Hon'ble Mahesh Chandra Tripathi,J.
(DELEVERED BY HON'BLE ASHOK BHUSHAN, J.) These three writ petitions have been filed by the same assessee challenging the notice dated 28.2.2013 under section 148 of the Income Tax Act 1961 initiating the proceedings for re-assessment for the Assessment Year 2009-10, 2007-08, 2010-011 respectively. Brief facts giving rise to these three writ petitions are:
writ petition No. 78 of 2014 (Re-assessment notice dated 28.2.2013 for the Assessment Year 2009-10) The assessee had filed his return electronically for the Assessment Year 2009-10 on 29.9.2009. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). The Assessing Officer while proceeding for assessment of the Year 2009-10 had made certain queries which were replied by the assessee whereafter the return was finalised under section 143(3). The Assessee had submitted return for the Assessment Year 2010-11. The case was processed under section 143(1) and refund was issued. Subsequently the case for the Assessment Year 2010-11 was selected for scrutiny and notice under section 143(1) was issued for 29.8.2011 along with detailed questionnaire. While conducting the scrutiny for the return of 2010-11, the Assessing Officer after recording reasons issued notice dated 28.2.2013 for re-assessment for the year 2009-10. In response to the notice dated 28.2.2013, the petitioner vide his letter dated 15.3.2013 enclosing e-return earlier filed, requested that the said return be treated to be filed in compliance of the notice dated 28.2.2013. Assessee also requested for certified copy of the reasons recorded. The Assessing Officer vide letter dated 9.7.2013 issued copy of the reasons. The Assessee vide his letter dated 19.8.2013 submitted objections to the notice under section 148 of the Act after acknowledging the receipt of the certified copy of the reasons. The assessee in the objection stated that there is no material in favour of belief of escapement of income for assessment and notice has been issued to make only roving and fishing enquires. The Assessing Officer vide his letter dated 4.10.2013 disposed of the objections. The writ petition has been filed by the petitioner praying for quashing the notice dated 28.2.2013.
writ petition No. 79 of 2014 (Re-assessment notice dated 28.2.2013 for the Assessment Year 2007-08) Assessee had filed his return electronically for the Assessment Year 2007-08 on 29.10.2007. There was refund of Rs. 2,13,940/- for income tax and Rs. 20,131/- for fringe benefit tax The assessment was completed under section 143(1) of the Income Tax Act. While proceeding with scrutiny for the Assessment Year 2010-11, the Assessing Officer issued notice for reassessment for the year 2007-08 dated 28.2.2013. The petitioner vide his letter dated 15.3.2013 requested that the e-return which was earlier filed be treated as a return filed in compliance of the notice dated 28.2.2013. Copy of the reasons recorded for issuing notice under section 148 was requested to be supplied on 9.7.2013. The Assessing Officer supplied the reasons recorded. The assessee filed objection dated 8.8.2013. Assessing Officer vide his letter dated 4.12.2013 rejected the objections. The petitioner filed writ petition challenging the re-assessment notice dated 28.2.2013 for the Assessment Year 2007-08.
writ petition No. 80 of 2014 (Re-assessment notice dated 28.2.2013 for the Assessment Year 20011-12).
The assessee filed his return electronically for the Assessment Year 2011-12 on 25.9.2011. There was refund of Rs. 1,37,808/- for income tax. While proceeding with scrutiny for the Assessment Year 2010-11, the Assessing Officer had issued notice dated 28.2.2013 for re-assessment for the year 2011-12. The petitioner vide his letter dated 15.3.2013 requested that the e-return which was earlier filed be treated as a return filed in compliance of the notice dated 28.2.2013. Assessing Officer on 9.7.2013 had provided the reasons recorded for the Assessment Year 2011-12. The assessee filed his objections dated 8.8.2013 against the re-assessment notice which objections were rejected by letter dated 4.12.2013. The writ petition has been filed challenging the re-assessment notice dated 28.2.2013 for the Assessment Year 2011-12.
