Full Judgment
(1) That the learned Commissioner (Appeals), Bareilly has erred in law and on the facts of the case in quashing the notices issued under Section 148 reiving upon the findings of Bombay High Court in 77 ITR 995.
(2) That the learned Commissioner (Appeals), Bareilly has erred in law and on the facts and circumstances of the case while emphasizing on the word information used in pre-amended subsection (b) of Section 147 which is not applicable with effect from 1-4-1989.
(3) That the order of learned Commissioner (Appeals), A Bareilly being erroneous may be cancelled and the order of assessing officer be restored.
(4) Any other ground of appeal which may be taken at the time of hearing.
3. Rival contentions have been heard and records perused. Since the common grounds h ave been involved in all the years, we have heard all the appeals together and now for the sake of convenience and brevity we are disposing all the appeals by this consolidated order. Facts in I.T.A. No. 4843/Delhi/05 for the assessment year 1999-2000, are that notice under Section 148 of the Act was issued after recording following reasons : Assessee filed return of income showing net income of Rs. 1,95,587 on 9-6-1999. Asurvey was conducted under Section 133 A of the Income Tax Act, 1961 on 12-3-2003 in the business premises of the firm/s US Oxygen (M/s. US and Sons) and M/s. US Foods (P.) Ltd., Gajraula where the assessee is a partner. Certain books of account found and impounded and also some discrepancies are found. Further during the course of assessment proceeding for the assessment year 2001 -02 in the case of the assessee it was found that there was no actual business of Mentha Brokerage of the assessee but income was disclosed in the return under the head Income from other mint brokerage'. Therefore, the assessee failed to produce the books of account. During the year under consideration the assessee has also disclosed gross receipts from Mint Brokerage at Rs. 2,38,534 and expenses claimed against which at Rs. 42,947 which are bogus. In view of the above facts, I have reason to believe that income chargeable to tax has escaped assessment at Rs. 42,947 while processing the return under Section 143(l)of the Income Tax Act, 1961 on 17-6-1999.
4. Similarly, in the assessment year 2000-01, following reasons were recorded: In the assessment year 2000-01 the return showing total income at Rs. 1,92,700 filed on 29-12-2001 as income from brokerage received from Mint Business at Rs. 2,07,370 and interest on capital at Rs. 21,946 out of which claiming expenses of Rs. 36,543.25. This return was processed under Section 143(1) of the Income Tax Act on 23-3-2001. A survey was conducted under Section 133 A of the Income Tax Act on 12-3-2003 in the business premises of the firm/s US Oxygen (M/s. US and Sons) and M/s. US Foods (P.) Ltd., Gajraula where the assessee is a partner/director, books of account found and impounded. Some discrepancies are found in the books of account. The addition of Rs. 14,06,685 shown in the capital account of p partners in the name of the: assessee is not appearing in the ledger of the firm. Further the assessee has shown a sum of Rs. 2,07,370 as brokerage received from mint business which is income from undisclosed sources as found in the assessment proceedings for assessment year 2001-02 of the assessee as there were no books of account as such there was no actual business of mint brokerage done by the assessee.
In view of the above facts, I have reason to believe that income chargeable to tax has escaped assessment as discussed above.
5. The assessing officer after issuing the above notices, made fresh assessment, wherein additions were made on account of gifts received by the assessee as well as expenses claimed in mint business.
The assessee derives income from brokerage from mint business and interest on capital. Return filed showing total income at Rs. 1,89,520 on 31-3-2003. A survey was conducted under Section 133A of the Income Tax Act on 12-3-2003 in the business premises of the firm/s US Oxygen (M/s. US and Sons) and M/s. US Foods (P.) Ltd., Gajraula where the assessee is a partner/director, books of account found and impounded. On verification certain discrepancies were noticed in the books of account as discussed in survey report.
Further during the course of assessment proceedings under Section 143(3) for the assessment year 2001-02 in the case of the assessee it is found that the assessee is disclosing income from brokerage of mint business whereas it is not actually done by him as the assessee failed to produce the books of account for verification during the course of assessment proceedings for the assessment year 2001-02 in the circumstances the expenses claimed at Rs. 39,858 in the P & L account are bogus.
