High Court Of Madras
CIT vs. Smt. Sulochana
Section 147
Asst. Year 1972-73, 1973-74, 1974-75, 1977-78
P.D. Dinakaran & N. Kannadasan, JJ.
Tax Case (Appeal) Nos. 172 to 175 of 2004
21st July, 2004
Counsel Appeared :
K. Subramaniam, for the Appellant
JUDGMENT
P. D. Dinakaran, J. :
Heard. The appeals are preferred against the order of the Tribunal, Madras Bench “D”, dt. 21st May, 2003, in ITA Nos. 1619, 1620, 1621 and 1622 of 1998, holding that the reassessments for the asst. yrs. 1972-73, 1973-74, 1974-75 and 1977-78, in the case of the assessee were completed by the AO without reason to believe that such income has escaped assessment.
2. The appellant-Revenue raised the following substantial question of law : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessments for the asst. yrs. 1972-73, 1973-74, 1974-75 and 1977-78 in the case of the assessee were completed by the AO without reason to believe that income has escaped assessment and, therefore, the reassessments are liable to be set aside ?”
3. The original assessments for the asst. yrs. 1972-73, 1973-74, 1974-75 and 1977-78 were sought to be reopened invoking s. 147 of the IT Act by issuing a notice under s. 148 of the IT Act, of course, based on a search said to have taken place on 20th Feb., 1980. During the search, the assessee has alleged to have admitted that she had failed to disclose certain quantity of jewellery found at the time of search and came out with an explanation that the jewellery and precious stones relied by the Revenue were presented to her daughters as gift on the occasion of their marriage and the amounts of Rs. 7,000 and Rs. 1,500 were the income from personal drawings and commission on purchase and sale of semi-precious and precious stones, respectively. After considering the evidence relied on by the assessee, the AO completed the assessments with a total income of Rs. 60,830, Rs. 97,410, Rs. 70,430 and Rs. 37,313, respectively, for the asst. yrs. 197273, 1973-74, 1974-75 and 1977-78.
4. Aggrieved by the said assessment orders, the assessee preferred an appeal before the Dy. CIT (A), who confirmed the above assessments by an order dt. 12th Nov., 1997, against which a further appeal was preferred by the assessee before the Tribunal. By an order dt. 21st May, 2003, the Tribunal held that the AO failed to establish that there were reasons to believe for the purpose of reopening the completed assessment. Hence, the present appeal by the appellant-Revenue on the substantial question of law referred to above.
5. Mr. K. Subramaniam, learned standing counsel for the Revenue, contends that all that the AO had to appreciate at the time of reopening is whether there are materials available, but the sufficiency of the material is not so relevant. Once the materials are available for reopening the completed assessment during the search held on 22nd Feb., 1980, it cannot be said that there was no reason to believe for reopening the assessment, as the confession alleged to have been made by the respondent-assessee strongly supports the reason to believe for reopening the assessment. Inter alia, learned counsel for the Revenue contends that suffice it for the AO to act upon the approximate quantification of the alleged escaped income. It is, therefore, contended that the decision of the Tribunal that there are no reasons to believe for reopening the assessment, is liable to be set aside. In this regard, learned standing counsel places reliance on the decision of the apex Court in Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. (1993) 113 CTR (SC) 436 : (1993) 203 ITR 456 (SC) and another recent decision of the apex Court Raymond Woollen Mills Ltd. vs. ITO & Ors. (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC). It is true, in Raymond Woollen Mills Ltd. (supra), the apex Court, while dealing with the powers of the Revenue under s. 147 of the IT Act for reassessing the case, held that sufficiency of the material relied on by the Revenue is not relevant, inasmuch as, the same cannot be a criteria for the purpose of reopening the assessment under s. 147 of the IT Act. But, the apex Court in the very same case also held that for the purpose of reopening the assessment, what is required to be seen is whether there were prima facie materials on the basis of which the Department could reopen the case even though the sufficiency of the material is not a thing to be considered at that stage. It is trite law that the subsequent information based on which the reassessment was proposed should be definite, specific, relevant and reliable, and then only such material would constitute to satisfy the test of reason to believe, because such reason to believe should not be construed as a reason to suspect. In other words, what is relevant is whether the material has got any rational connection or live link for the purpose of reason to believe. To put otherwise, if the informations which forms the basis for the reason to believe for the Department to reopen the assessment are materials which lack specific, relevant and reliable criterion, such materials are liable to be rejected only on the ground that they may be reason to suspect, but not reason to believe, vide Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. case (supra).
The above proposition is also supported by another decision of the apex Court in ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC), wherein it was held as follows : “The existence of the belief can be challenged by the assessee but not the sufficiency of the 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.
As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts…..
The powers of the ITO to reopen assessment, though wide, are not plenary. The words of the statute are ‘reason to believe’ and not ‘reason to suspect’. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the IT authorities after the assessment has been completed.”
It is, therefore, essential that before such action of reopening the assessment is taken, requirement of law such as the live link or close nexus between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee should be satisfied. Otherwise, the power conferred under s. 147 of the IT Act would amount to arbitrary and unreasonable exercise. Hence, while making it clear that the authorities do have the power to reopen the assessment under s. 147, the materials relied on for such purpose should not be vague but should be definite, specific, relevant and reliable.
In the instant case, the AO relied upon the confession alleged to have been made by the assessee obtained on the date of search, i.e., on 20th Feb., 1980, to the effect that she had failed to disclose certain income and jewellery at the time of search. However, the Tribunal, without relying upon the confession statement, took cognizance of the explanation offered to that, viz., that the jewellery and precious stones were presented as gift on the occasion of the marriage of the assessee’s daughters and the amounts of Rs. 7,000 and Rs. 1,500 per year were the personal drawings and the commission on purchase and sale of semi-precious and precious stones, respectively.
In any event, since the issue whether there were materials for the appellant-Revenue to invoke s. 147 of the IT Act are sufficient, bona fide, definite, relevant and reliable is purely a matter of fact, finding no substantial question of law, the appeals are dismissed.
[Citation : 272 ITR 529]