We have heard Sri Vibhav Bhushan Upadhyay,Senior Advocate assisted by Ms. Anjali Upadhya, learned Counsel for the petitioner and Sri Ashok Kumar on behalf of the Income Tax Department.
Sri Upadhya in support of the writ petition submitted that re-assessment notice has been issued only on mere change of opinion and there is no material to have any reason for belief that income has escaped assessment. He submits that all relevant facts including details of unsecured loans were mentioned in the Income-tax return hence, the Income Tax Officer has no jurisdiction to issue notice under section 148. He submits that for the Assessment Year 2009-10 queries were made with regard to issue of fresh share capital, unsecured loan squared up loan amount, which were duly replied by the petitioner in which details of Income Tax return of the Elina Developers Pvt. Ltd. and certain other companies were shown and after scrutiny, the return for the Assessment Year 2009-10 was finalised under section 143(3). He submits that the copy of the reasons as communicated to the petitioner does not indicate that there is any material with the Income Tax Officer to proceed with re-assessment. The reasons itself disclose that the Income Tax Officer is proceeding with further inquires which means that there was no sufficient material to form a belief that income has escaped assessment. He submits that Income Tax Officer has no jurisdiction to review the assessment already completed.
With regard to re-assessment notice dated 28.2.2013 for the Assessment Year 2007-08, Sri Upadhya submits that assessment notice having been issued beyond four years from the last date of the order of of assessment in question, the notice is beyond jurisdiction.
An additional submission with regard to Assessment Year 2011-12 raised by Sri Upadhya is that the assessment proceedings for the Assessment Year 2011-12 has yet not been completed.Hence there is no jurisdiction in initiating the re-assessment proceedings.
Sri Ashok Kumar, learned Counsel appearing for the Department, refuting the submissions of learned Counsel for the petitioner contended that there was sufficient material with the Income Tax Officer to form a belief that income has escaped assessment. He submits that for the reasons recorded, sufficient materials have been disclosed on the basis of which Assessing Officer has reasons to belief that income has escaped assessment. He submits that while carrying on the scrutiny for the Assessment Year 2010-11, it was found that various unsecured loans and share money from different companies were bogus since the companies were neither genuine nor such transactions had taken place. He submits that with regard to each Assessment Year a discrete inquiry was conducted. On being satisfied that similar trend is disclosed in the earlier return, notice has been validly issued. He submits that Section 139 casts an obligation upon the assessee to disclose all relevant facts fully and truly and the Assessing Officer having come to the opinion that the disclosure were not made fully and truly, the Assessing Officer has every jurisdiction to initiate re-assessment proceedings. He submits that in so far as Assessment Year 2007-08 is concerned, there was no error of jurisdiction in initiating the re-assessment proceedings. With regard to the Assessment Year 2011-12, Sri Ashok Kumar submits that the petitioner having participated in the re-assessment proceedings having filed return as well as objection, cannot be allowed to challenge the re-assessment notice after one year. He further submits that the petitioner's objection to the re-assessment notice having been decided on 4.12.2013, the remedy of the petitioner is to file an appeal under section 246-A of the Act. He submits that due to this reasons also the writ petition be not entertained.
Learned Counsel for the parties have placed reliance on various judgements of the apex Court, this Court as well as different High Courts in support of their respective submissions, which shall be referred to hereinafter, while considering the respective submissions.
The notices impugned in the writ petitions have been issued under section 148 for re-assessment. Sections 147,148 and 149 which are relevant in the present case are as follows:
"Income escaping assessment.
147. If 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 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year;
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment;
Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.
Issue of notice where income has escaped assessment.
148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve31 on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 :
Provided that in a case--
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:
Provided further that in a case--
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.
Explanation.--For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.
(2)The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.
149. Time limit for notice.- (1) No notice under section 148 shall be issue for the relevant assessment year,--
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c)
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.
