High Court Of Delhi
CIT vs. Batra Bhatta Company
Section 147, 148
Asst. Year 1996-97,
Badar Durrez Ahmed & Rajiv Shakdher, JJ.
IT Appeal No. 109 of 2008
8th August, 2008
Counsel Appeared :
R.D. Jolly with Paras Chaudhary, for the Appellant : S.R. Wadhwa, for the Respondent
JUDGMENT
Badar Durrez Ahmed, J :
This appeal has been filed by the revenue in respect of the asst. yr. 1996-97 against the decision of the Tribunal in ITA No. 1186/Del/2003 dt. 23rd Feb., 2007. The facts are few. The assessee had sold agricultural land at Rs. 57,37,500 in March, 1996 and in its return had claimed exemption under the provisions of s. 2(14) of the IT Act, 1961 (hereinafter referred to as ‘the said act’). The assessee’s claim was that the agricultural land sold by it was not a capital asset. Consequently, no capital gains accrued at the hands of the assessee and he was not required to pay any tax thereon. Although, it appears that an intimation under s. 143(1)(a) had been sent, the appellant’s case throughout has been that it did not receive any such intimation. In any event, nothing turns upon this. The main issue involved in this appeal is with regard to invocation of the provisions of s. 147 of the said Act. The AO had issued a notice under s. 148 of the said Act for reassessment on 30th March, 2000. The reasons recorded for issuing such a notice and for invoking the provisions of s. 147 of the said Act were disclosed as under : “The assessee firm has sold an ‘agricultural land’ for Rs. 57,37,500 in March, 1996 and claimed exemption under provisions of s. 2(14). The claim of assessee that the land is agricultural and hence not a capital asset requires much deeper scrutiny. The cost of acquisition is shown at Rs. 4,41,279. I have reasons to believe that the income from capital gain to tune of Rs. 52 lacs has escaped assessment for financial year 95-96. Issue notice under s. 148″. Thereafter, the AO completed the assessment holding that the land sold by the assessee was located at a distance of less than 8 kms. from the municipal limits of Gurgaon and consequently it was a capital asset within the meaning of s. 2(14) of the said Act. The AO determined that long term capital gain of Rs. 50,56,185 had accrued to the assessee and was subjected to tax.
The assessee, being aggrieved by the said assessment order, preferred an appeal before the CIT (A). The CIT(A) observed that the “reasons to believe” should not be arbitrary or irrational, but must be based upon relevant and material facts. The CIT(A) also observed that by saying that the issue “requires much deeper scrutiny”, no belief could be said to have been formed entitling the issuance of a notice under s. 148 in order to initiate reassessment proceedings. He also observed that in the present case the purpose behind the issuance of the notice under s. 148 appeared to be to reopen the assessment when, in the original return filed by the assessee, all the material facts had already been mentioned and no new facts or any other material had been brought to the file from the date on which the earlier return had been processed to the date the reasons were recorded. Consequently, he held that the jurisdiction assumed by the AO under s. 147 and the issuance of notice under s. 148 were illegal. Therefore, the CIT(A) annulled the assessment. Being aggrieved, the Revenue preferred an appeal before the Tribunal. The Tribunal considered the various facts and circumstances as well as the case law cited on behalf of the parties. The Tribunal observed that once the assessment has been completed, the AO can frame a fresh assessment only after complying with the conditions laid down in ss. 147 and 148 of the said Act. Jurisdiction under ss. 147 and 148 of the said Act can be assumed only after recording reasons. The Tribunal observed that considering the reasons recorded in the present case, it seems that at the time of recording of the reasons on 30th March, 2000, the AO had no information in his possession and did not have any material to form a belief that the land sold by the assessee was not agricultural land. The Tribunal observed that the AO merely wanted to verify the claim of the assessee and that is why it is noted in the reasons recorded that “the claim of assessee that the land is agricultural and hence not a capital asset requires much deeper scrutiny”. The Tribunal concluded that a mere desire for making a further enquiry does not confer jurisdiction upon the AO for reassessment. Consequently, the Tribunal, after considering various decisions, including the decision of the Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha & Ors. (1971) 79 ITR 603 (SC), dismissed the appeal of the Revenue and affirmed the order passed by the CIT(A) saying that the initiation of the proceedings under s. 147 and issuance of notice under s. 148 were without jurisdiction and were illegal. The assessment framed by the AO on 31st March, 2002 was also annulled.
