1. This group of five appeals has been filed by the assessee challenging the orders of the Commissioner (Appeals) of different dates for the assessment years 1996-97, 1997-98, 1998-99 to 2000-01. As the facts as well as issues are common, hence these appeals are disposed of by this consolidated order for the sake of convenience.
2. The assessee has filed concise grounds in respect of his original grounds in all the appeals. The assessee has also filed additional grounds in all the appeals. The additional grounds filed by the assessee are in respect of the validity of the reopening challenging the proceedings under Section 147 of the Income Tax Act. The additional grounds filed by the assessee were admitted after hearing both the parties.
3. We are first taking up ITA No. 429(Coch.)/2005 and the issue of validity of reassessment proceedings by issuing notice under Section 148 of the Act. In the assessment year 1996-97, the assessee has challenged the validity of the notice under Section 148 by taking up the following contentions: (i) The original assessment for assessment year 1996-97 was completed under Section 143(3) and notice issued under Section 148 was beyond the four years' period from the end of the assessment year, by virtue of the proviso to Section 147, the said notice is time-barred.
(ii) There was no material before the assessing officer to form the belief for initiating proceedings under Section 147 of the Act.
(iii) The sanction accorded by the Commissioner of Income-tax under A Section 151(1) of the Act is without application of mind.
4. The learned Chartered Accountant Shri K.I. John submitted that the assessee is a partner in Hotel Mayura and he is also assessed in the capacity of individual. It was submitted that for the assessment years 1996-97 to 2000-01 proceedings under Section 147 were initiated. As far as assessment year 1996-97 is concerned, original assessment was completed under Section 143(3) vide order dated 10-3-1999. It was submitted that g proviso to Section 147 put bar for initiation of proceedings under Section 147 save in manner provided. He submitted that there was no failure on the part of the assessee to disclose truly and fully material particulars in respect of his income. It was further argued that assessing officer has not categorically specified how there was failure on the part of the assessee. It was further argued that there was no material or any specific reliable and relevant information in the possession of the assessing officer for forming the belief. The learned CA referred to the Xerox copy of the order sheet filed by the learned DR as per the directions of the Bench and submitted that from the perusal of the reasons given by the assessing officer, it is very clear that the assessing officer is trying to make roving and fishing enquiries. The learned CA referred to the original assessment completed under Section 143(3), copy of which is placed at page 1 of the paper book and submitted that the assessee has already declared the investment in the residential house and that was accepted by the assessing officer. He therefore, submitted that the assessing officer cannot assume jurisdiction for making roving and fishing enquiries on uncertain material and vague information. He, therefore, submitted that on this ground, the reassessment proceedings initiated for the assessment year 1996-97 are not valid. He further submitted that as the assessment of the assessee was completed under Section 143(3), it was mandatory for the assessing officer to get the sanction under Section 151 of the Act. It was further argued that the assessing officer has taken the sanction, but the competent authority i.e. The Commissioner of Income-tax has not applied his mind while giving the sanction for issue of the notice under Section 148. The learned CA referred to page 51 of the paper book where the copy of the order of the CIT giving sanction for initiating proceedings under Section 147 is placed. It was further argued that the CIT has only stated that "I am satisfied" and that is not sufficient. The CIT has to give reasons why he is satisfied. As no reasons are given, the notice issued under Section 148 is totally without due authority of law and illegal. He, therefore, submitted F that the entire reassessment proceedings for the assessment year 1996-97 deserve to be quashed. The learned CA relied on the following precedents in support of his contentions:United Electrical Co. (P.) Ltd. v. CIT (2002) 258 ITR 3172 (Delhi) (viii) Nitin P. Shah alias Modiv. Dy CIT (2005) 146 Taxman 536 (Guj.) (ix) Assistant Commissioner v. Star Fero Alloys (P.) Ltd. (2004) 90 ITD 63 (Delhi)(TM) (x) Travancore Cements Ltd. v. Assistant Commissioner .