(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.
Explanation.--In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.
(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year.
Explanation.- In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of Section 147 shall apply as they apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.
(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year.
Explanation.--For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012."
Section 147 has been amended from time to time and Section 147 as existing at the relevant time has been quoted above. The jurisdiction under section 147 to initiate re-assessment proceedings can be initiated on fulfilment of the conditions as mentioned in the provision. When the Assessing Officer "has reason to believe that any income chargeable to tax has escaped assessment" he may issue notice under section 148 requiring assessee to furnish return of his income. Section 147 contains three provisos. The first proviso which is relevant in the present case provides that where an assessment under sub-section (3) of section 143 or this section (147) has been made for the relevant assessment year, no action shall be taken under section 147after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment.
Sri Upadhya submits that in absence of existence of jurisdictional facts, the proceedings are without jurisdiction. He placed reliance on the celebrated case of Hon'ble Supreme Court reported in AIR 1961 SC 372 Calcutta Discount Company Ltd. V. Income-tax Officer, Companies District I, Calcutta and another. In the Calcutta Discount Company's case, apex Court had occasion to consider section 34 of the Income Tax Act, 1922 which confers jurisdiction on the Income Tax Officer to initiate reassessment proceedings. The apex Court in the said case laid down that to confer jurisdiction on the Income Tax Officer two conditions have to be satisfied. Firstly, the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income- tax have been under-assessed and secondly he must have also reason to believe that such " under assessment " has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Following was laid down in paragraph 6:
" (6) To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such " under assessment " has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years but within the period of eight years, from the end of the year in question."
The apex Court however, has further observed that whether grounds were adequate or not for arriving at a conclusion that there was a non disclosure of material facts would not be open for the court's investigation. Following was lad down in paragraph 15:
"(15) The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non- disclosure as regards any primary fact, which could have a material bearing on the question of "under assessments that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice,% under s. 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts."
The argument that Court ought not to investigate the existence of one of these conditions, was not accepted. Following was laid down in paragraph 26:
"(26) Mr. Sastri argued that the question whether the Income-tax Officer had reason to believe that under assessment had occurred " by reason of nondisclosure of material facts " should not be investigated by the courts in an application under Art. 226. Learned Counsel seems to suggest that as soon as the Income-tax Officer has reason to believe that there has been under assessment in any year he has jurisdiction to start proceedings under s. 34 by issuing a notice provided 8 years have not elapsed from the end of the year in question, but whether the notices should have been issued within a period of 4 years or not is only a question of limitation which could and should properly be raised in assessment proceedings. It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an under assessment has resulted from non- disclosure he shall have jurisdiction to start proceedings for re. assessment within a period of 8 years; and where he has reason to believe that an under assessment has resulted from other causes he shall have jurisdiction to start proceedings for re-assessment within 4 years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under assessment and (ii) his having reason to believe that such under assessment has resulted from nondisclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. The argument that the Court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that under assessment has resulted from non-disclosure of material facts cannot therefore be accepted."
The apex Court in the said case held that conditions precedent to exercise jurisdiction under section 34 were not existing. The said conclusions were recorded in paragraph 25, which is to the following effect:
"(25) We are therefore bound to hold that the conditions precedent to the exercise of jurisdiction under s. 34 of the Income- tax Act did not exist and the Income-tax Officer had therefore no jurisdiction to issue the impugned notices under s. 34 in respect of the years 1942-43, 1943-44 and 1944-45 after the expiry of four years."
