High Court Of Andhra Pradesh
S. Sreeramachandra Murthy & Anr. vs. DCIT & Anr.
Sections 147, 148
Asst. Year 1992-93
P. Venkatarama Reddi & D.S.R. Varma, JJ.
Writ Petn. No. 19511 of 1999
1st March, 2000
Y. Ratnakar, for the Petitioners : S.R. Ashok, for the Respondent
P. VENKATARAMA REDDI, J. :
The petitioner has questioned the notice dt. 27th March, 1998 issued under s. 148 of the IT Act (for short âthe Actâ) in a bid to reopen the assessment for the asst. yr. 1992-93 which was completed on 10th March, 1993. The petitioner filed a return under protest and filed this writ petition questioning the jurisdiction of the first respondent to reopen the assessment. The reassessment proceedings have been initiated on the ground that the petitioner underestimated the cost of construction of a commercial complex constructed during the year 1992-93 and the differential cost is attributable to unexplained income.
2. In order to attract s. 147 of the Act, the first and foremost requirement is that the AO should have reason to believe that the income chargeable to tax has escaped assessment for any assessment year. It is not in dispute that in the present case, the proviso is attracted. If so, the further requirement on which the jurisdiction of the ITO depends is that the escapement should have occurred prima facie by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The first requirement has been succinctly explained by the Supreme Court in ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) : TC 51R.598 in the following words : “The ground or reasons which lead to the formation of the belief contemplated by s. 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the Court to investigate. The sufficiency of grounds which induce the ITO is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression “reason to believe” does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law.” Earlier it was observed that “it is not any and every material, howsoever vague and indefinite or distinct, remote and far-fetched,
which would warrant formation of the belief relating to escapement of the income of the assessee from assessment”. As regards the second requirement spelt out in the proviso to s. 147 of the Act, it was pointed that the duty of the assessee does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the ITO to draw the correct inference from the primary facts and it is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. The above dicta laid down by the Supreme Court fixes the parameters within which the power to reopen the assessment under s. 147 r/w s. 148 of the Act can be invoked and the scope of judicial review in this regard.
3. Coming to the facts of the present case, the construction of the building complex was admittedly disclosed by the petitioner in the return and in the assessment, the cost of construction and sources of investment was specifically gone into by the AO. It appears that there was a search in the year 1993. It is not the case of the Revenue that in the course of search operations any incriminating material, which has a bearing on the cost of construction of the building, had come to light. The petitioner or his representative did not make any statement that the construction cost was more than what was disclosed earlier. Nearly four years later, the Dy. CIT obtained a report from the Valuation Cell, which revealed that the cost of construction would have been much more than what was disclosed by the assessee and noticed by the ITO in the course of the assessment proceedings. It is on the basis of this valuation report, the impugned notice has been issued. A perusal of the file in which the reasons are recorded by the second respondent makes it clear that the sole basis for reopening the assessment is the estimate of construction given by the Departmental Valuer long after the search. Though a reference has been made to the search operations conducted on 4th Aug., 1993, nothing is stated therein that any adverse or incriminating material had come to the notice of the Department as regards the construction of the shopping complex. It is merely stated by the Asstt. CIT that in the course of search and seizure operations, it was noticed that the assessee and his wife had constructed the shopping complex by name “Ramachandra Shopping Complex” at Anakapalli. The factum of construction of shopping complex, as already noted, is not a new fact which had come to light as a result of search operations. Though it is stated in the counter-affidavit that in the course of search operations, it was noticed that the cost of construction would be much higher than that was disclosed by the assessee in the return of income, such ground or reason is not to be found in the reasons recorded by the Asstt. CIT leading to the initiation of reassessment proceedings. Hence, the statement in the counter-affidavit is not accurate. Therefore, as already observed by us, the sole basis for initiating reassessment proceedings is the estimate of constructional cost made by the Departmental Valuer long after the search operations, the formation of reasonable belief cannot obviously be based on such valuation done after the assessment was completed, when there was no other material to suggest that the petitioner failed to disclose the true and relevant primary facts which have bearing on the construction of the building. The reason recorded in support of the belief which the AO is expected to form before initiating reassessment proceedings, is thus an irrelevant reason and does not go to establish that the petitioner failed to discharge the duty of disclosing the primary facts to the AO before the assessment was made.
4. The learned senior standing counsel for the Department has submitted that the petitioner had shown the differential cost proportionately in the declarations relating to assessment years filed under K.V.S. Scheme and that itself would furnish legitimate basis for reassessment. We find it difficult to accept this contention. The decision to initiate reassessment proceedings is not based on that ground. Nothing is mentioned about the declarations filed under K.V.S. Scheme in the reasons recorded by the Asstt. CIT. It is well settled that the Court cannot go beyond the recorded reasons, nor can it take into account any supplementary reasons, which did not enter into the mind of the assessing authority at the time of issuing the reassessment notice.
For the above reasons, we are constrained to quash the impugned notice issued under s. 148 of the Act and allow the writ petition. No costs.
[Citation : 243 ITR 427]