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Judgment
Honourable Mr.Justice Akil Kureshi
This petition has been filed challenging a notice dated 9.10.2009 u/s 148 of the Income Tax Act u/s 148 of the Income Tax Act, 1961("the Act" for short) as also orders dated 4.8.2011 and 30.8.2011 rejecting the objections of the petitioners.
The petition arises in following factual background :
2.1 The petitioner is a private limited company. For the assessment year 2006-2007, the petitioner filed its return of income on 30.12.2006. Such return was accepted u/s 143(1) of the Act without scrutiny and an intimation to that effect was given to the petitioner on 29.8.2007.
2.2 Subsequently, however, the Assessing Officer issued impugned notice dated 9.10.2009 and conveyed to the petitioner that he had reason to believe that the petitioner''s income chargeable to tax for assessment year 2006-2007 has escaped assessment within the meaning of Section 147 of the Act and therefore, he proposes to assess/reassess income for the said assessment year. He required the petitioner to deliver within 30 days of receipt of the notice, return in the prescribed form.
2.3 The petitioner vide its letter dated 9.11.2009 requested the Assessing Officer to provide the reasons for reopening of the assessment. The reasons recorded were ultimately supplied to the petitioner and read as under :
In the instant case, the assessee has e-filed its return of income on 30.12.2006 declaring therein total income at Rs.29,25,43,242. This return was processed u/s.143(1) on 29.8.2007 on the same income.
In the assessment year 2005-2006, it was noticed that the assessee has entered into international transaction within the meaning of section 92CA of the income tax Act, 1961. The case was referred to As such transaction exceeded Rs.15 crores, the case was referred to the TPO. The TPO vide his order dated 16.10.2008 made an adjustment of Rs.2,21,04,742/-in the order passed u/s.92CA(3).
It is also noted that during the financial year 2005-2006 relevant to assessment year 2006-2007 also, the assessee had entered into international transaction within the meaning of section 92CA, which also exceeds Rs.15 crores. In these circumstances, I have the reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the income tax Act, 1961.
During the year under account, the assessee has also claimed additional depreciation. The claim of additional depreciation requires verification.
The assessee has also claimed liquidated damages of Rs.2.49 crores which also requires verification.
In these circumstances, I have reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the income tax Act, 1961.
2.4 The petitioner raised objections to reopening of the assessment under communication dated 27.5.2010. Such objections were disposed of by the Assessing Officer by order dated 4.8.2011. Yet another communication was sent by the Assessing Officer to the petitioner under letter dated 30.8.2011 dealing with objections of the petitioner. At that stage, the petitioner has approached this Court and challenged the notice for reopening of assessment as well as the orders by which the petitioner''s objections came to be disposed of by the Assessing Officer.
The stand of the petitioner is that the reopening of assessment is wholly without jurisdiction and the reasons recorded are not sufficient to permit the Assessing Officer to do so. Into the details of reasons for reopening and objections of the petitioner, we shall go at a later stage. At this stage we may notice that in response to the notice issued by this Court, the respondents have appeared and opposed the petition by filing replies. The stand of the department is that the return of the petitioner was accepted without scrutiny. The Assessing Officer after recording reasons issued notice for reopening which was issued within four years from the end of relevant assessment year. This Court therefore, may not interfere with the pending proceedings.
On behalf of the petitioner, learned counsel Shri J.P. Shah painstakingly took us through the orders on record and strenuously contended that the notice of reopening of assessment is without jurisdiction. His main contention was that the reasons recorded would not permit the Assessing officer to reopen the assessment previously closed. Taking us through different reasons recorded, counsel submitted that none of the reasons are sufficient to clothe the Assessing officer with the jurisdiction to reopen the assessment. Counsel submitted that some materials found in the assessment order of another year of the assessee would not be sufficient reason to believe that income chargeable to tax has escaped assessment in the present year. Counsel further submitted that only to verify certain claims of depreciation etc., assessment cannot be reopened
4.1 Counsel relied on following decisions :
1) Bakulbhai Ramanlal Patel v. Income Tax Officer reported in (2011) 56 DTR (Guj.) 212, wherein Division Bench of this Court observed that the assessment cannot be reopened to verify whether any income chargeable to tax has escaped assessment and further that reopening of assessment cannot be permitted on vague and nonexistent reasons for a mere fishing inquiry.
2) Hotel Oasis(Surat) (P) LTD. v. Deputy Commissioner of Income Tax reported in (2011) 57 DTR (Guj) 378, wherein Division Bench of this Court observed that assessment cannot be reopened merely to make inquiries.
3) Chhugamal Rajpal Vs. S.P. Chaliha and Others, wherein assessment was reopened on the ground that loan transactions required investigation. Such belief was found on the basis of communication from the Commissioner of income tax. The Apex Court held that the reasons record would not be sufficient to reopen the assessment. We may however, notice that in the said case the assessment was sought to be reopened after four years.
