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Through: Sh. Salil Kapoor, Sh. Vikas Jain,Sh. Sanat Kapoor and Sh. Ankit Gupta, Advocates. versus COMMISSIONER OF INCOME TAX-XI AND ANR.
February, 20th 2014

                                              Decided on 28.01.2014

+                        W.P.(C) 7660/2012

       MOHAN GUPTA (HUF)                       ..... Petitioner
                   Through: Sh. Salil Kapoor, Sh. Vikas Jain,
                   Sh. Sanat Kapoor and Sh. Ankit Gupta,


                                             ..... Respondents
                   Through: Ms. Suruchii Aggarwal, Sr.
                   Standing Counsel with Sh. Judy James, Jr.
                   Standing Counsel.


1.     This writ petition challenges orders dated 26.03.2012 and
09.08.2012 of the Income Tax authorities under Section 148 of the
Income Tax Act, 1961 ("the Act") for reassessment for the A.Y. 2005-

2.     The petitioner/assessee is a Hindu Undivided Family,
represented by its karta Mohan Gupta. The assessee filed its return of
income for the A.Y. 2005-06 declaring net income of `16,98,732/-.

W.P.(C)7660/2012                                                 Page 1
This return was processed under Section 143(1) of the Act.
Subsequently, on 26.03.2012, the Revenue issued a notice under
Section 148 of the Act for reopening the assessment for A.Y. 2005-06.
On 02.04.2012, the assessee filed a return of income pursuant to that
notice dated 26.03.2012, requesting a copy of the reasons recorded by
the Assessing Officer for reopening the assessment. These reasons
were supplied on 18.04.2012, and the assessee preferred objections on
26.04.2012. These were rejected by the Revenue on 09.08.2012. A
further exchange of objections and rejections followed by letters dated
24.08.2012 and 26.10.2012, thus leading to the present writ petition.

3.     Briefly, the return filed and processed for the A.Y. 2005-06
indicated `6,55,016/- as Short Term Capital Gain ("STCG"). The
reason for reopening the assessment of that year relates to the office
note of the Assessing Officer for the subsequent A.Y. 2007-08,
whereby the need to assess the income on purchase and sale of shares
as business income, rather than STCG, was expressed. Specifically,
the reasons provided to the assessee for reopening the assessment state
as follows:

       "The case of the assessee for the A.Y. 2007-08 was
       assessed u/s 143(3) at an Income of Rs.33,03,791/-, The
       STCG of Rs.33,00,053/- declared by the assessee was
       treated as Business income from purchase and sale of
       shares, As per the office note of the assessing officer for
       the A.Y. 2007-08, the issue of treating of STCG income
       on sale of share is needed to be assessed again. The total
       STCG for the A.Y. 2005-06 is Rs. 6,55,016/- taxed @
       10% The tax effect, if income is treated as business
       income, would be more than Rs. 1 lakh.

W.P.(C)7660/2012                                                     Page 2
       I have therefore, reason to believe that by reason of
       omission or failure on the part of the assessee to disclose
       truly and fully all material facts necessary for assessment
       and by wrong treatment of income, income chargeable to
       tax amounting to Rs. 6,55,016/- taxed as STCG needed to
       be taxed as business income, has escaped assessment for
       which notice u/s 148 is required to be issued within the
       meaning of sec 147 ofthe ITAct, 1961."

4.     The assessment order under Section 143(3) of the Act for the
A.Y. 2007-08, from which the reassessment arose, after considering in
detail the nature and frequency of the sale and purchase of shares by
the assessee concluded that the activity was not for the purposes of
investment but in the nature of a business activity, and thus,
chargeable as such. The fact that such income was considered to be
STGC in previous years was considered insufficient by the Assessing
Officer as it is "a settled law that intimation under Section 143(1) are
summary processing wherein there is no application of mind." The
assessee appealed this order (Appeal No. 114/09-10). The CIT
(Appeals) reversed the finding of the Assessing Officer and held that
the income was to be treated at STCG and not as business income.

