IT : Since intimation under section 143(1) does not amount to assessment, question of change of opinion does not arise, and therefore, reopening of assessment based on sufficient material, forming reason to believe that income has escaped assessment, is valid
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[2013] 33 taxmann.com 426 (Gujarat)
HIGH COURT OF GUJARAT
Rhythm Chemicals (P.) Ltd.
v.
Assistant Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 3569 OF 2013
MARCH 26, 2013
Section 147, read with section 143, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [In case of section 143(1) assessment] - Assessment year 2005-06 - Assessee's return was accepted under section 143(1) - Later, notice under section 147 was issued for reopening of assessment - Whether intimation under section 143(1) cannot be treated as an order of assessment - Held, yes - Whether, since intimation under section 143(1) did not amount to assessment, question of change of opinion did not arise, and therefore, reopening of assessment based on sufficient material forming reason to believe that income had escaped assessment, was valid - Held, yes [Paras 7 & 8] [In favour of revenue]
FACTS
| ■ | The return filed by the assessee for assessment year 2005-06 was accepted under section 143(1), and no scrutiny was done under section 143(3). | |
| ■ | The Deputy Commissioner issued notice on 30-3-2012, stating that he had reason to believe that income had escaped assessment and sought to reopen assessment. | |
| ■ | The assessee's objections to the reopening of assessment were rejected, against which instant petition was filed by assessee. |
HELD
| ■ | The assessment for the assessment year 2005-06 was not done after scrutiny as provided under section 143(3) and the return filed by the assessee was accepted under section 143(1). [Para 4] | |
| ■ | In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC), it was held that under the first proviso to the newly substituted section 143(1), the acknowledgement of the return shall be deemed to be an 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 not done by any Assessing Officer, but mostly by ministerial staff and it cannot be said that any 'assessment' is done by them. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. [Para 6] | |
| ■ | Bearing in mind above ratio of the decision, in the present case, in an assessment which was previously not taken in scrutiny, the Assessing Officer found that there were no cash sales in the financial year 2004-05 and that therefore total sales of Rs. 53,750 was unexplained. The Assessing Officer also pointed out that the total sum of Rs. 1,20,000 through different entries was deposited in cash in the bank account of the assessee during the said period which was also unexplained. Such reasons cannot be stated to be lacking validity permitting the Assessing Officer to assess the income. [Para 7] | |
| ■ | Therefore, there was sufficient material with the Assessing Officer to form a belief that income chargeable to tax had escaped assessment. Whether, in fact, such additions can be made or not, must be judged on the basis of material, which may come on record during such reassessment proceedings. [Para 8] | |
| ■ | Petition is dismissed. [Para 9] |
CASE REVIEW
Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 6) followed.
CASES REFERRED TO
Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 6).
Hardik V. Vora for the Petitioner.
ORDER
Akil Kureshi, J. - Draft amendment is allowed.
2. Petitioner has challenged notice dated 30.3.2012 issued by Deputy Commissioner proposing to assess income of the petitioner assessee for the Assessment Year 2005-06 stating that he had reason to believe that income chargeable to tax for the said year had escaped assessment. The petitioner applied on 17.4.2012 to the Deputy Commissioner seeking a copy of the reasons recorded by him for the purpose of issuing the impugned notices. Under communication dated 26.11.2012 such reasons were supplied to the petitioner, which read as under:-
"2. The reasons recorded for reopening the assessment is as under:-
On verification of the audit report for F.Y. 2004-05, it is noticed that the assessee company has shown purchases of Rs.78,225 out of direct expenses of Rs.2,25,357. Asset of Rs. 26,47,198/- were added during the F.Y.2004-05. Previous year liability was shown at Rs.8,45,507/- which reduced during the F.Y. 2004-05 to Rs.3,50,883/- hence the company has paid Rs.4,97,624/- ( Rs. 8,48,507/- Rs. 3,50,883) under this head during F.Y. This shows that the company has borne total expenses of Rs.33,70,179/- during F.Y. against which there are provisions of Rs.33,401/-. Hence, during F.Y. 2004-05 total expenses of the company was Rs.33,55,778/-(Rs.33,70,179-Rs. 34,401).
