* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 12.05.2014
Pronounced on: 14.08.2014
+ W.P.(C) 1320/2014, C.M. NO.2744/2014 & 2745/2014
MADHUKAR KHOSLA ..... Petitioner
Through : Sh. Salil Kapoor with Sh. Vikas Jain and
Sh. Varun Gupta, Advocates.
Versus
ASSISTANT COMMISSIONER OF INCOME TAX
..... Respondent
Through : Sh. Sanjeev Sabharwal, Sr. Standing
Counsel with Sh. Ruchir Bhatia, Jr. Standing
Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU
MR. JUSTICE S. RAVINDRA BHAT
%
C.M. NO. 2745/2014 (for exemption)
Allowed, subject to all just exceptions.
W.P.(C) 1320/2014, C.M. NO.2744/2014
1. The petitioner challenges the notice dated 25.03.2013 under
Section 148 of the Income Tax Act ("the Act") proposing to re-open
the assessment for Assessment Year 2006-07 @ `1,12,760/-
completed under Section 143 (3) by the Assessing Officer ("AO").
W.P.(C) 1320/2014 Page 1
2. The brief facts are that the petitioner filed income tax returns on
30.10.2006 for AY 2006-07. The returns were selected for scrutiny; a
notice was issued on 28.02.2008 along with a questionnaire. The
required details were furnished by the petitioner on 07-03-2008. The
AO, accepting the explanations, framed the assessment on 28-03-
2008. In this background of circumstances, the respondent AO sought
to re-open the assessment by the impugned notice, under Section 147
of the Act. Responding to this notice, the assessee, on 22-04-2013
stated that it stood by the returns filed originally (and accepted by the
AO on 28-03-2008); it also requested that the reasons for re-opening
the assessment be furnished.
3. The Revenue acceded to the petitioner's request; the reasons
furnished are extracted below:
"In this case assessment was completed under section
143(3) vide order dated 28.3.2008 on an income of Rs.1,
12,760/-.
2. On perusal of the records and the details filed by the
assessee it came to the notice that the assessee has added an
amount of Rs.25,31,003/- to its capital account of his
proprietorship concern M/s Madhukar Khosla & Co.
(Rs.14,31,000/- as gift and Rs.11 ,00,003/- addition).
During the course of assessment proceedings the assessee
offered no explanation to the above addition to the capital
account.
3. In the absence of the source of the addition with
documentary evidence on records, the same is required to
be brought on tax net as per provisions of section 68 of the
Income tax Act, 1961 as the assessee had offered no
W.P.(C) 1320/2014 Page 2
explanation about the nature and source of the said
additions
4. I have therefore, reasons to believe that
omission/failure on the part of the assessee to disclose fully
and truly all material/facts necessary for assessment,
income to the extent of Rs.25,31,003/- has escaped
assessment for the assessment year 2006-07 and hence issue
notice under section 148."
4. On 28-11-2013 the assessee objected to re-opening of
assessment, stating, inter alia, that:
"In this case, the assessee disclosed fully and truly all
material facts relating to the said issue. In the Balance
Sheet said amounts showing the nature thereof have been
clearly shown. During assessment, the books of A/c were
produced and were verified by the AO. The findings to this
effect are available in Para - 3 of the Assessment Order.
Hence, since, the conditions of first proviso to Section 147
are not fulfilled, Section 147 cannot be invoked."
and further that:
"there is no new information with your good self which was
not available earlier. It is only on the basis of earlier
existing Information and details that your good self has
been forming an opinion that it is a case of escapement of
income. Under the facts, it is a clear cut case of change of
opinion. Section 147, cannot be resorted to in case of
change of opinion..."
5. By the letter dated 20-12-2013, the assessee's objections to the
reopening of assessment were rejected; the AO in his letter, stated as
follows:
W.P.(C) 1320/2014 Page 3
...you have raised the issue that section 147 has been
resorted to due to a change of opinion. It may be reiterated
that the issues on which the case has been reopened, had
not been discussed earlier. Thus the issue of change of
opinion does not arise. The onus was upon the assessee to
provide full and complete details during the earlier
proceedings which he failed to do so and therefore Section
147 is being resorted to. It is for the A.O to draw inferences
from the facts and apply the law determining the liability of
the assessee. If there are sufficient reasons to believe that
income has escaped assessment, then it is the discretion of
the A.O to reopen the case. Various case laws also
substantiate the same...."
