter and reopening was justified.
8. We have considered the rival submissions and perused the records carefully.
9. Provisions of section 147 are as under :
147. Income escaping assessmentIf the assessing officer has reason to believe that any 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 163 referred to as the relevant assessment year) Provided that where an assessment xxx xxx xxx xxx xxx xxx xxx
10. The above provision came into operation from 1-4-1989. Initially, the words used by the legislature under the above referred to section were like this :
"Sec. 147-If the assessing officer for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax or ..........
11. There had been number of representations from the different quarters against the omission of the word "reason to believe" from section 147 and their substitution by "opinion" of the assessing officer. It was pointed out by the representatives that meaning of the expression 'reason to believe' had been explained in the number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary. powers to the assessing officer to reopen past assessment on mere change of opinion. To rule out these fears, the Amendment Act, 1989, again amended section 147 to reintroduce the expression 'has reason to believe' in place of the word 'for reasons to be recorded by him in writing is of the opinion'. Other provisions of new section 147, however, remained the same. The very purpose of referring the above is that importance has been given to the belief of the assessing officer. Their Lordships of Hon'ble Gujarat High Court in the case of Adani Exports v. Dy. CIT (supra) have explained the situation in the following words :
"The satisfaction of the assessing officer for the purpose of reopening an assessment is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to scrutiny. However, it is always open to question the existence of such belief on the ground that what has been stated is not the correct state of affairs existing on record. In the face of the record the burden lies on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the assessing officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected on paper is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be an abuse of such authority.
That part alone of the note of an audit party which mentions the law which escaped the notice of the Income Tax Officer constitutes "information" within the meaning of section 147(b) of the Income Tax Act, 1961, the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income Tax Officer. In every case the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income had escaped assessment. The basis of his belief must be the law of which he has now become aware."
12. The above shall show the actual position of the scope of section 147. In the case in hand, it is merely the internal audit objection, which was the foundation for initiation of proceedings of reassessment. The department has not been able to bring before us any material to show that it was not merely objection of the internal audit party, but the belief formed by the assessing officer was of his own. The assessing officer in the order of assessment himself has stated that it was during assessment year 1997-98 that internal audit party had raised the objection to the effect that income from rent was being wrongly assessed as income from business, while it should have been income from house property. It means the very basis for belief of the assessing officer was based on this objection of the internal audit party and nothing more. In the absence of any material from the department to show that the assessing officer formed reason to believe on the basis of other material, the necessary inference is that it was merely the objection of the internal audit party on the basis of which the assessing officer formed the opinion, while even the amended provision of section 147 requires that the assessing officer has to satisfy himself. In the absence of any material from the department, we are constrained to believe that it was objection of the internal audit party, which was the basis for the assessing officer to record the reasons for reopening and as laid down in the cases referred to by the learned counsel for the assessee, the information in the shape of audit objection of internal audit party cannot be sufficient as it is not the personal satisfaction of the assessing officer for the purpose of reopening, but the basis of belief is on the basis of objection of internal audit party. In the absence of any reason to believe by the assessing officer, reopening is not justified and it is settled proposition of law that in case reopening is not valid what subsequently follows is also not sustainable. The Bench is also not expected to decide the other grounds also, 'because the Hon'ble Calcutta High Court in the case of Rawatmal Harakchand v. CIT (1981) 129 ITR 346 (Cal), has laid down that once the initiation of reassessment proceedings is held to be invalid, whatever follows thereafter must also necessarily be invalid and proper course for the Tribunal in such circumstances was not to consider the merits at all. Respectfully following the above, we are of the view that the assessee to succeed on the additional ground raised before us and the appeal is allowed as reassessment proceedings are invalid and reassessment orders for both the assessment years stand quashed.
13. Appeals are allowed as above.