IT : Reopening of assessment on ground that assessee had made unexplained investment in purchase of silver sold during year was not justified when assessee had fully and truly disclosed all relevant materials in respect of investment in purchase of silver sold during assessment proceedings
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[2013] 38 taxmann.com 216 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax-I, Agra
v.
Surendra Chand Bansal*
SUNIL AMBWANI AND Aditya Nath Mittal, JJ.
IT Appeal No. 119 of 2002†
OCTOBER 4, 2012
Section 69, read with section 147 of the Income-tax Act, 1961 - Unexplained investment [Reassessment] - Assessment year 1987-88 - Whether mere fact that full particulars regarding computation of income are not supplied, cannot, by itself, lead to an inference that income has escaped assessment - Held, yes - Assessing Officer reopened assessment on ground that assessee could not produce relevant purchase bills of silver sold during year and made addition on account of unexplained investment in purchase of silver - Tribunal found that assessee had fully and truly disclosed all relevant materials in respect of investment in purchase of silver sold for purpose of assessment for year under consideration and, therefore, initiation of proceedings under section 147(a)/148 was not legally sustainable - Whether Tribunal was justified in quashing reassessment order - Held, yes [Paras 7 and 8] [In favour of assessee]
FACTS
| ■ | The assessee filed return showing certain income which included capital gain on sale of silver. The assessment was completed under section 143(1). | |
| ■ | The Assessing Officer thereafter reopened assessment on the ground that the assessee could not produce the relevant purchase bills of silver sold and made addition on account of unexplained investment in the purchase of silver, which was sold by the assessee. | |
| ■ | The Commissioner (Appeals) dismissed the assessee's appeal. | |
| ■ | On second appeal, the Tribunal held that the assessee had fully and truly disclosed all relevant materials in respect of investment in the purchase of silver sold for the purpose of assessment for the year under consideration and, therefore, found that the initiation of proceedings under section 147(a)/148 was not legally sustainable. | |
| ■ | On revenue's appeal: |
HELD
| ■ | Prior to 1-4-1989 the powers of the Assessing Officer to take proceedings under section 147 were not confined to cases where the assessee had concealed his income. The power could also be exercised where there was no concealment but the Assessing Officer has reason to believe in consequence of information in his possession that the income had escaped assessment. The fact, that the assessment had become final in appeal, also did not preclude the Assessing Officer from exercising the power. Such power, however, was hedged with several safeguards, to eliminate its abuse by the Assessing Officer. The Assessing Officer could exercise the power of reassessment where he had reason to believe that the income chargeable to tax had escaped assessment for the relevant year; the assessee had been under-assessed; the assessee had been assessed at a lower rate or that the assessee has been made the subject of excessive relief or excessive loss. The Assessing Officer was required to have reason to believe that the income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return of his income under section 139 for the year; to disclose fully or truly all material facts necessary for his assessment (Section 147(a)) or the Assessing Officer should have in consequence to the information in his possession reason to believe that the income has escaped assessment (Section 147(b)). On the satisfaction of the conditions referred as above, a notice under section 148 was required to be given recording his reasons for issuing notice under section 148(2) and calling for his return within the prescribed time. [Para 6] | |
| ■ | The judicial interpretation of words 'reason to believe' was that such belief must be that of an honest or reasonable person based upon reasonable grounds. The Assessing Officer must act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The reason must have live-link or close nexus between the material coming to the knowledge of the Assessing Officer, and formation of his belief. It was held by the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO [1997] 106 ITR 1, that even if there has been any omission or failure on the part of the assessee but such omission or failure did not result in the escapement, the action under section 147(a) would not be competent. The mere fact, that full particulars regarding the computation of income are not supplied, cannot, by itself, lead to an inference that the income has escaped assessment. [Para 7] | |
| ■ | In the instant case, the Tribunal found that the assessee had placed all materials and relevant facts before the department and, thus, there was no material to record satisfaction by the Assessing Officer that the income had escaped assessment. [Para 8] | |
| ■ | Therefore, the Tribunal was justified in quashing reassessment order and additions made thereunder. [Para 9] |
ORDER
1. This Income Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, the Act) arises out of judgment and order dated 20.6.2002 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in ITA No. 8151/Del/1992 for the assessment year 1987-88. The appeal was admitted on 19.7.2007, on the following substantial questions of law:—
| "(1) | Whether on the facts and circumstances of the case the Tribunal is legally justified in holding that there has been no failure on the part of the assessee to disclose fully and truly all necessary material facts in respect of investment in purchase of silver sold for the purpose of his assessment for the year under consideration. | |
| (2) | Whether on the facts and circumstances of the case the Tribunal is legally justified in holding that conditions for initiation of proceedings u/s 147 (a)/148 are not satisfied and thereby quashing the reassessment order and additions made there under." |
2. The assessee is a partner in M/s Chandra Timber Traders of Chandra Timber Group. The search and seizure operations were conducted on 19.1.1989 at the business and residential premises of the firm and the partners of the group. The assessee filed a return on 20.11.1987 showing income at Rs. 1,14,526/-, which included capital gain on sale of silver amounting to Rs. 71,411/-. The assessment was completed under Section 143 (1) of the Act on 19.2.1988. Later a notice under Section 148 of the Act was served on the assessee. In reply the assessee submitted that the return originally filed may be taken as return filed in response to the notice.