Having considered the arguments advanced by the counsel for the parties and after examining the matter in detail, we are of the view that the Tribunal as well as the CIT(A) came to the correct conclusion. A reading of the reasons recorded does not disclose that the AO, in fact, had reasons to believe that any income had escaped assessment. It is not just the belief of the AO that is material, but such a belief must be based on certain reasons. The first sentence of the reasons recorded is merely a statement of fact that the assessee firm sold agricultural land for Rs. 57,37,500 in March, 1996 and claimed exemption under the provisions of s. 2(14). The second sentence is merely exploratory in nature in the sense that it says that the claim of the assessee that the land is agricultural and hence not a capital asset “requires much deeper scrutiny”. There is no indication as to on what information or on what material the AO harboured the belief that the claim of the assessee required deeper scrutiny. In fact, as recorded in the order of the CIT(A), no new material is on record after the filing of the return and till the issuance of the notice under s. 147. The proceedings under s. 147 are not to be invoked at the mere whim and fancy of an AO and it has tobe seen in every case as to whether the invocation is arbitrary or reasonable. The decision of the Supreme Court in Chhugamal Rajpal (supra) is clearly applicable to the facts of the present case. In the case before the Supreme Court, the purported reasons recorded for reopening the assessment were inter alia : “It appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary.”
The Supreme Court did not find that these were sufficient reasons for reopening the assessment. With regard to the sentence “hence, proper investigation regarding these loans is necessary”, the Supreme Court observed that this conclusion that there is a case for investigation as to the truth of the alleged transactions is not the same thing as saying that there are reasons to issue a notice under s. 148. The Supreme Court further observed as under : “he must give reasons for issuing a notice under s. 148. In other words, he must have some prima facie grounds before him for taking Action under s. 148. Further, his report mentions: ‘Hence, proper investigation regarding these loans is necessary.’ In other words, his conclusion is that there is a case for investigating as to the truth of the alleged transaction. That is not the same thing as saying that there are reasons to issue notice under s. 148. Before issuing a notice under s. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under s. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of cl. (a) or cl. (b) of s. 147 are satisfied, the ITO has no jurisdiction to issue a notice under s. 148. From the report submitted by the ITO to the CIT, it is clear that he could not have had reasons to believe that by reason of the assessee’s omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the ITO had any material before him which could satisfy the requirements of either cl. (a) or cl. (b) of s. 147. Therefore, he could not have issued a notice under s. 148.”
7. We feel that the observations of the Supreme Court in the aforesaid decision clearly apply to the case at hand. Merely because the AO felt that the issue required ‘much deeper scrutiny’, is not ground enough for invoking s. 147. It is not belief per se that is a pre-condition for invoking s. 147 of the said Act but a belief founded on reasons. The expression used in s. 147 is ‘If the AO has reason to believe’ and not ‘If the AO believes’. There must be some basis upon which the belief can be built. It does not matter whether the belief is ultimately proved right or wrong, but, there must be some material upon which such a belief can be founded. In the present case, the CIT(A) as well as the Tribunal have found as a fact that there was no material upon which the AO could have based his belief that income had escaped assessment. The decisions cited by Mr Jolly, who appeared on behalf of the Revenue, namely, ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC), Raymond Woollen Mills Ltd. vs. ITO & Ors. (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC) and Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30 : (2007) 291 ITR 500 (SC) do not say anything different. In Dalurband Coal Co. (supra), the Supreme Court observed that at the stage of issuance of notice under s. 148 of the said Act, ‘the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief’. Again, in Raymond Woolen Mills Ltd. (supra), the Supreme Court, while refusing to interfere with the reassessment proceedings, observed that “We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case”. Lastly, in Rajesh Jhaveri (supra), the issue raised before the Supreme Court was whether failure to take steps under s. 143(3) of the said Act would render the AO powerless to initiate reassessment proceedings in cases where intimations under s. 143(1) had been issued. The Supreme Court held that so long as the ingredients of s. 147 are fulfilled, the AO would be within his rights to initiate ‘reassessment’ proceedings irrespective of whether steps for a regular assessment under s. 143(3) had been taken or not. While so deciding, the Supreme Court considered the expression ‘reason to believe’ as appearing in s. 147 in the following manner : “Sec. 147 authorises and permits the AO 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 AO 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.’ …………….
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’.” We have already noticed that in the present case, the CIT(A) as well as the Tribunal have returned the concurrent finding of fact that there was no material before the AO on the basis of which the AO could have maintained a belief that the agricultural land sold by the assessee was a capital asset within the meaning of s. 2(14) of the said Act. In fact, the AO did not even have such a belief. And, as the expression ‘requires much deeper scrutiny’ Indicates, the AO was embarking on mere exploration without any belief, much less a belief based on reason and materials. Consequently, we find that there is no error in the decision of the Tribunal which is impugned before us. No substantial question of law arises for our consideration. The appeal is dismissed.
[Citation : 321 ITR 526]