The next judgment on which strong reliance has been placed by Sri Upadhya is [2010] 320 ITR 561 (SC) Commissioner of income-tax Vs. Kelvinator India Ltd. The Apex Court In the case after noticing the amendments made in Section 147 held that Section 147 does not give power to the Assessing Officer to reopen an assessment on the basis of mere change of opinion. It was held that Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. It is useful to quote following observations of the apex Court:
"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe"; failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion"; is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
From the proposition of law as laid down by the apex Court in the above two cases, it is well settled that conditions precedent for initiating the proceeding for re-assessment notice under section 148 should be present lest the Assessing Officer will have no jurisdiction to proceed with the re-assessment proceedings and this Court in exercise of its jurisdiction under Article 226 of the Constitution of India shall not hesitate in interfering with a proceeding which has been initiated without existence of jurisdictional facts.
Now we have to examine whether the reasons supplied by the Assessing Officer to the assessee were tangible materials to proceed with the re-assessment proceedings or re-assessment proceedings have been initiated only on mere change of opinion.
First of all we come to the Assessment Year 2009-10. Following reasons have been communicated by the Income Tax Officer to the assessee for the Assessment Year 2009-10. It is useful to quote the reasons which were to the following effect: page 49-50 "The case of the assessee company is undergoing scrutiny assessment for A.Y. 2010-11. During the course of assessment proceedings for current year, it is seen that unsecured loans and share application money and share premium money amounting to Rs. 3.5 crores have been received from various companies named below:-
a)
1.Attractive Fin-lease Ltd.
2.Aasheesh Capital Services P. Ltd.
3.Mega Top Promotors P. Ltd.
4.PH Softech Private Ltd.
5.Umeed Leasing & Finance Ltd.
6.Sri Nirananda Builders P. Ltd.
7.Hum Tum Marketing Pvt. Ltd.
8.Victory Software Private Limited.
b)
1.Shashank Financial Service Pvt. Ltd.
2.Elina Developers Pvt. Ltd.
3.Smita Buildwell Pvt. Ltd.
4.Skytech Infotech Pvt. Ltd.
5.Indiabulls Credit Services Ltd.
Field enquiries have been made in all these cases and it has been reported by the Inspector attached with this office that no such companies exists at these address. It also reported from the Investigation Wing, Delhi that the above named companies are mere entry provider having no identity, genuineness and creditworthiness. As such, all these bogus loans and share application money/share premium money is being added in the income of the assessee for the current year. On going through the earlier years returns, it has been seen that there is a particular trend in the activities of the assessee company to take unsecured loans & share application money and share premium money through various third parties and introduced the same as capital. During the course of assessment proceedings it was further witnessed that the assessee company has taken unsecured loans amounting to Rs. 1,55,00,000/- in last assessment year as well which are as follow:-
S. NO.
NAME OF PARTY ADDRESS PAN Amount of loan taken
1. Annadi Foods Pvt. Ltd.
Flat No. 479, GH-9, Pachim Vihar, Delhi AAFCA2966F 15,00,000
2. Dhansri Merchants Pvt. Ltd.
132/4, M.G. Road, Burra Bazar, Kaveri House, Kolkatta.
AACCD2875M 25,00,000
3. Jutex Trade India Ltd.
4,Ballav Das Street Burra Bazar, Kolkatta AAACJ 6360M 10,00,000
4. Kushal Infotech P. Ltd.
4,Ballav Das Street Burra Bazar, Kolkatta AACCK2927R 50,00,000
5. Shyambaba Distributors Pvt. Ltd.
4,Ballav Das Street Burra Bazar, Kolkatta AAECM 9076H 15,00,000
6. Marvel Exim P Ltd.
Flat 103,A9/1, Industrial Area Naraina Phase-I, Delhi AAECM9076H 15,00,000
7. Matribhumi Commodities 4,Ballav Das Street Burra Bazar, Kolkatta AAECM5493L 8,00,000/-
8. Sanyog Vyapaar P. Ltd.
23/24, Radha Bazar Street, Lald Kolkatta AAJCSS 5411P 15,00,000 1,55,00,000 Discrete inquiries as done reveals that these companies are also paper companies used for providing accommodation entries in the form of share capital and loan in lieu of cash, Formal commission is also being issued to the DDIT(Inv.), Kolkatta for further enquiries."