5.     Despite this, the Revenue proceeded with the reopening of the
assessment for the year 2005-06, based on the reasoning that an order
under Section 143(1) ­ which was the case for the A.Y. 2005-06 ­ is
only an intimation which does not involve an application of mind of
the Assessing Officer. As new information had now come to light,
given the nature and frequency of the scrips traded by the assessee, the

W.P.(C)7660/2012                                                     Page 3
Assessing Officer had reasons to believe that income had escaped

6.     Section 147 permits the reopening of an assessment, and the
issuance of notices etc., if the "Assessing Officer has reason to believe
that any income chargeable to tax has escaped assessment for any
assessment year ..." The scope of the phrase "reasons to believe" ­
introduced in 1989 ­ has been considered by the Supreme Court in
various decisions. In M/s. Phool Chand Bajrang Lal and Anr. v.
Income Tax Officer and Anr., [1993] 203 ITR 456 (SC), the Court
held as follows:

       "27.......................Since the belief is that of the Income-
       tax Officer, the sufficiency of reasons for forming the
       belief, is not for the Court of judge but it is open to an
       assessee to establish that there in 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 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......................."

7.     Thus, while the Court will not judge the adequacy of the
reasons provided by the Assessing Officer, the Court must assess
whether the belief is based on relevant and specific information that
could lead to such a belief. This well-accepted principle has found
acceptance in ITO, Calcutta and Ors. v. Lakhmani Mewal Das 1976

W.P.(C)7660/2012                                                           Page 4
(103) ITR 437 (SC); Central Provinces Manganese Ore. Co. Ltd.
v. Income Tax Officer, Nagpur, [1991] 191 ITR 662 (SC), Sri Krishna
Pvt. Ltd. Etc. v. Income Tax Officer, Calcutta and Ors., (1996) 9 SCC

8.     In this case, the reasons provided under Section 148 are that "by
reason of omission or failure on the part of the assessee to disclose
truly and fully all material facts necessary for assessment and by
wrong treatment of income", certain income has escaped assessment.
However, no details are provided as regards what such information is,
which engaged the attention of the AO and was not disclosed by the
assessee while filing returns. The reasons must indicate specifically
what such objective material facts are, on the basis of which a
reopening is initiated under Section 148. There is a vague reference in
this case to `material facts', which does not meet the standard under
Section 148 as identified by the Supreme Court in Phool Chand
(supra). In fact, the reasons provided also state that "[a]s per the
office note of the assessing officer for the A.Y. 2007-08, the issue of
treating of STCG income on sale of share is needed to be assessed
again." Therefore, this reassessment is not on the basis of new
information or facts that have come to the fore now, but rather, a re-
appreciation or review of the facts that were provided along with the
original return filed by the assesse. As the Supreme Court noted in
CIT v. Kelvinator, (2010) 2 SCC 723 = 320 ITR 561 (SC):

       "6......................However, one needs to give a schematic
       interpretation to the words "reason to believe" failing
       which, we are afraid, Section 147 would give arbitrary

W.P.(C)7660/2012                                                        Page 5
       powers to the Assessing Officer to re-open assessments
       on the basis of "mere change of opinion", which cannot
       be per se reason to re-open. We must also keep in mind
       the conceptual difference between power to review and
       power to re-assess. The Assessing Officer has no power
       to review; he has the power to re-assess. But re-
       assessment has to be based on fulfillment of certain pre-
       condition and if the concept of "change of opinion" is
       removed, as contended on behalf of the Department, then,
       in the garb of re-opening 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,
       Assessing Officer has power to re-open, 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....................... "

9.     In this case, the record does not show any tangible material that
created the reason to believe that income had escaped. Rather, the
reassessment proceedings amount to a review or change of opinion
carried out in the earlier A.Y. 2005-06, which amounts to an abuse of
power and is impermissible. Equally, even the order of the Assessing
Officer for the A.Y. 2007-08, converting the STCG into business
income, has been reversed by the CIT (Appeals) in Appeal No.
114/09-10, which was confirmed by Income Tax Appellate Tribunal,
Delhi, in ITA No. 1923 (Del) of 2010.

10.    In response, it is argued that since the return was processed
under Section 143(1) for the A.Y. 2005-06, which involves a mere
intimation, rather than an application of mind or true assessment of the

W.P.(C)7660/2012                                                   Page 6
return, a less stringent threshold must be taken in terms of `reasons to
believe' that income has escaped assessment or not. This precise
argument, however, has been considered and rejected by this Court in
CIT v. Orient Craft, [2013] 354 ITR 536 (Delhi), in the following
terms, and thus is of no avail in the present case either:

       "12..............................The assumption of the Revenue that
       somehow the words "reason to believe" have to be
       understood in a liberal manner where the finality of an
       intimation under Section 143(1) is sought to be disturbed
       is erroneous and misconceived. As pointed out earlier,
       there is no warrant for such an assumption because of the
       language employed in Section 147; it makes no
       distinction between an order passed under
       section 143(3) and the intimation issued under
       section 143(1). Therefore it is not permissible to adopt
       different standards while interpreting the words "reason
       to believe" vis-à-vis Section 143(1) and Section 143(3).
       We are unable to appreciate what permits the Revenue to
       assume that somehow the same rigorous standards which
       are applicable in the interpretation of the expression
       when it is applied to the reopening of an assessment
       earlier made under Section 143(3) cannot apply where
       only an intimation was issued earlier under
       Section 143(1). It would in effect place an assessee in
       whose case the return was processed under
       Section 143(1) in a more vulnerable position than an
       assessee in whose case there was a full-fledged scrutiny
       assessment made under Section 143(3). Whether the
       return is put to scrutiny or is accepted without demur is
       not a matter which is within the control of assessee; he
       has no choice in the matter. The other consequence,
       which is somewhat graver, would be that the entire
       rigorous procedure involved in reopening an assessment
       and the burden of proving valid reasons to believe could
       be circumvented by first accepting the return under

W.P.(C)7660/2012                                                             Page 7
       Section 143(1) and thereafter issue notices to reopen the
       assessment. An interpretation which makes a distinction
       between the meaning and content of the expression
       "reason to believe" in cases where assessments were
       framed earlier under Section 143(3) and cases where
       mere intimations were issued earlier under
       Section 143(1)may well lead to such an unintended
       mischief. It would be discriminatory too. An
       interpretation that leads to absurd results or mischief is
       to be eschewed.

       13. Certain observations made in the decision of
       Rajesh Jhaveri (supra) are sought to be relied upon by
       the revenue to point out the difference between an
       "assessment" and an "intimation". The context in which
       those observations were made has to be kept in mind.
       They were made to point out that where an "intimation"
       is issued under section 143(1) there is no opportunity to
       the assessing authority to form an opinion and therefore
       when its finality is sought to be disturbed by issuing a
       notice under section 148, the proceedings cannot be
       challenged on the ground of "change of opinion". It was
       not opined by the Supreme Court that the strict
       requirements of section 147 can be compromised. On the
       contrary, from the observations (quoted by us earlier) it
       would appear clear that the court reiterated that "so long
       as the ingredients of section 147 are fulfilled" an
       intimation issued under section 143(1) can be subjected
       to proceedings for reopening. The court also emphasised
       that the only requirement for disturbing the finality of an
       intimation is that the assessing officer should have
       "reason to believe" that income chargeable to tax has
       escaped assessment. In our opinion, the said expression
       should apply to an intimation in the same manner and
       subject to the same interpretation as it would have
       applied to an assessment made under section 143(3). The
       argument of the revenue that an intimation cannot be
       equated to an assessment, relying upon certain

W.P.(C)7660/2012                                                     Page 8
         observations of the Supreme Court in Rajesh Jhaveri
         (supra) would also appear to be self-defeating, because if
         an "intimation" is not an "assessment" then it can never
         be subjected to section 147 proceedings, for, that section
         covers only an "assessment" and we wonder if the
         revenue would be prepared to concede that position. It is
         nobody's case that an "intimation" cannot be subjected to
         section 147 proceedings; all that is contended by the
         assessee, and quite rightly, is that if the revenue wants to
         invoke section 147 it should play by the rules of that
         section and cannot bog down. In other words, the
         expression "reason to believe" cannot have two different
         standards or sets of meaning, one applicable where the
         assessment was earlier made under section 143(3) and
         another applicable where an intimation was earlier
         issued under section 143(1). It follows that it is open to
         the assessee to contend that notwithstanding that the
         argument of "change of opinion" is not available to him,
         it would still be open to him to contest the reopening on
         the ground that there was either no reason to believe or
         that the alleged reason to believe is not relevant for the
         formation of the belief that income chargeable to tax has
         escaped assessment. In doing so, it is further open to the
         assessee to challenge the reasons recorded under
         section 148(2) on the ground that they do not meet the
         standards set in the various judicial pronouncements."
11.      For the above reasons, the writ petition is allowed and the
impugned notices dated 26.03.2012 and 09.08.2012 are hereby set

                                                  S. RAVINDRA BHAT

                                                          R.V. EASWAR
JANUARY 28, 2014

W.P.(C)7660/2012                                                        Page 9
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