5. Per contra, Smt. A. S. Bindhu, the learned DR submitted that following the tax evasion petition against the assessee and the investigation made by the ADI, the assessing officer received the report from the investigation wing and the assessing officer proceeded to initiate action under Section 147. It was further argued that as per the investigation report, the assessee has suppressed the investment in respect of construction of his palatial residential building which was about 6000 sq.ft. in the year 1995. It was further submitted that the investigation found that the assessee has purchased 165 acres of land at Theni investing Rs. 50 lakhs. The learned DR further argued that the investigation caught hold of the benami account of the assessee with Federal bank being account No. 3075 in which huge credits amounting to Rs. 27 lakhs were found. She further stated that the brother-in-law of the assessee namely Shri Francis George stated on oath that the said account belonged to the assessee and therefore, on the concrete information, proceedings under Section 147 were initiated. The learned DR also submitted that proper reasons were recorded by the assessing officer. It was further argued that there is no substance in the contention of the assessee that there was no failure on the part of the assessee to disclose true particulars of his income as according to the investigation made by the investigation wing of the department many shocking information and facts were revealed. She, therefore, submitted that there was sufficient material before the assessing officer to form the belief. Moreover, as per the investigation made by the department, particulars regarding the investment and income were not disclosed.
Hence, the proviso to Section 147 is not applicable. In reply to the contention of the assessee regarding the sanction under Section 151(1), the learned DR submitted that the CIT has accorded the sanction when he considered in totality the reasons recorded by the assessing officer and it is not necessary that he should repeat the reasons to show that he is satisfied. The learned DR relied on the following precedents:Indo-Aden Salt Manufacturing and Trading Co. (P.) Ltd v. CITIncome Tax Officer v. Selected Dalurband Coal Co. (P.) Ltd. 6. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. We have also carefully considered the principles in all the precedents relief on by the parties. The learned Chartered Accountant has filed the Xerox copy of the order sheet of the assessing officer for the assessment year 1996-97. The assessee has also filed paper book. The fundamental issue is regarding the assumption of jurisdiction for issuing notice under Section 148. In this case, the original assessment of the assessee was completed under Section 143(3). Subsequently, some anonymous evasion petition was received and some investigation was done by the investigation wing of the Income-tax department. During the course of investigation it was revealed that the assessee has suppressed the investment in respect of construction of his palatial residential building which was about 6000 sq. ft. in the year 1995. It was further revealed that the assessee has purchased 165 acres of land at Theni investing Rs. 50 lakhs. It was also found that the assessee was maintaining the benami account with Federal bank with account No.3075 in which huge credits were found. On the basis of the said investigation, it appears that a report was forwarded to the assessing officer and on the basis of said report the assessing officer proceeded to initiate action under Section 147. In the backdrop of these facts, now, we are examining the contentions raised by the assessee before us.
7. Now, in this case, it is an admitted fact that on the basis of the anonymous petition against the assessee the investigation was carried out p by the investigation wing and after getting the report from the investigation wing, the assessing officer proceeded under Section 147 and re corded the reasons as under: The declared income for income-tax purposes of the assessee is remuneration and interest on capital from the firm M/s. Mayoora Hotel, Poovarani. The Investigation Wing of the I.T. Dept. made detailed enquiries on the basis of tax evasion petition and has ascertained the details of his investments in movable and immovable properties as under which are F found to be not in proportion to his declared receipts/income: 1. Has commenced construction of a palatial residential house of about 6000 sq. ft. in 1995 and the admitted cost so far is Rs. 42 lakhs.
2. Has acquired 165 acres of land at Theni recently investing about Rs. 50 lakhs.
3. Shri Alex Manuel the manager of the Hotel to whom no salary or other benefits are paid as per the sworn statement of the assessee, is seen to have maintained a S.B. Account with Federal Bank, Trichur and has a total credit of Rs. 26 lakhs. As Sri Alex had no separate source of income, he is only a benami of Shri Jose Kuruvinakunnel and the credit in the bank account is only the " unaccounted receipts of the hotel. In a statement recorded from Sri Francis Jose, though the A/c. No. 3075 at Federal Bank, Kalluppara was opened in his name the same was operated by Sri Jose Kuruvinakunnel only utilizing 60 blank cheques leaves signed and given to him.
These transactions are also found outside the books of account.