In view of the above, I have reason to believe that the income has escaped assessment within meaning of provisions of Section 147 of the I.T. Act, 1961. In order to assess the income, proceedings u/s 147 of the I.T. Act, 1961 are initiated."
The reasons noticed about the unsecured loan amounting to Rs. 1,55,00,000/- in the Assessment Year 2009-10 assessment was finalised under section 143(3). While proceeding with the scrutiny for the Assessment Year 2010-11 unsecured loan and share application money/share premium money of Rs. 3.5 crores were noted and field inquiries were made and a report was received that no such companies exist at those addresses. The Assessing Officer further received reports that the above noted companies were mere entry provider having no identity, genuineness and creditworthiness. In the above context, the returns of the earlier years were looked into and same trend was noticed. The Assessing Officer referred to discrete enquiry, which revealed that the companies from whom unsecured loan amounting to Rs. 1,55,00,000/- for the Assessment Year 2009-10 were received were also paper companies. The Assessing Officer has further recorded that formal commission is being issued to the DDIT (Investigation) Kolkatta for further enquiries. The reasons which were recorded and noticed above, cannot be termed to be mere change of opinion. The Assessing Officer has referred to discrete enquiries. In the reasons recorded, it cannot be said that there was no reason to come to the belief that income has escaped assessment from the Assessment Year 2009-10.
The judgment relied by Sri Ashok Kumar, learned Counsel for the Department in 2003 ITR 456 Phool Chand Bajrang Lal and another Vs. Income-tax Officer and another fully supports the contentions of the respondents. The arguments raised in the above case was that once the Income Tax return has been finalised and the assessee has disclosed all relevant details in the return it was incumbent on the Assessing Officer to make enquiry at the relevant time and thereafter to finalise the assessment and in the event no such enquiry was made, it does not lie in the jurisdiction of Assessing Officer to initiate re-assessment proceedings. The apex Court in the said case has also noted the view taken by the some High Courts that if on the disclosure of facts, the Income Tax Officer had treated the loan as genuine, he could not reopen the assessment merely because he had subsequently acquired some information. Following was laid down by the apex Court :
"In the present case, as already noticed, the I.T.O. Azamgarh, subsequent to completion of the original assessment proceedings, on making an enquiry from the jurisdictional I.T.O. at Calcutta, learnt that the Calcutta Company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash, had not really lent any money but only its name, to cover up a bogus transaction and after recording this satisfaction as required by the provisions of Section 147 of the Act proposed to reopen the assessment proceedings. The present is, thus, not a case where the Income Tax Officer sought to draw any fresh inference, which could have been raised at the time of original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta Company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the I.T.O. at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific."
Lastly at page 477 of the judgment following was laid down:
"From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income Tax 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 ana full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which where not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of 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 non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if one the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealer's case (Supra) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly.
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 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 travesty of justice to allow the assessee that latitude."