4) Das''s Friends Builders Pvt. Ltd. Vs. The Deputy Commissioner Income Tax, to contend that reopening of assessment would not be permissible on the basis of findings of earlier assessment years.
5) Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, wherein it was observed that for reopening of assessment, there must be a rational connection or relevant bearing on the formation of belief that income chargeable to tax has escaped assessment.
6) Prashant S. Joshi Vs. The Income Tax Officer and Union of India (UOI), of the Bombay High Court, wherein it was held that while examining the validity of reassessment proceedings, reasons recorded by the Assessing Officer alone would be relevant and such reasons could not be supplemented by affidavit.
On the other hand, learned counsel Shri K.M.Parikh on behalf of the department contended that previous assessment was not made after scrutiny. Such assessment is sought to be reopened within four years from the end of relevant assessment year. Proper reasons have been recorded by the Assessing Officer. The Assessing officer had reason to believe that income chargeable to tax had escaped assessment. Counsel relied on decision of this Court in case of Praful Chunilal Patel Vs. M.J. Makwana, Assistant Commissioner of Income Tax, wherein it was observed that provisions of Section 147 of the Act require that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment and phrase "reason to believe" would mean cause or justification and would not mean that Assessing Officer should have finally ascertained the facts by legal evidence.
Learned counsel Mr. M.R. Bhatt appearing for Transfer Pricing Officer ("TPO" for short) also opposed the petition contending that in terms of reference made by the Assessing Officer after reopening the assessment, TPO has already submitted his report based on which further assessment should be permitted to be carried out.
Having thus heard learned counsel appearing for the parties and having perused the documents on record, we may recall that the present case is of reopening of assessment within four years from the end of relevant assessment year which was previously accepted under sub-section(1) of Section 143 of the Act. In other words original assessment was not a scrutiny assessment u/s 143(3) of the Act. Question is for the reasons recorded by the Assessing Officer, was reopening of such assessment permissible?
In view of the fact that the assessment is being reopened within four years from the end of the relevant assessment year, the requirement that income chargeable to tax has escaped assessment by reason of failure on part of the assessee to disclose fully and truly all material facts necessary for assessment would not arise.
As has been held in number of decisions of this Court as well as of Apex Court, even with respect to reopening of the assessment within four years, the same would be impermissible if such reopening is based on mere change of opinion. This aspect has been discussed by the Apex Court in case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, wherein noticing the changes made by the Legislature in Section 147 of the Act from time to time, it was observed that concept of "change of opinion" on part of the Assessing Officer to reopen an assessment does not stand obliterated after substitution of Section 147 of the Act by amending Acts of 1987 and 1989. It was noticed that after 1.4.1989, the second condition that income chargeable to tax has escaped assessment due to failure on part of the assessee to fully and truly disclose all material facts necessary for assessment, no longer survives when the assessment is being reopened within four years from the end of the relevant assessment year. However, this does not imply that the Assessing Officer can reopen the assessment on mere change of opinion and concept of change of opinion must be treated as inbuilt test to check abuse of power. The Apex Court noticed the change in Section 147 of the Act where in quick succession expression the Assessing Officer "is of the opinion" was quickly changed to previous expression the Assessing Officer "has reason to believe". Consequently, it was held that even after 1.4.1989, the Assessing Officer has power to reopen assessment, provided there is tangible material to come to the conclusion that there was escapement of income from assessment and further that reasons must have a live link with the formation of the belief.
We may recall that in the present case, the original assessment was not made under sub-section(3) of Section 143 of the Act. There was therefore, no scrutiny by the Assessing Officer and there was a mere communication of acceptance of return to the assessee. Necessarily and essentially therefore, there was no opinion formed by the Assessing Officer on any of the claims made by the assessee in the return filed. In that view of the matter, the question of change of opinion while proceeding to reopen the assessment would not arise.
In that context we may notice the decision of the Apex Court in case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., This was also a case where the Court was concerned with reopening of assessment where the previous assessment was accepted without scrutiny. Noticing various statutory changes made in Sections 143 and 147 of the Act and change in the entire scheme of the assessment u/s 143 from making prima facie adjustment to merely communication of the acceptance of return under sub-section(1) of Section 143 of the Act without scrutiny, the Apex Court observed as under :
...In the scheme of things, as noted above, the intimation u/s 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. u/s 143(l)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J) in Apogee International Ltd. Vs. Union of India and Another, It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation u/s 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any "assessment" is done by them? The reply is an emphatic "no". The intimation u/s 143(1)(a) was deemed to be a notice of demand u/s 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment u/s 143(1)(a), the question of change of opinion, as contended, does not arise.
