High Court Of Delhi
Diwakar Engineers Ltd. vs. Income Tax Officer
Section 147(a)
Asst. Year 1977-78, 1978-79, 1979-80, 1980-81, 1981-82, 1982-83
A.K. Sikri & Valmiki J. Mehta, JJ.
Writ Petn. Nos. 1701 to 1706 of 1986
9th September, 2009
Counsel Appeared :
Anoop Sharma & Manu K. Giri, for the Petitioner : Ms. P.L. Bansal, for the Respondent
JUDGMENT
VALMIKI J. MEHTA, J. :
These writ petitions are filed by the petitioners seeking the relief of quashing of the notices issued under s. 147/148 of the IT Act, 1961 (hereinafter referred to as “the Act”) by the respondents with respect to the asst. yrs. 1977-78 to 1982-83. One of the prayers in the writ pertained to seeking direction against respondent No. 1 to furnish a copy of the reasons for reopening of the completed assessments before issuing the impugned notices. This part of the relief has already become infructuous in as much as the respondents along with their counter- affidavit have furnished the reasons for initiation of the proceedings under s. 147/148 of the Act.
2. The case of the petitioner is that for the asst. yrs. 1977-78 to 1982-83, it duly submitted its return of income along with complete details necessary for making the assessments. The assessment orders were thereafter passed under s. 143(3) of the Act for these assessment years. After scrutiny of the returns for 1981-82 and 1982-83, the respondents have issued the impugned notices under s. 147/148 of the Act on 24th Feb., 1986 for the six assessment years thereby reopening the completed assessments. As stated above, the reasons have already been furnished by the respondents in their counter-affidavit and the challenge is now to the fact that the reasons given for reopening of the assessments amount to nothing but a change of opinion in as much as there are no new materials on the basis of which reopening of the assessments can be initiated.
3. The relevant provisions of ss. 147 and 148 as applicable for the relevant assessment years read as under :
“147. Income escaping assessment. If— (a) the ITO has reason to believe that, by reason of the omission or failure on the part of an 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 (b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) 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, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in s. 148 to 153 referred to as the relevant assessment year). Explanation 1 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where income chargeable to tax has been underassessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian IT Act, 1922 (11 of 1922);or (d) where excessive loss or depreciation allowance has been computed. Explanation 2 : Production before the ITO of account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure within the meaning of this section. 148. Issue of notice where income has escaped assessment.—(1) Before making the assessment, reassessment or recomputation under s. 147, the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 139; and the provisions of this Act shall, so far as may be apply accordingly as if the notice were a notice issued under that sub-section. (2) The ITO shall, before issuing any notice under this section, record his reason for doing so.”
4. The basic contention of the petitioner is that the aforesaid provisions require “reasons to believe” and which reasons had to be a reasonable in that the material sought to be relied upon must have nexus and must be sufficient for reopening of the completed assessments. It was contended that if there is a mere change of opinion without sufficient material for reopening of the assessments, the same is illegal. The counsel for the petitioner has taken us through the reasons which have been given for reopening of the assessments and which have been filed as Annexs. R16 to R-20 along with the counter-affidavit. The said reasons are given separately for each assessment years. We reproduce now these reasons for each of the assessment years which are sought to be under s. 147 as under : (Asst. yr. 1977-78) “Reasons : It has come to my notice that the assessee introduced cash credit in the assessment year under consideration amounting to Rs. 3,82,592. The genuineness of these cash credits has not been proved by the assessee despite several opportunities given. I have, therefore, reason to believe that on account of omission or failure on the part of the assessee to disclose fully and truly material facts of its income to the extent of Rs. 3,82,592 has escaped assessment. As per attached letter No. 779, dt. 21st Feb., 1986 it is evident that the assessee has introduced his undisclosed income in the form of bogus cash credits.
In view of the above facts, I have reason to believe that income to the extent of Rs. 3,82,592 has escaped assessment. Necessary approval to reopen the assessment may kindly be accorded. Dt. : 21st Feb., 1986 (Mridula Ghosh) ITO, Company Circle XXIV, New Delhi.” (Emphasis, italicized in print, added) (Asst. yr.
1978-79) “Reasons : It has come to my notice that the assessee introduced cash credit in the assessment year under consideration amounting to Rs. 8,18,474. The genuineness of these cash credits has not been proved by the assessee despite several opportunities given. I have, therefore, reason to believe that on account of omission or failure on the part of the assessee to disclose fully and truly material facts of its income to the extent of Rs. 8,18,474 has escaped assessment. As per attached letter No. 779, dt. 21st Feb., 1986 it is evident that the assessee has introduced his undisclosed income in the form of bogus cash credits.