Therefore, I have reason to believe that income chargeable to tax has escaped assessment to the extent of as discussed above. Issue notice under Section 148 of the Income Tax Act, 1961 for the assessment year 2002-03.
7. While framing the assessment under Section 143(3)/147 of the Act, for the assessment year 2002-03, as against income of Rs. 1,89,520 declared by the assessee, the assessing officer made an addition of Rs. 35,910 on account of interest on capital from US & Sons. In respect of profit declared from the mint business at Rs. 1,89,520 after disallowing the expenses of Rs. 39,858 income was taken at Rs. 1,93,471.
8. In all the three years, the assessee challenged the assessments in appeal before the Commissioner (Appeals). It was contended that initiation of reassessment proceedings was without jurisdiction. Notice under Section 148 was alleged to be not sustainable in view of the fact that reasons to belief pertained to certain assessment years which is different from the assessment year for which assessment was reopened.
It was further contended that reasons recorded cannot be sustained when the information gathered later on.
9. By the impugned order, the Commissioner (Appeals) quashed the notices issued under Section 148 of the Act on the plea that notices so issued cannot stand the test of judicial scrutiny, insofar as the notices issued for the assessment years 1999-2000 and 2000-01 were based on the findings in the assessment year 2001-02 and there is no evidence that in all years, the assessing officer came across any information relatable to these two years. In the assessment year 2002-03, the Commissioner (Appeals) observed that information that the assessing officer was for the assessment year 2001 -02 where he A held that income from a source to be bogus. As per Commissioner (Appeals), the assessing officer did not have any information for the assessment year 2002-03 under appeal. The notices issued for assessment year 2002-03 were not given stand the test of judicial scrutiny. Accordingly reassessment proceedings in all the three assessment years were held to be not sustainable. However, the Commissioner (Appeals), did not decide the merits of addition made by the assessing officer.
10. Aggrieved by the above orders of the Commissioner (Appeals), the revenue is in appeal before us. It was argued by the learned DR that as per the reasons recorded for reassessment, the assessing officer has reasonable belief for reopening the assessment. At the time of reopening it is sufficient if the assessing officer has reason to believe that income had escaped assessment, and he is not required to go in detail at the time of issue of the notice. He further contended that once the assessment is reopened, while framing the assessment, the assessing officer is required to substantiate the C additions proposed in the reasons. In the instant case, as per learned DR the assessee could not produce the books of account to substantiate the actual conduct of business of mint brokerage, and the expenditure incurred for earning the said income. He further contended that the amount of gift taken by the assessee could not be substantiated, as the assessing officer had found that persons who had given the gift were not having capacity to gift the impugned amount. During the course of hearing, the learned AR submitted that in case of other persons of the same group, wherein reassessments were initiated, was quashed by the Commissioner (Appeals) and the Tribunal vide its order dated 16-2-2006 had confirmed the action of the Commissioner (Appeals) in case of I.T.A. Nos. 4842 and 4848/ Delhi/05, in case of Smt. Jafri Begum & Smt. Husna Banu.
11. We have carefully gone through the orders of the ITAT wherein action of the Commissioner (Appeals) was upheld by observing that there was no escapement of any income chargeable to tax where notice under Section 148 was issued. The Tribunal also found that income from "bag bahar" was exempt therefore even if there was some error in disclosing such bag bahar (agricultural) income, the same was immaterial, as the agricultural income was not to be taken even for rate purposes. Thus, no income chargeable to tax was found to be escaped assessment. The Tribunal, therefore, held that the notices issued in both the cases were without jurisdiction and rightly cancelled by the Commissioner (Appeals) after a detailed and elaborate discussion.
12. However, in the instant case before us, the facts are entirely distinguishable. There was no bag bahar income which is claimed to be exempt from tax. Nor there is any reason to come to the finding that there is no escapement of income just on account of any error in disclosing such exempt income. On the contrary in the instant appeals, the assessing officer has categorically observed that the assessee has not been able to substantiate the carrying on of mint business by producing books of account, nor the expenses incurred in this business was established. Nor such books of account were produced before the Commissioner (Appeals) to substantiate the carrying on of the business and claim of expenses. However, in respect of the amount of gift taken and which has been shown by the assessee as its capital, could not be substantiated as the assessing officer has categorically recorded a finding that as per the documents submitted by the assessee, as well as statement of the donors recorded by him, the capacity of donor to gift the alleged amount of gift to the assessee could not be established.