From the above, it is clear that Sri Jose Kuruvinakunnel has invested the undicalosed income in the construction of the residential building, purchase of landed property. The income offered for assessment is only very meagre and do not commensurate with the investments made. For these reasons, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. Issue notice under Section 148." 8. On the perusal of the said reasons recorded by the assessing officer for forming his alleged belief, it is clear that no specific or definite information has been recorded. As far as the first reason in respect of the construction of residential house, we find that while completing the assessment under Section 143(3), the assessee has disclosed the investment in the residential house. The second reason is in respect of the alleged acquiring of 167 acres of land at Theni, but the assessing officer has not categorically given anything that the said investment was made in the previous year relevant to the assessment year 1996-97 or in other words when the said investment was made and what is the documentary proof for acquiring the said alleged land. In respect of the third reason, It appears that the statement of one Shri Francis George was recorded and who stated that the bank account No. 3075 in the Federal bank at Kalluppara was a benami one and it was operated by the assessee. On these three reasons, the assessing officer has recorded that he was satisfied that the has reason to believe that there is escapement of income.
9. In the case of Phool Chand Bajrang Lal (supra), the Hon'ble Supreme Court has categorically made it clear that the assessing officer acquires the jurisdiction to reopen an assessment in which on the basis of specific, reliable and relevant information coming to his possession. It is held by the Hon'ble Supreme Court as under: From a combined review of the judgments of this Court, it follows that an Income Tax Officer acquires jurisdiction to reopen an assessment under Section 147(a) read with Section 148 of the Income Tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to A believe that, by reason of omission of failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has esc aped assessment.
He may start reassessment proceedings either because some fresh facts had come to light which were 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 is 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 C 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....
10. It is well-settled principle that the reasonable belief contemplated under Section 147 must be that of a honest and reasonable person based upon a reasonable ground but, it should not be based on some suspicious and vague reasons. We also fail to understand that when the investigation wing of the I.T. department has found conclusive proof about alleged suppression then what prevented the assessing officer to put on record the conclusive facts instead of recording vague reasons. Section 147 is not contemplated for making the roving and fishing enquiry in the hope of searching the escaped income.
Moreover, from the assessment order, we find that though the assessing officer has given the reasons in respect of the investment in the residential house and acquiring the land of 165 acres but no income is assessed under Section 69 of the Income Tax Act which empowers the assessing officer to make the assessment in respect of the unexplained investment. The addition made by the assessing officer is in respect of the credit entries in the capital account of M/s. Hotel Mayoora in which the assessee is a partner, unexplained loan from Shri George Joseph and cash deposit in S. B. Account No. 3075. In our considered opinion, the reasons given by the assessing officer for the initiation of the proceedings under Section 147 cannot be stated to be based on any F definite and conclusive information and material. The assessing officer has taken the shelter of Section 147 for making roving and fishing enquiry for framing the assessment. We, therefore, hold that there was no definite material before the assessing officer for formation of belief and hence, the reassessment proceedings initiated under Section 147 are without due authority of law and liable to be cancelled.
11. The alternative contention taken by the assessee that there was no failure on the part of the assessee to disclose truly and fully all material particulars regarding his income. It is admitted fact that notice under Section 148 was issued after four years from the end of the assessment year 1996-97. It is also admitted fact that original assessment was framed under Section 143(3). There is a proviso to Section 147 putting the bar on the jurisdiction of the assessing officer to resort to Section 147 unless there is a failure on the part of the assessee to disclose truly and fully all material particulars regarding his income. We find that though in the reasons recorded the assessing officer has stated the reasons in respect of the investment in the house and investment in the land but nothing has been added while framing the assessment by invoking Section 147. The assessing officer has made some additions in respect of the bank account with Federal bank which was alleged to be the bank account of the assessee.
We are not at this stage going to the merits of the case, but in our opinion, merely because some addition is made in respect of the bank account which is admittedly not on the name of the assessee prima facie it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all material particulars in respect of his income. In our considered opinion, the proviso to Section 147 is also applicable and hence the proceedings initiated by the assessing officer under Section 147 was not at all justified.
12. Another contention taken by the assessee that as the assessment of the assessee was completed under Section 143(3), the assessing officer was bound to take the sanction for issuing notice under Section 148 from the CIT as it was beyond the period of four years. The copy of the sanction given by the CIT is placed at page 51 of the paper book. It appears that the assessing officer has sent the proposal to the CIT on 5-2-2002 stating the reasons why he is initiating the proceedings under Section 147. The CIT has merely stated "Yes, I am satisfied". An identical issue had come for judicial consideration of the Hon'ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. What disturbs us more is that even the Additional Commissioner has accorded his approval for action under Section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the statement of the said V.K. Jain, perhaps he would not have granted his approval, which was mandatory in terms of the proviso to Sub-section (1) of Section 151 of the Act as the action under Section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. As highlighted above, the Legislature has provided certain safeguards tc prevent arbitrary exercise of powers by an assessing officer, particularly after a lapse of substantial time from completion of assessment. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the assessing officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional A Commissioner before granting the approval.