3. The AO found that the gifts in the name of minor children Km. Rashmi Bansal and Master Annu Bansal of Rs. 21,000/- each on 21.7.1986 were not explained. The assessee could not produce the relevant purchase bills of sale of silver worth Rs.3,07,821/- of which the cost of silver was shown at Rs. 1,55,000/-. The AO also found that the profits earned by the minors Km. Rashmi Bansal and Master Annu Bansal of Rs.17,100/- and Rs. 17,098/- from out of profits from M/s Param Puri Trading Co. Delhi and M/s Paras Nath Trading Co., Delhi were not earned by them. These profits were the income of the assessee. He also found that there were unexplained deposits in the bank account of Smt. Usha Bansal-the wife of the assessee of Rs. 40,150/-. Smt. Usha Bansal being housewife has not done any sort of business to receive profits from M/s Mahavir Prasad Atal Kumar, Delhi. The AO added the profits shown to be earned by the minor children the income from the sale of silver and the unexplained deposits in the wife of the assessee for his income.
4. The CIT (A) dismissed the appeal.
5. The Tribunal found that the power to reopen computed assessment or reassessing the income, which has escaped assessment under Section 147 of the Act, is to be exercised by the AO provided the statutory conditions of initiation of proceedings under the section are satisfied. In Section 147, as it existed at the relevant point of time i.e. prior to 1.4.1989, separate clauses (a) and (b) laid down the circumstances under which the income which had escaped assessment could be assessed or reassessed. Under Section 147 (a) two conditions were required to be satisfied. Firstly the AO should have reason to believe that the income had escaped assessment and secondly he must also have reason to believe that such escapement had occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment for that year. Section 148 casts an obligation on the AO to issue notice before making assessment or reassessment and sub section (2) provides that before issuing notice he has to record his reasons for doing so. It is only the recorded reason, which can indicate as to why the AO made reassessment for the relevant assessment year. In the present case, it was held by the Tribunal that the AO had taken into account five numbers of unexplained investments. However, in the assessment order only addition of Rs.3,07,420/- was made on account of unexplained investment in the purchase of silver, which was sold by him. Besides he also made some other additions, which did not form part of the reasons recorded. The assessee did not conceal the investment in the purchase of silver to fully and truly disclose all relevant materials in respect of investment in the purchase of silver sold for the purposes of assessment for the year under consideration. The Tribunal thus found that the initiation of proceedings under Section 147 (a)/148 was not legally sustainable.
6. The order of the Tribunal does not suffer from any legal error. Prior to 1.4.1989 the powers of the AO to take proceedings under Section 147 were not confined to cases where the assessee had concealed his income. The power could also be exercised where there was no concealment but the AO has reason to believe in consequence of information in his possession that the income had escaped assessment. The fact, that the assessment had become final in appeal, also did not preclude the AO from exercising the power. Such power, however, was hedged with several safeguards to eliminate its abuse by the AO. The AO could exercise the power of reassessment where he had reason to believe that the income chargeable to tax had escaped assessment for the relevant year; the assessee has been under-assessed; the assessee has been assessed at a lower rate or that the assessee has been made the subject of excessive relief or excessive loss. The AO was required to have reason to believe that the income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return of his income under section 139 for the year; to disclose fully or truly all material facts necessary for his assessment (Section 147 (a)) or the AO should have in consequence to the information in his possession reason to believe that the income has escaped assessment (Section 147 (b)). On the satisfaction of the conditions referred as above, a notice under Section 148 of the Act was required to be given recording his reasons for issuing notice under Section 148 (2) and calling for his return within the prescribed time.
7. The judicial interpretation of words "reason to believe" was that such belief must be that of an honest or reasonable person based upon reasonable grounds. The AO must act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The reason must have live-link or close nexus between the material coming to the knowledge of the AO, and formation of his belief. It was held by the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1, that even if there has been any omission or failure on the part of the assessee but that such omission or failure did not result in the escapement, the action under Section 147 (a) would not be competent. The mere fact, that full particulars regarding the computation of income are not supplied, cannot by itself lead to an inference that the income has escaped assessment.
8. In the present case the Tribunal found that the assessee had placed all material and relevant facts before the department and thus there was no material to record satisfaction by the AO that the income had escaped assessment.
9. The questions of law are thus decided in favour of the respondent-assessee and against the revenue.
10. The Income-tax Appeal is dismissed.
Regards
Prarthana Jalan
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