The assessing officer also found that all the donors have opened a bank account with a very small amount and subsequently deposited an amount equivalent to the gift amount. All the persons were found to have given identical answer stating that when they come to know that assessee is going to install a factory at Gajraula, they intended to help by giving a gift. All the donors were found to be without means and having income just sufficient to carry livelihood, no surplus was found to be left after meeting the normal household expenses. There is no dispute to the well-settled legal proposition that primary onus is on the assessee to establish not only identity of the donors but also genuineness of the transaction of the gift and also the creditworthiness of the donors for giving the alleged amount of the gift. If the assessee fails to discharge the primary onus, the amount of the gift can be added to the income of the assessee. In the instant case, we found that as against the detailed finding recorded by the assessing officer, the same has not been controverted by the Commissioner (Appeals) and he has deleted the addition merely on the plea that reopening was not valid. We found that originally the returns were processed under Section 148(1) and only after recording sufficient reasons the reopening was made, and thereafter during the course of proceedings under Section 143(3)/147 of the Act, the assessee was given full opportunity to substantiate its claim. The decision relied by the Commissioner (Appeals) for quashing the reopening of the assessment was based on the provisions prevailing prior to its amendment with effect from 1988-89. The basic two issues which falls for our consideration are (i) validity of re-opening under Section 147 and (n) the merit of addition made. As per provisions of Section 147 prevailing during the assessment years under consideration, 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 provisions of Sections 148 to 153, assess or reassess such income.
13. On a comparison of the provisions as it stood before the Direct Tax Laws (Amendment) Act, 1987 and the provisions as substituted by the Direct Tax Laws (Amendment) Act, 1987, it would be clear that: the scope and effect of Section 147 as substituted with effect from 1st April, 1989, as also Sections 148 to 152 are substantially different from the provisions as stood prior to such substitution.
14. Under 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-taxable have escaped assessment, and secondly, he must also have reason to believe that such escapement has occurred by reason of either 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 are 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 new Section 147, the existence of only the first condition would suffice. 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 proviso to Section 147 as stood after amendment.
15. Thus as per the amended provisions of Section 147, for reopening of an assessment there should be a reason to believe that income chargeable to tax had escaped assessment for any assessment year. Such reason to believe can be raised in any manner and is not qualified by a pre-condition of full and true disclosure of material facts by an assessee as contemplated in pre-amended Section 147(a) and the assessing officer can, under the amended provisions, legitimately re-open the assessment in respect of income which had escaped assessment. Viewed in that angle, power to reassessment is much wider under the amended provisions and can be exercised even after assessee has disclosed fully and truly all material facts. Reasons which may weigh with the assessing officer may be the result of his own investigation and may also come from any source that he considers reliable. Forming of this belief is an administrative decision to be arrived at in judicial manner. The assessing officer is required to act fairly and judiciously. His belief must have substance and must not a shadow. There is no dispute to the well-settled legal proposition that such belief should be bona fide and should not be based on vague, arbitrary and non-specific information.
16. Undisputedly, in the present case returns filed for all the assessment years 1999-2000, 2000-01 and 2002-03 were processed under Section 143(1)(a), and no scrutiny assessment was framed thereon. The case laws relied on by the Id. AR during the course of hearing before us relates to pre-amended provisions of Section 147 or assessment completed under sec-lion 143(1) as they stood prior to amendment with effect from 1989-90. As and when we say that issue under consideration is squarely covered by the proposition laid down in particular decision of Tribunal, High Court or Supreme Court, we have to see that not only facts and circumstances are the same, but also the provisions of Act are in pari materia. In saying so, I am guided by the following obsen'ations of Hon'ble Supreme Court in the case of CIT v. Sun Engg.
Works (P) Ltd. It is neither desirable nor permissible to pick out a work or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision.