In our opinion, the principles laid down by the Hon'ble Delhi court are squarely applicable to the facts of the assessee's case. Here also, we find that the CIT has merely stated "I am satisfied" without recorded the reasons for his satisfaction. On this ground also, the assessee is bound to succeed. For the reasons given hereinabove, we hold that the issue of the notice under Section 148 by the assessing officer is without the due g authority of law as it suffers from serious legal infirmities and we have no hesitation to cancel the assessment framed by the assessing officer. We, therefore, set aside the order of the Commissioner(Appeals) on this issue and cancel the assessment framed by the assessing officer for the assessment year 1996-97.
13. In respect of the assessment years 1997-98 to 2000-01, the assessee has challenged the validity of the reassessment proceedings on the following two contentions: (i) There was no material before the assessing officer for formation of the belief under Section 147 of the Act.
(ii) Without passing a speaking order on the objections filed by the assessee on the reasons given by the assessing officer, the assessing officer completed the assessment.
14. In respect of the assessment year 1997-98, the assessee has also taken rj the additional ground in respect of the sanction under Section 151 of the Act. As far as these four years are concerned, we have heard the learned CA Shri K.I. John for the assessee and the learned Dr. Smt.
A.S. Bindhu for the revenue. On this particular issue, the learned CA reiterated his arguments which were advanced for the assessment year 1996-97. The learned DR has filed written submissions which are also taken into consideration.
15. As far as the first contention of the assessee is concerned, i.e.
in respect of the material for formation of belief, we find that in assessment year 1997-98 also, the reasons are same which are given by the assessing officer for the assessment year 1996-97. We have already discussed in detail and gave our finding in respect of this issue in the assessment year 1996-97. Following our said reasons and finding, we hold that as formation of belief is sine qua non which should be based on some definite, concrete and reliable material and as in this case only vague and general information was available, the assessing officer was not justified in initiating the F proceedings under Section 147 and issuing notice under Section 148. We, therefore, hold that the proceedings initiated under Section 147 in respect of assessment year 1997-98 by the assessing officer are without proper jurisdiction.
16. Now, we deal with another contention of the assessee relating to assessment year 1997-98 in respect of the sanction under Section 151.
In this case also, the sanction under Section 151 was required and that is not disputed. It appears that the assessing officer sent proposal to the Addl. CIT, Kottayam as admittedly there was no assessment under Section 143(3), under Section 151 (2) of the Act on 5-2-2003 seeking the sanction for initiation of proceedings under Section 147. The Addl.
CIT, Kottayam permitted the assessing officer to proceed under Section 147 against the assessee by stating on the said proposal as under: Yes, I am satisfied that this is fit case for reopening the assessment.
The assessee has filed copy of the proposal sent by the assessing officer as well as the sanction accorded by the Addl. CIT which is placed at page 53 of the paper book. We have carefully examined the copy of the proposal on which sanction is accorded by the Addl. CIT. In this case, it is not disputed that the Addl. CIT was the authority giving sanction to the assessing officer under Section 151(2) of the Act. We find that the Addl. CIT has not even stated the date on which he has accorded the sanction. Now, the question is whether it is sufficient compliance to the mandate of Section 151 (2) by merely stating that "Yes, I am satisfied that this is fit case for reopening the assessment." An identical issue had come for consideration in the year 1996-97. In that case, relying on the decision of the Delhi High Court in the case of United Electrical Co. (P.) Ltd. (supra), we have held that there is no proper compliance of Section 151 of the Act as Section 151(2) also mandates that the authority giving the approval is required to apply his mind to the proposal put up to him for approval in the light of the material relied on by the assessing officer and the said power cannot be exercised casually and in a routine manner and the same authority is required to give reasons why he is satisfied. We, therefore, following our reasons on this particular issue for the assessment year 1996-97, hold that the Addl. CIT has not complied with the mandate of Section 151(2) of the Act and the principles laid down by the Delhi court in the case of United Electrical Co.
