Judgment:
1. The challenge in these proceedings under Article 226 of the Constitution is to the action of the Assessing Officer in reopening the assessments for Assessment Years 2005-06 and 2006-07.
2. On 10 September 2009 a survey was conducted under Section 133-A of the Income Tax Act 1961, in the course of proceedings for Assessment Year 2007-08. The Assessing Officer issued a notice on 29 March 2010 proposing to reopen the assessment for Assessment Year 2005-06. Before the Court it is not in dispute that a similar notice was issued on the same day, by which the assessment for Assessment Year 2006-07 was sought to be reopened on the ground that the income chargeable to tax had escaped assessment within the meaning of Section 147. On the request of the assessee, the reasons on the basis of which the assessment was sought to be reopened have been disclosed under a communication dated 8 April 2010. Those reasons are extracted herein below for convenience of reference :
"In this case the assessment for the A.Y. 2005-06 was completed on 31.12.2007 determining total income at Rs.14,12,92,170/-. Subsequently a survey operation u/s. 133A of the Income Tax Act, 1961 was carried out at the business premises of the assessee on 10/09/2009. During the course of survey operation certain documents as per Annexure A-1, & A-2 were impounded. Also copies of books of account maintained in the computer were taken in a CD and impounded as per Annexure A-3. During the course of scrutiny proceedings for the A.Y. 2007-08, extracts of books of account as per the impounded CD were taken for the period relevant to A.Y. 2005-06. The said extracts together with the documents relating to the receipts and cost of production of movies as per the Annexure A1 & A2 were verified with the financial statements filed with the return of income and details filed during the scrutiny proceedings. On verification following discrepancies were found :
A) As per Annexure A-3 (Impounded CD )
(i) Cash payment disallowable u/s. 40A(3) on Rs.275,23,518/- @ 20% - Rs.55,04,703/-
(ii) Difference in interest income :
As per Impounded books of accounts Rs.23,81,236/- As per Financial Statements filed with return Rs.13,90,672/- Concealed income Rs. 9,90,564/-
(iii) Difference in Miscellaneous Receipts :
As per Impounded books of account Rs.131,89,800/- As per Financial Statements filed with return Rs. 39,39,552/- Concealed Income Rs. 96,50,048/-
(iv) Difference in cost of production excess claimed :
As per Financial statements filed with return of income Rs.57,35,85,591/- As per Impounded books of account Rs.55,97,71,003/- Excess expenditure claimed Rs. 1,38,14,588/-
B. The following discrepancies are also noticed in the account wherein tax evasion is involved which could not be verified / quantified due to non submission on the part of the assessee and which require verification / investigation :-
i) As per impounded books of account there is negative balance in cash book;
ii) Short deduction of TDS;
iii) Personal expenses deserve to be disallowed; iv) Difference in exchange rate fluctuation as per impounded books of account and financial statements attached with the return of income;
v) Difference in balance under the head cash balance in hand, bank balance deposit a/c, fixed assets & general reserve as per impounded books of account and financial statements attached with the return of income;
vi) Difference in the opening and closing a/c in respect of M/s. Premier Presstressed Concrete Products Pvt. Ltd. as per impounded books of account and financial statements attached with the return of income;
vii)Receipts as per impounded books of account are not verifiable with reference to financial statements attached with the return of income;
viii)Provisions of section of Rule 9A and 9B are to be invoked.
Since the assessee has failed to disclose fully and truly all the material facts necessary for assessments for A.Y. 2005-06, I have reason to believe that in this case above mentioned income / expenditure has escaped assessment. Therefore notice u/s. 148 is issued to re-assess the income of the assessee for the A.Y. 2005-06."
3. The assessee has thereupon been directed to furnish documents, information and details, as the case may be, in order to enable the Assessing Officer to complete the reassessment in accordance with law. The assessee addressed a letter dated 7 July 2010 by which an attempt was made to provide a reconciliation of the impounded books of account and the disclosures made in the return of income. The Assessing Officer by an order dated 25 October 2010 has dealt with the objections of the assessee to the reopening of the assessment and has rejected those objections.
4. Counsel appearing on behalf of the Petitioner submits that the reopening of the assessments for Assessment Years 2005-06 and 2006-07 is on similar grounds and hence, the conclusion which the Court arrives at in the first petition would have to govern the second. On behalf of the Petitioner it has been submitted that (i) In the reasons disclosed for reopening the assessments for Assessment Years 2005-06 and 2006-07 the Assessing Officer had emphasised that the documents which were impounded during the course of survey operation under Section 133-A indicated upon verification certain discrepancies between the documents as impounded and the financials as disclosed in the return. This stand, it was urged, has been changed to raise a doubt in regard to the allowability and validity of the expenditure; (ii) During the course of survey under Section 133-A the documents which were impounded pertain to the Production division of the assessee whereas the assessee has three divisions - the Production Division, the Home and Entertainment Division and the Distribution Division. After the assessee furnished a reconciliation, no mistake has been found by the Assessing Officer in the reconciliation since what was impounded was material regarding the production division alone; (iii) There is no escapement of income and consequently it was not open to the Assessing Officer to consider the allowability or validity of the expenditure incurred by the assessee.