17. The cases relied on by the Commissioner (Appeals) relate to reopening of assessment with reference to old provisions of Section 147(b) as existed prior to 1-4- 1989. However with effect from 1989-90 the scope of Section 147 has been enlarged with deletion of the words "in consequence of information in his posses sion" which were there in Section 147(b). In the instant case discrepancy found during the course of survey at business premises where assessee was partner, was enough to have a reason to believe that there is escapement of income. In the instant case assessment were not completed under Section 143( 1), as it stood prior to amendment of Section 143(1) with effect from 1-4-1989, but only intimation were issued under Section 143(1), as per provisions stood during the years under consideration. Therefore, it is very pertinent to bring on record the scope of Section 143(1) as prevailing during the assessment years under consideration as compared to the scope of Section 143(1) as existed prior to 1-4-1989.
18. The crux of the provisions of Section 143( 1) up to 31 st March, 1989, was that after a return of income was filed the assessing officer could make an assessment under Section 143(1) without requiring presence of the assessee or production by him of any evidence in support of the return. Where the assessee objected to such assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under Section 143(1), but wanted to make an inquiry, a notice under Section 143(2) was required to be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, the officer had power to make assessment under Section 143(3).
19. With effect from 1-4-1989, the provisions underwent substantial and material changes. A new scheme was introduced and the new substituted Section 143(1) prior to subsequent substitution with effect from 1-6-1999 in Clause (a), a provision was made that where a return was filed under Section 13 9 or in response to a notice under Section 142(1) and any tax or refund was found due on the basis of such return after adjustment of tax deducted at source, any advance tax or any amount paid otherwise by way of tax or interest, an intimation was to be sent under Section 143(1)(a), without prejudice to the provisions of Section 143(2) to the assessee specifying the sum so payable and such intimation was deemed to be a notice of demand issued under Section 156. The first proviso to Section 143(1)(a) allowed the department to make certain adjustments in the income or loss declared in the return.
They were as follows : (a) An arithmetical error in the return, accounts and documents accompanying it were to be rectified.
(b) any loss carried forward, deductions, allowance or relief which on the basis of the information available in such return, accounts or documents, as prima facie admissible but which was not claimed in the return was to be allowed; and (c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed.
20. What were permissible under the first proviso to Section 143(1)(a) to be adjusted were (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried for- ward, deduction, allowance or relief which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly, (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible for correction of errors apparent on the basis of the documents accompanying the return? The assessing officer had no authority to make adjustments or adjudicate upon any debatable issue.
In other words, the assessing officer had no power to go behind the return, accounts or documents either in allowing or in disallowing deduction, allowance or relief.
21. The provisions of Section 143(1)(a) are without prejudice to the provisions of Section 143(2). Though, technically the intimation issued was deemed to be a demand notice issued under Section 156 that did not per se preclude the right of the assessing officer to proceed under Section 143(2). That right is reserved and not taken away. Between the period from 1-4-1989 to 31-3-1998, the second proviso to Section 143(1)(a) required that where adjustments were made under first proviso to Section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from 1-4-1998, second proviso to Section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till 1-6-1999. The requirement was that intimation was to be sent to the assessee whether or not any adjustments had been made under the first proviso to Section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between 1-4-1998 to 31-3-1999, sending of an intimation under Section 143(1)(a) was mandatory.
22. Thus, legislative intent is very clear from the use of the word 'intimation' as substituted for 'assessment', the assessing officer is free to make any addition after grant of opportunity to the assessee.
By making adjustments under the first proviso to Section 143(1)(a), no addition which is impermissible by the information in the return could be made by the assessing officer. Reason is that under Section 143(1)(a) no opportunity is granted to the assessee and the assessing officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of hearing being given under Section 143(1)(a) indicates that the assessing officer has to proceed accepting the return and making the permissible adjustments only.