In view of the above facts, I have reason to believe that income to the extent of Rs. 8,18,474 has escaped assessment. Necessary approval to reopen the assessment may kindly be accorded. Dt. : 21st Feb., 1986 (Mridula Ghosh) ITO, Company Circle XXIV, New Delhi.”
(Emphasis, italicized in print, added) (Asst. yr. 1979-80)
“Reasons : It has come to my notice that the assessee introduced cash credit in the assessment year under consideration amounting to Rs. 6,26,546. The genuineness of these cash credits has not been proved by the assessee despite several opportunities given. I have, therefore, reason to believe that on account of omission or failure on the part of the assessee to disclose fully and truly material facts of its income to the extent of Rs. 6,26,546 has escaped assessment. As per attached letter No. 779, dt. 21st Feb., 1986 it is evident that the assessee has introduced his undisclosed income in the form of bogus cash credits. In view of the above facts, I have reason to believe that income to the extent of Rs. 6,26,546 has escaped assessment. Necessary approval to reopen the assessment may kindly be accorded. Dt. : 21st Feb., 1986 (Mridula Ghosh) ITO, Company Circle XXIV, New Delhi.” (Emphasis, italicized in print, added) (Asst. yr. 1980-81) Reasons : It has come to my notice that the assessee introduced cash credit in the assessment year under consideration amounting to Rs. 6,10,075. The genuineness of these cash credits has not been proved by the assessee despite several opportunities given. I have, therefore, reason to believe that on account of omission or failure on the part of the assessee to disclose fully and truly material facts of its income to the extent of Rs. 6,10,075 has escaped assessment. As per attached letter No. 779, dt. 21st Feb., 1986 it is evident that the assessee has introduced his undisclosed income in the form of bogus cash credits.
In view of the above facts, I have reason to believe that income to the extent of Rs. 6,10,075 has escaped assessment. Necessary approval to reopen the assessment may kindly be accorded. Dt. : 21st Feb., 1986 (Mridula Ghosh) ITO, Company Circle XXIV, New Delhi.” (Emphasis, italicized in print, added) (Asst. yrs. 1981-82 and 1982-83) M/s Diwakar Engineers Ltd., B-65/1 W.P.Indl. Area, Delhi. Asst. yrs. : 1981-82 and 82- 83 Brief reasons for taking action under s. 148 of the IT Act in above-mentioned assessment years. During assessment proceedings in the case of above assessee M/s Diwakar Engineers Ltd. for the asst. yr. 1983-84, it was observed that interest amounting to Rs. 1,76,370 debited in the earlier years to the account of certain parties was credited as income during the year under consideration. On going through the assessment records from asst. yr. 1975-76 onwards, the first assessment year in the case of the above assessee, I noticed that some of these parties had deposited money in asst. yrs. 1975-76 and 1976-77 and so on. I have repeatedly been asking the assessee to furnish the address of these parties, confirmed copies of accounts, the date from which the money is alleged to have been lying in their account books, the reason for non-payment of interest as well as the dates on which the accounts of these parties were finally settled by them. No compliance of this query has been made by the assessee company. Even though in number of opportunities given to them for this purpose. They have even failed to furnish the addresses and accounts of these parties as per their books. Moreover, from the ledger of the assessee company for the asst. yr. 1983-84, which was impounded by me under s. 131 of the IT Act, during the assessment proceedings recently I noticed that ledger account was not being maintained for all the parties whose interest amounting to Rs. 1,76,370 has been credited is income during the year. During asst. yr. 1983-84, I also observed that share application money amounting to Rs. 4,69,000 was received by the assessee company in the accounting period relevant to asst. yr. 1981-82, which had been lying in their books of account without any allotment having been made so far. From the return filed for the asst. yr. 1985-86, it is seen that no share allotment has been done upto accounting period relevant to asst. yr. 1985-86. Registered letters seeking confirmation of deposit of share application money were sent to the 46 persons from whom this money was alleged to have been received at the addresses furnished by the assessee company and these registered letters came back unserved in 32 cases out of 46 with the notings ‘no such person known’. It may further be mentioned over here that no interest payment has been shown to these persons on the share application money deposited by them.