(P.) Ltd. (supra) are squarely applicable and hence, notice issued under Section 148 for assessment year 1997-98 by the Assessing Officer on the basis of sanction is without due authority of law and illegal.
17. The assessee has also taken a further contention that on the objections filed by the assessee, the assessing officer has not passed a speaking order. The learned CA relied on the decision of the Hon'ble Supreme Court in the case of GKN Driveshaft (India) Ltd. v. Income Tax Officer . The learned CA tried to argue that on the objections filed by the assessee, the assessing officer has not passed a speaking order. On perusal of the F record, we find that the assessing officer issued the notice under Section 148 for the assessment year 1997-98 on 25-2-2003 and for the assessment years 1998-99 to 2000-01 on 6-2-2003. The assessee filed the returns in response to the notice under Section 148 for all these four assessment years on 4-4-2003. The assessee filed the letter to the assessing officer seeking the reasons for reopening of the assessment on 18-12-2003. The assessing officer communicated the reasons to the assessee on 12-1-2004. The assessee filed his objections to the assessing officer A regarding reopening vide his letter dated 5-2-2004.
The assessing officer gave the reply to the letter of the assessee on 27-2-2004 justifying his reasons for initiation of the proceedings.
After getting the reply from the assessing officer to his objections the assessee filed the second set of objections on 8-3-2004 in respect of all the assessment years. The assessing officer also gave reply to the assessee and finally the assessment was completed on 26-3-2004. The grievance of the assessee is that when the objections were pending before the assessing officer, the assessing officer issued notice under Section 143(2) of the Act. We have carefully considered the principles laid down in the case of GKN Driveshaft (India) Ltd. (supra). In our opinion, the said decision is not helpful to the assessee. It is an admitted fact in this case that before the final assessment orders were passed for all these assessment years, the assessing officer has disposed of the objections filed by the assessee. We find no substance in the contention of the assessee. We, therefore, reject this contention and q hold that there is no legal infirmity in the assessment proceedings.
18. As far as the assessment year 1997-98 is concerned, we have already held that initiation of proceedings under Section 147 of the Act is not based on any definite and reliable material or information as well as the sanction accorded by the Addl. CIT under Section 151(2) of the Act is without application of mind. Hence, the notice issued under Section 148 in respect of the assessment year 1997-98 is without due authority of law and n improper. We, therefore, cancel the assessment proceedings for the assessment year 1997-98 and set aside the order of the Commissioner(Appeals) on this issue for this year.
19. In respect of the assessment years 1998-99 to 2000-01, the assessee has challenged the validity of the reopening for the same reasons in respect of no material for formation of belief, but we find that the Commissioner (Appeals) has merely followed his order for the assessment year 1996-97 for deciding the validity of the notice in the assessment years 1998-99, 1999-2000 and E 2000-01. In our opinion, as the issue of assumption of jurisdiction goes to the root of the assessment, the Commissioner(Appeals) should have passed a speaking order independently for those assessment years instead of following the earlier order for the assessment year 1996-97. There is no material or relevant record before us to give our findings in respect of the validity of the notice under Section 148. We, therefore, deem it fit to restore the issue of validity of the notice under Section 148 to the file of the p Commissioner(Appeals) for the assessment years 1998-99, 1999-2000 and 2000-01 to decide afresh after considering the reasons recorded by the assessing officer for invoking Section 147 and issuance of notice under Section 148. We have not expressed anything on the merits of the additions made by the assessing officer in respect of these three assessment years i.e. 1998-99, 1999-2000 and 2000-01. The Commissioner(Appeals) has to only decide the issue of validity of the notice under Section 148. The Commissioner(Appeals) should also consider our reasons and findings for the assessment years 1996-97 and 1997-98 and decide the issue by passing a speaking order. We, therefore, restore the appeals for the assessment years 1998-99,1999-2000 and 2000-01 to the Commissioner(Appeals) with the direction that he should decide the issue afresh after giving a reasonable opportunity of being heard to the assessee as per the principles of natural justice. The assessee is at liberty to take all the contentions in respect of this issue before the Commissioner(Appeals).
20. In the result, the assessee's appeals being ITA Nos. 429 and 430 (Coch.)/g 2005 are allowed and ITA Nos. 431, 432 and 433 (Coch.) are allowed for statistical purposes.