Further the apex Court in 221 ITR 538 Sri Krishna Pvt. Ltd. Etc. V. Income-tax Officer and others had again considered Sections 147 and 148. In the above case, in the return filed for the Assessment Year 1959-60, the assessee had shown certain hundi loans totalling Rs. 8,53,298 from number of persons. Income Tax Officer accepted the averments and made the assessment. During the assessment proceedings for the year 1960-61, the assessee again showed hundi loans in a sum of more than rupees seventeen lakhs. The Income Tax Officer enquired into the truth of the averment and found that many of them were bogus claims while some of the alleged lenders were found to be near relations of directors or principal shareholders of the assessee. The Income Tax Officer held that out of the hundi loans of more than Rupees seventeen lakhs claimed by the assessee, loans totalling Rs. 11,15,275/- were not established to be genuine loans and accordingly added that amount as income from undisclosed sources. Having regard to the similarity of the claims and the persons who are said to have advanced the said unsecured hundi loans, the Income Tax Officer issued a notice under Section 148, which notice was challenged in the Calcutta High Court on the ground that Income Tax Officer has no reasonable ground to believe that income chargeable to tax has escaped assessment for the said year. The writ petition was allowed by learned Single Judge, which order was reversed in appeal by the Division Bench. The assessee thereafter filed Special Leave Petition before the apex Court. The apex Court in the said judgment laid down following at page 543:
"Section 139 places an obligation upon every person to furnish voluntarily a return of his total income if such income during the previous year exceeded the maximum amount which is not chargeable to income tax. The obligation so placed involves the further obligation to disclose all material facts necessary for his assessment for that year fully and truly. If at any subsequent point of time, it is found that either on account of an omission of failure of the assessee to fail the return or on account of his omission or failure to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year the Income Tax Officer is entitled to re-open the assessment in accordance with the procedure prescribed by the Act. To be more precise, he can issue the notice under Section 148 proposing to re-open the 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 file the return or on account of the omission of 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 supposed to be check, a limitation, upon his power to re-open the assessment. [See the leading decision on this subject in Barium Chemicals v. Company Law Board (1966 Suppl. S.C.R.311 at 361 = A.I.R.1967 S.C.295 at 324)] Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reason for such re-opening by the Income Tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the Income Tax Officer, that it is a fit case for issuance of such notice. The power conferred upon the Income Tax Officer, 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 assessing officers. The idea was to save the assessees from harassment resulting from mechanical re-opening of assessment but this protection avails only those assessees who disclose all material facts truly and fully."
The apex Court in 291 ITR 500 (SC) Assistant Commissioner of Income-tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. had occasion to explain the words "reasons to believe" as occurring in Section 147 of the Act. The apex Court held that "reasons to believe" would mean cause or justification and the expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. Following was laid down at page 511-512:
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).
The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.
So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued."
We thus, are of the view that issuance of notice under section 148 dated 28.2.2013 for the Assessment Year 2009-10 cannot be said to be without jurisdiction.
Sri Upadhya has further relied on 357 ITR 646 (Delhi) Commissioner of Income-tax Vs. Viniyas Finance and Investment P. Ltd. and 359 ITR 447 (Guj) Kanak Fabrics Vs. Income Tax Officer, the judgements delivered by Delhi and Gujrat High Courts respectively. Provisions of Section 147 were invoked after the expiry of a period of four years from the end of the relevant Assessment Year. It was held that it must be established that such escapement of assessment has been occasioned by either the assessee falling to make a return under section 139 or by reason of failure on the part of the assessee to disclose fully and truly all material facts. Delhi High Court set aside the notice, laid down following at pages 648 and 651:
"On going through the decision of the Tribunal we find that the Tribunal was impressed by the fact that in the reasons there should have been recorded that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment. The Tribunal followed the decisions of this Court in Wel Inter Trade P. Ltd. & Anr. vs. ITO: 308 ITR 22 (Del.) and Haryana Acrylic Manufacturing Company vs. CIT & Anr.: 308 ITR 38 wherein this Court held that in situations where the reasons did not even contain and allegations that the escapement of the income had been occasioned by failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the assessing officer would be barred from re-opening of the assessment already done at an earlier stage."
"On going through the purported reasons we find that there is no mention of the respondent-assessee not having made a full and true disclosure of the material facts necessary for assessment. On the contrary the purported reasons indicate that the amounts mentioned therein had been shown in the books of accounts as receipts from the companies mentioned therein. We also note that at serial No.5 of the list of companies from which amounts have been allegedly received, the name of the assessee has been shown. This means that the assessee received the received money from itself, which can hardly be an allegation in this case."