I issued a letter listing the ‘loans raised’ by the assessee company during various assessment years asking it to prove the following regarding these cash credits/advances alleged to have been received by them. (1) Genuineness of the party; (2) Genuineness of the transaction; (3) Capacity of the party. No satisfactory reply had been furnished by the assessee company. The amounts of loan as per assessment record for asst. yrs. 1981-82 and 1982-83 are as under : Sec. 147(a) of the IT Act states— ‘If the ITO has the reason to believe that, by reason of 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 assessment year for that year, income chargeable to tax has escaped assessment for that year.’ In my opinion prima facie, grounds exists for taking action under s. 148 since the assessee has failed to disclose fully and truly all material facts necessary for its assessment for the assessment years under consideration. It has been held that when primary facts disclosed by the assessee are incorrect, action under s. 147(a) is correct. Considering the above facts, notice under s. 148 is being issued in the case. (Mridula Ghosh) ITO, Company Circular XXIV, New Delhi.”
(Emphasi, italicized in print, added)
5. The counsel for the petitioner referring to the aforesaid reasons for reopening of the assessment has made his submission in two parts, one with respect to the reasons for the asst. yrs. 1977-78 to 1980-81 and secondly for the detailed reasons for the years 1981-82 and 1982-83. Counsel has contended that all what is stated in the reasons for reopening of the assessments for the years 1977-78 to 1980-81 are that the ITO has simply averred that the genuineness of the cash credits have not been proved by the assessee despite several opportunities and which is the only basis for reopening of the assessment. Similarly, by giving reference to the reasons for reopening of the assessment for the years 1980-81 and 1982-83, it is canvassed that the ITO has not stated that he has ‘reasons to believe’ as it is only stated that he is of a ‘prima facie’ opinion which according to the counsel is not good enough for exercising powers under s. 147/148 of the Act. The counsel has lastly contended that a mere reference, to two letters of the ITO of Calcutta cannot be sufficient material for reopening of the assessment and which letters have been filed at pp. 185-186 of the paper book and which read as under : “Registered with A.D. Office of the Dy. Director of Inspection (Inv) Income-tax Department P-13, Chowringhee Square : Calcutta. No. DDI/Cal/ITO/(Inv.-IV)/85-86/5713 Dt. : 3rd March, 1986 To ITO, Company Circle- XXIV,(4th floor) Central Revenue Building, New Delhi.Sub : Verification of deposit of Rs. 15,19,000 in the name of M/s Eastern Trading Co. (P.A.No. SSC/VIII/300/E/B/Cal.) appearing in the books of M/s Diwakar Engineers (P) Ltd., 1/5B, Asaf Ali Road, New Delhi, an assessee assessed at your end— Detailed information regarding the same. Ref. Letter No. ITO/Company Circle/XXIV/761, dt. 12th Feb., 1986. The undersigned is directed to inform that the assessment records of M/s Eastern Trading Co. (P.A. No. SSC/VIII/300/E/B/Cal) have been examined by the concerned ITO ‘B’-Ward, SSC-VIII and a letter to that effect incorporating the fact that the assessee is not in a position to make such a huge deposit has already been despatched to you (copy of the same is enclosed). Further more, the concerned ITO has also taken up the matter with his CIT, W.B. (a copy of the said letter is also enclosed for ready reference). As regards other deposits, enquiries are being conducted at this end. Those will be sent very soon. Encl. Two letters. (Ranen De) ITO/Inv.-IV, Calcutta.” “Office of the ITO : SSC-VIII, 169, A.J.C. Bose Road : Calcutta-14. ITO, Company Circle-XXIV, 4th Floor, C.R. Building, New Delhi. Sub : Confirmation of deposition by M/s Eastern Trading Co., (SSC-VIII/300- E/B) of 58/1/D, B.T. Road, Calcutta-35-matter regarding in the assessment of your assessee M/s Diwakar Engineers Ltd., Asst. yr. 1983-84. Ref : Your letter No. ITO/712, dt. 3rd Feb., 1980. Please refer to above. On scrutiny of assessment of my above named assessee, it appears that the assessment for 197980 (year ending 31st March, 1979) was completed in the status of URF on a duplicate return under s. 143(3) on 24th Feb., 1981 on a total income of Rs. 10,700. The main source of income as stated in the assessment order is from commission and interest. The balance sheet as on 31st March, 1979 shows a meagre total of Rs. 21,018 inclusive of loan and advance of Rs. 11,200 in the asset aside. No further return has been filed. My predecessor addressed a letter to the assessee at its officially known address at 58/1/D, B.T.Road, Calcutta-35, asking for submission of IT return of 1980-81 which was returned by the notice server with the remark. Not traceable’ on 28th July, 1982. It, therefore, appears that my assessee has no capacity to make such a huge deposit. This is for your information and necessary action.
Sd/ (S.K. Bhattacherjee.) ITO, B-Ward, SSC-VIII, Calcutta.”