On perusal of the bank statement, it was observed that there is total debit during the year of Rs.23,83,738/- which includes Rs.2,95,000/- in the form of cheques return i.e. the cheque which was not honoured and other charges of Rs.528/-. Hence, total expenses made through Bank of Baroda is Rs.20,88,210/- ( Rs.23,83,738/- Rs. 2,95,000/- Rs. 528).
Further, during the F.Y. 2004-05, the assessee company had only one bank account i.e. with Bank of Baroda A/c. No.02810200000213. The total expenses made by the company as per audit report including liability is Rs.33,35,778/- against total expenses of Rs.20,88,210/- as per bank statement. Sundry creditors as per balance sheet are Rs.3,50,833/- for which no details have been provided. Hence, there is a difference of Rs.12,47,568/- (Rs.33,35,778/- Rs. 20,88,210/-) in expenditure which appears to be unexplained expenditure made during the F.Y.2004-05 by the company. During the said year no manufacturing has been done, rather trading has been done and sales of Rs.53,570/- have been made. This means that no cash sales have been made which can explain the difference in expenses.
During the F.Y.2004-05 the assessee has deposited cash in the bank account which is as under:
| Date | Particulars | Amount (Rs.) | |
| 28.06.2004 | By cash | 45,000 | |
| 09.07.2004 | By cash | 5,000 | |
| 06.12.2004 | By cash | 60,000 | |
| 30.12.2004 | By cash | 10,000 | |
| Total.. | 1,20,000 |
During the year the total sales of Rs.53,750/- and the cash deposit of Rs.1,20,000/- remains unexplained."
3. The petitioner raised objections under communication dated 22.1.2013 objecting to the reopening of the assessment. Such objections were, however, rejected by an order dated 1.3.2013. Hence this petition.
4. At the outset, we may record that the assessment for the Assessment Year 2005-06 was not done after scrutiny as provided under Section 143(3) of the Income Tax Act, 1961 and that the return filed by the petitioner came to be accepted under Section 143(1) of the Act. In the background of such admitted facts, we need to examine the challenge of the petitioner to the impugned notice.
5. Learned counsel for the petitioner mainly contended that the reasons recorded by the Assessing Officer lacked validity and that therefore no reopening can be based on such reasons even in case of non-scrutiny assessment. He further submitted that the Assessing Officer cannot be stated to have reason to believe that income chargeable to tax has escaped assessment. He submitted that the Assessing Officer has, without proper verification of the balance sheet of the assessee, come to certain conclusions which are totally erroneous.
6. We may once again remind ourselves that notices for reassessment have been issued in case of a non-scrutiny assessment. In this context, we may refer to the decision of the Apex Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 in which it was held and observed as under:-
| "13** | ** | ** |
In the scheme of things, as noted above, 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 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 Limited v. Union of India[[1996] 220 ITR 248]. 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 acknowledegement of the return shall be deemed to be an 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 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 under section 143(1)(a) was deemed to be a notice of demand under section 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 under section 143(1)(a), the question of change of opinion, as contended, does not arise.
| ** | ** | ** |
16. 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. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v.Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)].
17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.
18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued."
7. Bearing in mind above ratio of the decision, if we revert back to the facts of the case, in an assessment which was previously not taken in scrutiny, the Assessing Officer found that there were no cash sales in the financial year 2004-05 and that therefore total sales of Rs.53,750/- was unexplained. The Assessing Officer also pointed out that the total sum of Rs.1,20,000/- through different entries was deposited in cash in the bank account of the assessee during the said period which is also unexplained. We do not find that such reasons can be stated to be lacking validity permitting the Assessing Officer to assess the income.
8. Under the circumstances, we are not inclined to interfere. It is, however, clarified that nothing stated in this order should be seen as our opinion on the taxability of the amount in question. In other words, we only find that there was sufficient material with the Assessing Officer to form a belief that income chargeable to tax had escaped assessment. Whether, in fact, such additions can be made or not, must be judged on the basis of material, which may come on record during such reassessment proceedings.
9. With above observations, petition is dismissed.
Regards
Prarthana Jalan
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