5. On the other hand, counsel appearing on behalf of the Revenue has submitted that - (i) The reopening of the assessment in the present case is within a period of four years of the end of the relevant Assessment Years; (ii) The Assessing Officer had tangible material before him on the basis of which he has formed a reason to believe, within the meaning of Section 147 that income has escaped assessment; (iii) The objections which are sought to be raised by the assessee to the reopening of assessment on 7 July 2010 have been adequately dealt with by the Assessing Officer on 25 October 2010 and the contention of the assessee that a complete reconciliation was submitted is as a matter of fact incorrect; (iv) The test the Court must apply is as to whether there was tangible material on the basis of which the Assessing Officer could form a reason to believe that income had escaped assessment. In the present case, the answer to that test must be in the affirmative and hence, no case for interference under Article 226 of the Constitution has been made out.
6. The reopening of the assessment in the present case is admittedly within a period of four years of the end of the relevant Assessment Years, 2005-06 and 2006-07. When the reopening takes place within a period of four years of the relevant Assessment Year, the powers of the Assessing Officer are substantially wider than when a reopening is beyond a period of four years. Nonetheless, the power to reopen an assessment cannot be exercised arbitrarily even within a period of four years, for the Income Tax Act, 1961 does not confer upon the Assessing Officer a power to review an assessment once made. A mere change of opinion cannot justify reopening of assessment, but where the Assessing Officer can demonstrate that there was tangible material on the basis of which he had formed the belief that income had escaped assessment, that would furnish jurisdiction to him to reopen assessment. The law on the subject has been formulated in the judgment of the Supreme Court in Commissioner of Income Tax v. Kelvinator of India Ltd.1 thus : "Post-1st April, 1989, power to reopen 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 reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the grab of reopening 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, the Assessing Officer has power to reopen, 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."
1 (2010) 320 ITR 561 (SC).
7. In a judgment of a Division Bench of this Court in Dr. Amin's Pathology Laboratory v. P.N. Prasa, Joint Commissioner of Income Tax2 Hon'ble Mr. Justice S.H. Kapadia ( as the learned Chief Justice of India then was) speaking for a Division Bench of this Court had emphasised that a reason to believe that income has escaped assessment has to be the reason of a prudent person. Consequently, if as a result of information received by the Assessing Officer, he comes to the conclusion that income has escaped assessment that would constitute a valid foundation for a notice under Section 148. The Division Bench observed as follows :
"... after the introduction of changes with effect from April 1, 1989, the scope of reassessment has been widened. After the amendment, the only restriction put in the section is "reason to believe". That reason has to be a reason of a prudent person. That reason should be fair and not necessarily due to failure of the assessee to disclose fully or partially some material facts relevant for assessment. That, if any item has escaped from assessment which was otherwise includible within the assessment and the Assessing Officer notices it subsequently by his own investigation or by reason of some information received by him, one cannot say that it constitutes change of opinion."
8. A Division Bench of the Madhya Pradesh High Court has in Dr. Lata Chouhan v. Income Tax Officer3 upheld the reopening of assessments on the basis of tangible material which comes in the possession of the department following a survey action under Section 133-A.
9. In the present case, the Assessing Officer had tangible material
2 (2001) 252 ITR 673
3 (2010) 329 ITR 400.
on the basis of which he has formed a reason to believe that income has escaped assessment. The tangible material consists of material that came into the possession of the department following a survey operation which took place under Section 133-A on 10 September 2009. During the course of the survey certain documents came to be impounded. The Assessing Officer noted that during the course of the proceedings for Assessment Year 2007-08 extracts of the books of account which were found in an impounded C.D. were taken for the period relevant to the Assessment Years to which these proceedings relate. These were verified with the financial statements filed with the return of income. Discrepancies have been revealed in respect of three heads in particular :
(i) Difference in interest income;
(ii) Difference in miscellaneous receipts; and
(iii) Cash payment disallowable under Section 40A(3), being payments in excess of Rs. 20,000/-.
10. According to counsel appearing on behalf of the assessee, a reconciliation was furnished to the Assessing Officer under cover of the assessee's letter dated 7 July 2010. According to the assessee, the reconciliation would demonstrate that there was no escapement of income. At this stage, the issue before the Court is as to whether there was indeed any tangible material on the basis of which a prudent Assessing Officer would come to the conclusion that income had escaped assessment. At this stage, it is impermissible for the Court to enquire into the details of the reconciliation offered by the assessee. However, by way of illustration, we may note that under the head pertaining to differences in miscellaneous receipts, the miscellaneous income as per the impounded books of account was shown as Rs.1,31,89,800/-. In the reconciliation the assessee has deducted from that amount a figure of Rs.87,50,000/- for the following reason :
"Less : DVD income received from Yashraj Films USA was wrongly credited to Misc Income ; now rectified and credited to Yashraj films (USA) DVD Income - Rs.87,50,000/-"
11. Ex facie, the reconciliation of the assessee itself indicates that income in the amount of Rs.87.50 lacs received from a U.S. entity was wrongly credited to miscellaneous income and has now been rectified and credited to Yashraj Films, U.S.A., DVD income. As we have noted earlier, the merits of the issue do not really fall for determination in these proceedings. On the basis of the record as it stands, we are of the clear view that there was tangible material before the Assessing Officer on the basis of which he has proceeded to reopen the assessment for Assessment Years 2005-06 and 2006-07. The Court can consider as to whether there was a prima facie case for reassessment. The sufficiency of the material cannot be considered (Raymond Woollen Mills Ltd. v. Income Tax Officer4 ) For these reasons, we do not find any merit in the Petitions. Both the Petitions shall stand dismissed.
There shall be no order as to costs.