The learned counsel for the Revenue on the other hand strongly canvassed that assessments have been rightly sought to be reopened because the ITO during the subsequent assessments for the year 1983-84 realised that various cash credits/loans were bogus and consequently, detailed reasons have been given for these assessments years as reproduced above which reasons are good enough for reopening of the assessment. The new material and facts which have come to light showing the bogus nature of the loans and credit entries justified the issuance of the impugned notices. The counsel has further contended that at the stage of recording of reasons under s. 147/148, the concerned officer only has to make a prima facie opinion on the basis of material then available and which material is different than so required for a final decision and which will only be taken after hearing the assessee and a detailed order will be passed under s. 147 of the Act. It was further contended that the expression used in the reasons recorded viz. “in my opinion prima facie grounds exists” is correct and cannot be faulted.
It is trite and laid down now in catena of decisions that powers under s. 147/148 can only be exercised when there is material found for reopening of the assessments and a mere change of opinion is not sufficient. The counsel for the Revenue does not dispute this. We, therefore, are to see whether there are sufficient materials as required in law for reopening of the assessments. Before however so doing, we would like to refer to one para of a recent judgment of the Supreme Court reported as Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30 : (2007) 291 ITR 500 (SC).
The relevant portions of this judgment reads as under : “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. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), for initiation of action under s. 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. 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. Whether the materials would conclusively prove the escapement is not a concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction [see ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC) and Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)]. (Emphasis, italicized in print, added)
It is therefore, clear from the aforesaid judgment that at the stage of issuing of notices under s. 148, it is not necessary that the materials must be extensive and detailed. The Supreme Court has laid emphasis on the difference of the material for the purpose of initiation of investigation and those required for successfully completing the reassessments. We feel that one of the methods by which the materials can come into possession of the ITO is by the assessment proceedings in the subsequent assessment years.
It is clear that in the facts of the case, there were sufficient materials for the ITO to initiate proceedings under s. 147/148. Besides the letters referred to above, there is other correspondence between the ITO and the assessee during the scrutiny of the returns of the asst. yr. 1983-84 whereby time and again the ITO asked the assessee to file particulars with respect to the details of the persons with respect to whom the credits were appearing in the books of accounts as loans and which were not complied with by the assessee. In fact, the AO became suspicious because in the asst. yr. 1983-84, the assessee has sought to credit as income the payments due as interest in the earlier years and whereafter consequently a detailed correspondence ensued with the assessee and to which the assessee did nothing accept stonewall. We are of the clear opinion that in the facts and circumstances of the present case, there existed sufficient materials for the ITO to initiate proceedings under s. 147 of the Act by issuing notices under s. 148 of the Act. It is not a case of change of opinion but materials have come to light including those during the assessment of the subsequent assessment years throwing clear doubt on the genuineness of the credits/loans and that this was because of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary as a result of which income chargeable to tax has escaped assessment.
One of the contentions which has been raised by the counsel for the petitioner is that the impugned notices have been issued under s. 147(a) and therefore, it is impermissible to refer to ingredients of s. 147(b) to sustain the notices. He has further urged that the grounds which have been stated for reopening of the asst. yrs. 1981-82 and 1982-83 are different than the reasons for the asst. yrs. 1977-78 to 1980-81. We, however, find that this argument is not correct because in each of the reasons given for the asst. yrs. 1977-78 to 1980-81, it is said as under : “I have, therefore, reason to believe that on account of omission or failure on the part of the assessee to disclose fully and truly material facts of its income to the extent of Rs. 6,10,075 has escaped assessment. As per attached letter No. 779, dt. 21st Feb., 1986 it is evident that the assessee has introduced his undisclosed income in the form of bogus cash credits.”
(Emphasis, italicized in print, added)
It is clear that while recording the reasons for the asst. yrs. 1977-78 to 1980-81, the AO has incorporated by virtue of the above said line the reasons which have been given in detail for the asst. yrs. 1981-82 and 1982-83. It is by application of the doctrine of incorporation that the reasons for 1981-82 and 1982-83 have been supplanted in and incorporated in the reasons for asst. yrs. 1977-78 to 1980-81. There is nothing therefore amiss with respect to reasons for the asst. yrs. 1977-78 to 1980-81. Clearly, the reasons recorded for the years 1981-82 to 1982-83 for the bogus cash credits and the details therein are deemed to be incorporated in the reasons for seeking the reopening of the assessments in the years 1977-78 to 1980-1981. The assessment proceedings are, therefore, rightly initiated under s. 147(a) and there is no need for the Revenue to refer to and rely upon s. 147(b) to sustain the impugned notices and the action under s. 147 of the Act.
In view of the above, the writ petitions are liable to be dismissed. The same are accordingly dismissed, however, leaving the parties to bear their own costs.
[Citation : 329 ITR 28]
