ITAT, DELHI BENCES ‘A’ Jurisdiction of AO to proceed with assessment under section 147 of IT Act, 1961

Jurisdiction of AO to proceed with assessment under section 147 of IT Act, 1961 

If the AO has cause or justification to know or suppose that income has escaped assessment it can be said to have a reason to believe that an income had escaped assessment; at the time of recording reasons for initiating proceedings u/s 147 it is not necessary that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion; at the initial stage what is required is ‘reason to believe’ but no established fact of escapement of income.



ITAT, DELHI BENCES ‘A’ : NEW DELHI

Ms. Rainee Singh

v.

ITO

ITA No. 2474/Del/2005

July 17, 2009

RELEVANT EXTRACTS:

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22. In the present case, the notice u/s. 148 was issued on 28.03.2003, pertaining to the A.V. 1996-97. Section 147 authorizes and permit the Assessing Officers to assess or re-assess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The scope of the expression "reason" in the phrase "reasons to believe" has been considered recently by the Hon'ble Supreme Court in the case of Asst. CIT vs. Rajesh Jhavery Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 where the Hon'ble Supreme Court has observed and held as under:

"Section 147 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income has 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 Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer 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. JTO [1991 J 191 ITR 662, for initiation of action u/s. 147 (a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceedings 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 issue whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO vs. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SO; Raymond Woollen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC).

The scope and effect of section 147 as substituted with effect from April I, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (h) laid down the circumstances under which income escaping assessment for the past assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have to income tax have escaped assessment, and secondly he must also gave reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of thai year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe thai income has escaped assessment it confers jurisdiction to reopen the assessment. It is. however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not proviso.

So long as the ingredient of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3 Jwill not render the Assessing Officer powerless to initiate re-assessment proceedings even when the intimation under section 143(1) had been issued"

23. From the said decision of Hon'ble Supreme Court, it is thus clear that if the A.O. has cause or justification to know or suppose that income has escaped assessment it can be said to have a reason to believe that an income had escaped assessment. At the time of recording reasons for initiating proceedings u/s. 147 of the Act, it is not necessary that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. At the initial stage what is required is "reason to believe" but no 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 the concern at that stage. This is so case because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction.

24. In the light of the aforesaid position of law laid down by the Hon'ble Supreme Court with regard to the scope and effect of section 147 and with regard to the meaning of expression "reason to believe" used in section 147 of the Act, we have to examine and analyze the fact of the present case to decide as to whether the Assessing Officer had any relevant material on which a reasonable person could have formed a requisite belief i.e. reason to believe that income has escaped assessment within the meaning of section 147 of the Act.

25. In the present case, the Assessing Officer had received information from DD1T (Investigation), Gurgaon that the bogus claim of long term capital gains arising from transactions of sale and purchase of shares rooted through the bank account no. C.A. - 3097, Corporation Bank, Karol Bagh, New Delhi, standing in the name of R. K. Aggarwal & Co. has been made by the assessee, and certain sums, details of which has been mentioned in the reasons itself recorded by the A.O, were credited in the bank accounts maintained by the assessee. The account no. alongwiih name of bank and branch has also been mentioned. In the light of the facts supplied by the Investigation Wing to the Assessing Officer, the Assessing Officer had entertain a belief to the effect that "in view of the facts mentioned above, I have reasons to believe that the income of the assessee to the tune of Rs. 6,63,975/- chargeable to lax has escaped assessment for the A.Y. 1996-97". In the reasons recorded by the Assessing Officer, the Assessing Officer has mentioned the definite information about the amount, which were credited in the assessee's bank account during the period relevant to A.Y. 1996-97. During the investigation made by the Investigation Wing, it was revealed that no sale or purchase has actually taken place as so admitted by Shri Salish Goel, proprietor of R.K. Aggarwal & Co. At the stage of issuing notice under section 148, what is required is to see as to whether there was relevant material on which a reasonable person could have formed a belief that income had escaped assessment. In the present case, the relevant materials noted by the Assessing Officer from the information received from DDIT (Investigation) are undoubtedly relevant and sufficient material on the basis of which a reasonable person could have formed requisite believe as contemplated u/s. 147 of the Act. At that stage, it was not necessary for the Assessing Officer to conclusively prove the escapement of amount from tax, credited in the assessee's bank accounts routed through bank account no. C.A. - 3097, Corporation Hank, Karol Bagh, New Delhi, standing in the name of R.K. Aggarwal & Co. (proprietor Shri Satish Goel). In the present case, relevant facts, on the basis of which a reasonable person could have formed a belief that income to the extent of the amount credited in the assessee's bank account has escaped assessment, arc available as so mentioned in the reasons recorded by the Assessing Officer. It is not the case where the Assessing Officer has merely stated in the reasons recorded that in the light of the information received from the DD1T (Inv.), he had reason to believe that income has escaped assessment without narrating the nature of the information and mentioned relevant particulars or materials on the basis of which a reasonable man could have formed a belief that income had escaped assessment within the meaning of section 147 of the Act. We, therefore, hold that the reasons recorded by the Assessing Officer in corporating the relevant materials and facts therein are sufficient to satisfy the condition of section 147 of the Act for the Assessing Officer to issue a notice u/s. 148 of the Act.

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