Gujrat High Court has also relied the same proposition and laid down following at page 449:
"Examining the facts of the present case in the light of the aforesaid legal position, a perusal of the reasons recorded shows that there is not even a whisper to the effect that income has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Even in the affidavit-in-reply filed by the respondent, there is no allegation of any such failure on the part of the petitioner. In the circumstances, it is apparent that the requirements of the proviso to section 147 of the Act are not satisfied. Consequently, in the absence of any satisfaction having been recorded by the Assessing Officer that income has escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act, is invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained."
Third judgment relied by Sri Upadhya is [2013] 351 ITR 443 (Bom) Ohm Stock Brokers Pvt. Ltd. Vs. Commissioner of Income-tax and another. In the said case Bombay High Court laid down that the Assessing Officer is not conferred with the power to review an assessment and he cannot reopen an assessment only because of a mere change in the opinion. The assessing officer must have tangible material to come to the conclusion that there is an escapement of income. Following was laid down at pages 451 and 452:
"Though the power of the A.O. to reopen an assessment within a period of four years is indisputably wider than when an assessment is sought to be reopened beyond four years, the power is nonetheless not unbridled. After the amendment which was brought in by the Direct Tax Laws Amendment Act, 1987 with effect from 1 April 1989, the A.O. must have reason to believe that income has escaped the assessment. At the same time, the A.O. is not conferred with the power to review an assessment and he cannot reopen an assessment only because of a mere change in the opinion. The A.O. must, in other words, have tangible material to come to the conclusion that there is an escapement of income. The mere fact that the order of assessment did not specifically deal with the issue as to whether the payment fell within the purview of Section 36(1)(ii) is not dispositive in the present case. The test is as to whether the assessee had furnished to the A.O. all the primary facts on the basis of which a deduction was claimed in respect of the commission that was paid to the two directors for services rendered. The record before the Court indicates that the assessee had specifically placed before the A.O. by its letter dated 4 September 2009, copies of the agreements dated 16 June 2005 between the assessee and its directors in pursuance of which remuneration was paid to them for the relevant year which included the payment of commission. The attention of the A.O. was clearly and specifically drawn to the quantum of the fixed monthly remuneration and in addition to the payment of commission which is computed at a stipulated proportion of the net profits. The assessee explained the basis on which a decision was taken to make the payment of commission at a fixed monthly remuneration and the rest at a proportion of the net profits. According to the assessee, this decision was based on the volatility of the stock market and having regard to the fact that the income of the assessee from share business had reduced and in fact, it was Rs. 35.51 crores in comparison to the income of Rs. 57.07 crores for the previous year. This is, therefore, a case where the nature of the payment, the basis of the computation and the rationale for computing the remuneration to the two directors with reference to a fixed remuneration in part and a proportion of the net profits in balance was brought in focus before the A.O. Hence, all the primary facts for the purpose of a deduction under Section 36(1)(ii) were placed before the A.O. That the order of assessment under Section 143(3) accepted the claim on this issue is what matters. Before this Court it is not in dispute at the hearing that the two directors have been assessed under section 143(3) on the amounts paid by the assessee to them as salary income. The Revenue has admittedly treated the amounts paid to the directors in question as salary income in their hands and their assessments have been completed accordingly. In this view of the matter, the reopening of the assessments for the A.Y.2007-08 must be held to be based on a pure change of opinion and not on tangible material."
Challenging the notice dated 28.2.2013 for the Assessment Year 2007-08, Sri Upadhya submits that the notice having been issued after four years and there being no allegation in the reasons recorded for invoking the provisions of Section 147, the notice is without jurisdiction. Section 147 first proviso and section 149 which relate to time limit for issuance of notice is relevant. Section 147 proviso provides that an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts. The assessment with regard to the Assessment Year 2007-08 was not finalised under section 143(3). The petitioner himself in paragraphs 4 and 5 of the writ petition has stated that the assessment for the Assessment Year 2007-08 was completed under section 143(1) of the Income Tax Act. Thus, the first proviso to Section 147 does not come to the aid of the petitioner.