6. The assessee argues that the expression "reasons to believe"
under Section 147 refers to objective circumstances. In the present
case, the assessment was completed under Section 143 (3) after notice
was issued under Section 142 (1) was issued and explanation sought in
respect of all relevant matters. The assessee could not be faulted for
the omission to discuss the materials on record. Learned counsel
stressed that "reasons" were to be on the basis of "tangible materials"
which must be in possession of the revenue, which alone can result in
a valid re-opening. There was no such tangible material; the AO,
argued counsel, acted without any jurisdiction in merely seeking to
revisit the matter, which in effect amounts to a review or an
impermissible change of opinion. Learned counsel relied on CIT,
Delhi v. Kelvinator of India Ltd., (2010) 2 SCC 723 and CIT-V v.
Orient Craft Ltd., [2013] 354 ITR 536 (Delhi).
7. Learned counsel for the Revenue supports the re-opening of
assessment in this case and urges that the Court should dismiss the
W.P.(C) 1320/2014 Page 4
petition. It was submitted that there was no explanation how the
assessee added the amount to the capital account. The original
assessment shows that the AO did not direct his mind to the issue at all
though a questionnaire might have been issued. He relied on the
decision in CIT-VI v Usha International Ltd. (2012) 348 ITR 485 and
contends that having regard to the following observations of the
majority (in that case), the notice issued by the AO is valid:-
"23. The said observations do not mean that even if the
Assessing Officer did not examine a particular subject
matter, entry or claim/deduction and therefore had not
formed any opinion, it must be presumed that he must have
formed an opinion. This is not what was argued by the
assessee or held and decided. There cannot be deemed
formation of opinion even when the particular subject
matter, entry or claim/deduction is not examined".
8. Section 147 permits the Assessing Officer to reopen an
assessment, and issue notices if he " 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 was 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 Supreme Court held that the scope
of enquiry to decide whether there were "reasons to believe" was
restricted, and "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
W.P.(C) 1320/2014 Page 5
the formation of the requisite belief." This was based on the law
declared in several previous decisions of the Court (Central Provinces
Manganese Ore. Co. Ltd. v. Income Tax Officer, Nagpur, [1991] 191
ITR 662 (SC), Sri Krishna Pvt. Ltd. v. Income Tax Officer, Calcutta,
(1996) 9 SCC 534).
9. In this case, the reasons provided under Section 148 are that in
"absence of the source of the addition with documentary evidence on
records, the same is required to be brought on tax net as per
provisions of section 68 of the Income tax Act, 1961 as the assessee
had offered no explanation about the nature and source of the said
additions..." and thus, must be treated as income which escaped
assessment. No details are provided as to what such information is
which excited the AO's notice and attention. The reasons must
indicate specifically what such objective and new material facts are,
on the basis of which a reopening is initiated under Section 148. This
reassessment is clearly not on the basis of new (or "tangible")
information or facts that which the Revenue came by. It is in effect a
re-appreciation or review of the facts that were provided along with
the original return filed by the assesse. The Supreme Court in
Kelvinator (supra) frowned against such exercise of power:
"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 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
W.P.(C) 1320/2014 Page 6
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. "
10. This Court recollects that even in case of an assessment
completed under Section 143 (1), the requirement of recording
"reasons to believe" are mandatory as the text of Section 147
indicates. Rejecting an argument by the Revenue to the contrary, this
Court in Orient Craft (supra) held that:
"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
W.P.(C) 1320/2014 Page 7
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 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
W.P.(C) 1320/2014 Page 8
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 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. The foundation of the AO's jurisdiction and the raison d'etre of
a reassessment notice are the "reasons to believe". Now this should
have a relation or a link with an objective fact, in the form of
information or facts external to the materials on the record. Such
W.P.(C) 1320/2014 Page 9
external facts or material constitute the driver, or the key which
enables the authority to legitimately re-open the completed
assessment. In absence of this objective "trigger", the AO does not
possess jurisdiction to reopen the assessment. It is at the next stage
that the question, whether the re-opening of assessment amounts to
"review" or "change of opinion" arises. In other words, if there are no
"reasons to believe" based on new, "tangible materials", then the
reopening amounts to an impermissible review. Here, there is nothing
to show what triggered the issuance of notice of reassessment no
information or new facts which led the AO to believe that full
disclosure had not been made. The impugned notice, the AO's order
rejecting the objections, and the arguments of the Revenue nowhere
indicate how the AO was impelled to seek re-opening of the assessee's
case, as distinguished from the several other completed assessments.
12. For these reasons, this Court is of the opinion that the impugned
reassessment notice cannot be sustained; it is hereby quashed. The
writ petition and the pending application are allowed in the above
terms without order as to costs.
S. RAVINDRA BHAT
(JUDGE)
VIBHU BAKHRU
(JUDGE)
AUGUST 14, 2014
W.P.(C) 1320/2014 Page 10
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