23. As a result of insertion of Explanation to Section 143 by the Finance Act (No. 2) of 1991 with effect from 1-10-1991 and subsequently with effect from 1-6-1994 by Finance Act, 1994 and ultimately omitted with effect from 1-6-1999 by Explanation as introduced by the Finance Act (No. 2) of 1999, an intimation sent to the assessee under Section 143(1)(a) was deemed to be an order for purposes of Section 246 between 1-6-1994 to 31 - 3-1995 and under Section 264 between 1-10-1991 and 31-5-1999. The expressions 'intimation' and 'assessment order' have been used at different places. Contextual difference between the two expressions has to be understood in the context of the expressions used. Assessment is used as meaning some times 'the computation of income' some times 'the determination of the amount of tax payable' and some times 'the whole procedure laid down in the Act for imposing liability upon the tax payer'. In the scheme of things the intimation under Section 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. Under Section 143(1)(a) as stood prior to 1st April, 1989, the assessing officer had to pass an order if he decided to accept the return, but under the amended provisions, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent.
24. The Central Beard of Direct Taxes (CBDT) had issued various circulars in this regard explaining the purpose behind the provisions of Section 143(1 )(a), namely, to minimize the departmental work in scrutinizing each and every return, and to concentrate on selective scrutiny of returns.
25. Under the first proviso to Section 143(1) with effect from 1-6-1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be intimation under Section 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 acknowledgement is mostly done by the ministerial staff and not by the assessing officer. Thus the intimation does not have all the characteristics of an assessment as understood in the common parlance or even during taxing statutes. Further, the intimation under Section 143(1)(a) was deemed to be a notice of demand under Section 156 for the purpose of making machinery provisions relating to recovery of tax applicable. By such application only tax amount indicated to be payable by the intimation became permissible and nothing more can be inferred from the deeming section. Thus during the relevant assessment years 1999-2000, 2000-01 and 2002-03 under consideration, when the A returns were processed under Section 143(1), there being no assessment as such, there is no room to contend that there was change of opinion. Thus the case law relied on by Id. AR are not applicable to the facts and circumstances of the instant case where only intimations were issued under Section 143(1) and after survey sufficient reasons were there to believe that there is escapement of income. Gujarat High Court in the case of S.R. Koshti v. CIT ' dealing with the assessment year 2001 -02, has categorically held that 'intimation under Section 143( 1) is not an order of assessment'. At the stage of issue of notice under Section 148, the assessing officer does not have to coime to any conclusive finding on fact which gave him reason to believe that income has escaped assessment. The decision to initiate proceedings need not be preceded by a quasi-judicial enquiry; it can be the result of official, the Assessing Officer's own investigation or information from any other reliable source. An assessing officer can initiate proceedings under Section 147 even when he finds prima facie that a case falls in any of the clauses of Explanation 1 or 2, without anything more beyond such a finding, as such a case is one of deemed concealment. Thus the words "in consequence of information in his possession" in Section 147(6) have been omitted. The conditions stipulated in Section 147(a), viz,, failure to make a return, or to disclose fully and truly all material facts necessary for the assessment, have been made applicable only to scrutiny assessments made under Sections 143(3) and 147 beyond a period of 4 years from the end of the relevant assessment Dyear.
26. Hon'ble Supreme Court In Raymond Woollen Mills Ltd v. ITO , held that sufficiency or correctness of materials cannot be considered at the stage of issue of notice under Section 147.
Hon'ble Delhi High Court in Rakesh Aggarwal v. Asstt. CIT held that from assessment year 1989-90 onwards assessment could be reopened under Section 147 if the assessing officer had reason to believe that income has escaped assessment even though there was no failure on the part of assessee to discharge fully and truly all material facts.
27. In view of the above discussion we can safely conclude that assessments were validly reopened after recording sufficient reasons for reopening after the survey was conducted at the business premises w herein the assessee was partner.
28. As the Commissioner (Appeals) has not adjudicated the issue on merits with regard to the taxability of income from mint brokerage as business income or income from other source s and allowability of expenditure incurred for earning such income, and also gifts accepted by the assessee during the assessment years 1999-2000 and 2000-01 we restore all the matter back to the file of the Commissioner (Appeals) for deciding the issue on merits afresh. Needless to say that due opportunity should be provided to the assessee.
29. In view of the above discussion we are inclined to agree with 14- DR Shri David Z. Chawngthu, that on legal issue the Commissioner (Appeals) was not justified in cancelling the reassessment proceedings.
30. In the result, all the appeals of the revenue in the assessment years 1999-2000, 2000-01 and 2002-03 are allowed for statistical purposes.