Now the submissions made on section 149 is to be considered. Section 149(1) provides that no notice shall be issued if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c). The submission of Sri Upadhya is covered by Section 149(b) since there is no allegation that income chargeable to tax which has escaped assessment amount is one lac rupees or more. A perusal of the reasons for the Assessment Year 2007-08 indicates that following was recorded:
"The same trend is seen for the Assessment Year 2007-08 as well with the amount of unsecured loans from share holders companies and other raising from Rs. 2,14,17,560 to Rs. 5,66,68,496/-."
Further there is no specific mention that escaped amount is Rs. One lac or more. The said allegation is implicit one. It is mentioned that the amount of unsecured loan ranges from Rs. 2,14,17,560/- to Rs. 5,66,68,496/-. Thus, on this ground we are not persuaded to accept the submission that since the notice does not mention that the escaped income is Rs. one lac or more, the notice is beyond jurisdiction. Sufficient materials have also been referred for initiating the re-assessment proceedings. Thus, sufficient material has been referred to for forming the belief that the income has escaped assessment for the Assessment Year 2007-08 and we are not persuaded to accept the argument that notice is without jurisdiction.
Now comes the submission of the petitioner pertaining to Assessment Year 2010-11. Additional submission raised with regard to Assessment Year 2010-11 is that assessment proceedings having not been completed, no re-assessment notice can be issued. Sri Upadhya has also relied on the judgment of the apex Court in 242 ITR Trustees of H.E.H. The Nizam's Supplemental Family Trust Vs. Commissioner of Income-tax, in which it was laid down by the apex Court that unless the return of income already filed is disposed of notice for reassessments cannot be issued.
The assessee filed his return electronically for the Assessment Year 2011-12 on 25.9.2011, showing taxable income of Rs. 2,54,85,365. There was refund of Rs. 2,13,940/- for the income tax and Rs. 1,37,808/- for fringe benefit tax.
Section 147 clothes the Assessing Officer with the power to assess or re-assess. From the facts as disclosed in the reasons, it is cleat that return was filed by the assessee for the Assessment Year 2011-12 on 25.9.2011. Refund was allowed. No notice is claimed to have been issued under section 143(2). There is nothing on record to accept the plea that the assessment is not complete for the Assessment Year 2011-12. We do not find any lack of jurisdiction in Assessing Officer in issuing notice for the Assessment Year 2011-12.
Now coming to the reasons as disclosed by the Assessing Officer on 9.7.2013. The reasons apart from mentioning the reasons as noted in the reason for the earlier Assessment Years, following has been stated for the assessment year 2011-12:
"The same trend is seen for the A.Y 2011-12 as well with the amount of unsecured loans from Directors companies and other raising from Rs, 7,51,54,098/- to Rs. 12,25,31,343/- The source of these funds needs to be investigaged in the light of the paper companies giving unsecured loans to the assessee in A.Y. 2009-10 & 2010-11."
The Assessing Officer, having noted the figures for unsecured loan from raising Rs. 7,51,54,098/- to 12,25,31,343/-we cannot accept the submission that there was no reason to believe that income has escaped assessment. We thus, find that there was sufficient reasons for issuing notice dated 28.2.2013 for the Assessment Year 2011-12.
In view of the foregoing discussions, submissions of learned Counsel for the petitioner that there was no jurisdictional facts present for issuing notice dated 28.2.2013 cannot be accepted. We are thus of the view that at this stage, the notice issued under section 148 cannot be interfered by this Court in exercise of writ jurisdiction. We however, make it clear that our observations as made in the judgment, are confined only to issuance of notice under section 148 and be not treated any expression of opinion on merits of the claim of the assessee. It shall be open for the assessee to take all such pleas which are permissible in consequence to the notice under section 148 and take such statutory remedies as available to the assessee against the assessment proceedings.
Subject to above observations, all the writ petitions are dismissed.
Order Date :- 27.3.2014 LA/-