Having thus held that mere intimation u/s 143(1)(a) of the Act would not amount to any formation of opinion by the Assessing Officer, the Apex Court then went on to explain the term "reason to believe" used in Section 147 of the Act and observed as under :
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 Delhi High Court in Central Provinces Manganese Ore Co. Ltd. Vs. I.-T.O., Nagpur, for initiation of action u/s 147(a) (as the provision stood at the relevant time) fulfillment 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 (see INCOME TAX OFFICER Vs. SELECTED DALURBAND COAL CO. (P) LTD., ; Raymond Woollen Mills Ltd. Vs. Income Tax Officer and Others,
From the above decision it clearly emerges that in case where there is a mere intimation u/s 143(1)(a) upon filing of the return by the assessee, Assessing Officer cannot be stated to have formed any opinion. Any reassessment of such assessment therefore, cannot be attacked on the ground that the assessment is sought to be reopened on mere change of opinion. It also emerges that expression "reason to believe" cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence. This observation has been made by the Apex Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) particularly, in context of reopening of assessment which was framed previously without any scrutiny which is also the case in the present petition.
Despite above observations we have made, it would be undisputable that even in the return which was accepted without scrutiny, reopening would not be permissible without the Assessing Officer having reason to believe that income chargeable to tax had escaped assessment. So much is plain and clear from bare perusal of provisions of Section 147 of the Act which authorises an Assessing Officer to reopen the assessment subject to certain conditions. Uniform condition in all cases namely, whether assessment is sought to be reopened beyond four years or within four years that too of assessment which was previously framed after scrutiny or otherwise, is that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment. On behalf of the respondents, it was also not argued with any seriousness that merely because the assessment was framed without scrutiny as in the present case, same could be reopened by the Assessing Officer without having reason to believe that income chargeable to tax has escaped assessment. Any such conclusion would give wholly arbitrary powers to the Assessing Officer to reopen the assessment for a fishing or a rowing inquiry which law clearly frowns upon.
Under the circumstances only inquiry that is to be made in the present proceedings is whether the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment. Such satisfaction of the Assessing Officer is recorded in form of reasons and such reasons have to be scrutinized to examine whether there is any live link between reasons recorded and the belief that income chargeable to tax has escaped assessment.
We have reproduced the reasons in earlier portion of the order. First reason indicated by the Assessing Officer is that he had noticed that in the assessment year 2005-2006, the assessee had entered into international transaction within the meaning of Section 92CA of the Act. Case of the assessee was referred to TPO. TPO had in his order dated 16.10.2008 made adjustment of Rs.2.21 crores. During the year under consideration also, the assessee had entered into international transaction within the meaning of Section 92CA and same also exceeded Rs.15 crores. It was on this basis that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment.
Three more reasons have been recorded by the Assessing Officer.
They are :
(1) During the year under account, the assessee had claimed additional depreciation. Such depreciation requires verification.
(2) The assessee had claimed liquidated damages of Rs.2.49 crores which also requires verification.
(3) The assessee had also paid commission amounting to Rs.1.46 crores which also requires verification.
Had the reasons recorded for assessment mentioned only above three reasons noted, we would perhaps have been persuaded to quash the notice. Counsel for the assessee would have been justified in contending that mere requirement of verification of certain claims made, would not amount to any reasonable belief that income chargeable to tax has escaped assessment. Consequently such reasons would not clothe the Assessing Officer with powers to reopen the assessment.
However, we find that the first reason recorded is sufficient to permit the Assessing Officer to reopen the assessment. The Assessing Officer noted that in the previous year, the assessee had entered into international transaction exceeding Rs.15 crores. His case therefore was placed before TPO. TPO had made adjustment of Rs.2.21 crores. In the present year also assessee had entered into international transaction exceeding Rs.15 crores with the same party. Reason recorded cannot be stated to have no link with the foundation of opinion of the Assessing Officer that he had reason to believe that income chargeable to tax has escaped assessment. As held by the Apex Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra), at this stage the Assessing Officer is not required to have finally ascertained the fact by legal evidence or come to definite conclusion. As observed by the Apex Court at this stage, only question is whether there was relevant material on which a reasonable person could have formed requisite belief. Whether material would conclusively prove escapement,is not concerned at this stage.
We may notice that in case of Multiscreen Media Private Limited v. Union of India and another reported in (2010) 324 ITR 54 (Bom.), Bombay High Court was of the opinion that on the basis of additional material in form of subsequent assessment year, if the Assessing Officer issued notice on the ground of reason to believe that income chargeable to tax has escaped assessment, such notice cannot be stated to be invalid. The Court relied on the decision of the Apex Court in case of Ess Ess Kay Engineering Co. P. Ltd. Vs. Commissioner of Income Tax,
In the result, we do not find that notice for reopening is invalid.The petition is therefore, dismissed. Interim relief stands vacated.In view of order passed in the main matter, civil application doesnot survive. Same also stands dismissed.