THE ACIT, 1(1), V. M/S TRIMURTI BUILDERS,

ITA 193/IND/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2490 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-12-2009
• Assessment Year: misc
• Appeal Filed On: 16-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: M K SHARMA
• Keywords: Reopening of assessment; Capital asset; Gift; Business income; Business expenditure; Question of law; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; Set aside
• Section: 271(1)(c); 143(3); 143(1); 147; 148

Judgement Text

1 IN THE INCOME TA X APPELATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH AND SHRI V.K. GUPTA, AM ITA NO. 193/IND/08 A.Y. 2001-02 ASSTT. COMMR. OF INCOME TAX 1(1) BHOPAL APPELLANT VS M/S TRIMURTI BUILDERS BHOPAL RESPONDENT PAN AABFT 6525A APPELLANT BY SMT. APARNA KARAN, SR. DR RESPONDENT BY SHRI M.K. SHARMA, CA O R D E R PER JOGINDER SINGH, JM THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 22.1.2008 FOR THE ASSESSMENT YEAR 2001 -02. THE SUM AND SUBSTANCE OF THE GROUNDS OF APPEAL TAKEN BY THE REV ENUE IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE PE NALTY OF RS.7,95,271/- IMPOSED U/S 271(1)(C) OF THE ACT. DURING HEARING O F THIS APPEAL, AT THE OUTSET, IT WAS POINTED OUT BY THE LEARNED COUNSEL F OR THE ASSESSEE THAT 2 THE ADDITION ON THE BASIS OF WHICH PENALTY WAS IMPO SED BY THE REVENUE HAS BEEN DELETED BY THE TRIBUNAL VIDE ORDER IN ITA NO. 334/IND/06 DATED 29.5.2009. THIS ASSERTION OF THE ASSESSEE WAS NOT C ONTROVERTED BY THE REVENUE. 2. WE HAVE CONSIDERED THE SUBMISSIONS ADVANCED BY T HE LEARNED RESPECTIVE COUNSELS AND PERUSED THE MATERIAL AVAILA BLE ON RECORD. BEFORE ADVERTING FURTHER WE ARE REPRODUCING HEREWIT H THE RELEVANT PORTION OF THE AFORESAID ORDER DATED 29.5.2009 OF T HE TRIBUNAL :- 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND TH E MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ISSUE WAS CONSI DERED BY ITAT, INDORE BENCH, IN THE CASES OF PRAVIN JINDAL, 12 ITJ 227 AND ITO VS. SMT. SANTOSH AGRAWAL, IN ITA NO.555/IND/2006 AND VI DE ORDER DATED 30.4.2009, THE REASSESSMENT PROCEEDINGS WERE QUASHE D BY ALLOWING THE CO OF THE ASSESSEE. THE FINDINGS RECORDED IN PA RAS 5 AND 6 IN THE CASE OF SMT. SANTOSH AGRAWAL (SUPRA) IN WHICH O N IDENTICAL FACTS THE REOPENING OF ASSESSMENT WAS QUASHED, ARE AS UND ER :- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE A SSESSEE FILED COPY OF NOTICE UNDERSECTION 148 OF THE ACT AS WELL AS REASONSRECORDED BY THE ASSESSING OFFICER FOR REOPEN ING OF ASSESSMENT. THE REASONS FOR REOPENING OF ASSESSMENT AS RECORDED BY THE ASSESSING OFFICER ARE REPRODUCED AS UNDER :- IN THIS CASE RETURN OF INCOME FOR THE ABOVE ASS ESSMENT YEAR WAS FILED DISCLOSING TAXABLE INCOME OF RS.84,9 80/- ON 31.10.2001. IN THE CAPITAL ACCOUNT ACCOMPANYING TH E RETURN, THE ASSESSEE HAS CREDITED AN AMOUNT OF RS.37,50,000/- U NDER THE HEAD GIFT RECEIVED. THE GIFT SO CREDITED IS NOT RECEIVED IN THE NORMAL COURSE OF HUMAN CONDUCT AND THUS THE SAME IS THE INCOME OF THE ASSE SSEE FROM UNDISCLOSED SOURCES. THEREFORE, I HAVE REASON TO B ELIEVE THAT AN AMOUNT OF RS.37,50,000/- CHARGEABLE TO TAX HAS E SCAPED ASSESSMENT. I, THEREFORE, PROPOSE TO ASSESS SUCH I NCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAP ED ASSESSMENT AND WHICH COMES TO MY NOTICE SUBSEQUENTL Y IN THE COURSE OF PROCEEDINGS U/S 147 OF THE IT ACT, 1961. ISSUE NOTICE U/S 148 OF THE I.T. ACT, 1961. 3 IT IS AN ADMITTED FACT THAT THE ASSESSEE IN THE RET URN OF INCOME HAS DISCLOSED THE GIFTS OF RS.37,50,000/-. THE RETURN W AS ALSO PROCESSED UNDER SECTION 143(1) AND THEREAFTER NO MATERIAL OR INFORMATION WAS BROUGHT ON RECORD WHICH WOULD JUSTIFY THE REOPENING OF ASSESSMENT IN THE MATTER. ON CONSIDERATION OF THE RIVAL SUBMI SSIONS AND THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ISS UE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT, INDORE BENCH IN THE CASE OF PRAVEEN JINDAL (SUPRA) IN WHIC H ON IDENTICAL FACTS THE REOPENING OF ASSESSMENT WAS QUASHED. THE FINDINGS IN THIS CASE FROM PARAS 6 TO 10 ARE REPRODUCED:- 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND THE MATERIAL AVAILABLE ON RECORD. I.T.A.T. DELHI B BENCH ( T.M.) IN THE CASE OF O.P.CHAWLA, (SUPRA) HELD AS UNDER :- EVEN THOUGH NO OPINION WAS FORMED BY THE ASSESSING OFFICER WHEN HE PROCESSED THE RETURN U/S 143(1)(A) AND THER EFORE, IT CANNOT BE A CASE OF A MERE CHANGE OF OPINION UNSUBS TANTIATED BY FRESH FACTS OR CHANGE IN LAW COMING TO HIS NOTIC E, STILL AN ATTEMPT TO PROBE THE RETURN FURTHER ON THE PART OF THE A.O. IS CERTAINLY NOT TAKEN IN BY THE EXPRESSION REASON TO BELIEVE. THE CONSEQUENCES OF CONDONING SUCH AN ATTEMPT WOULD BE GRAVE. IT IS NOT TO BE UNDERSTOOD AS HOLDING THAT D ESPITE FRESH FACTS OR MATERIAL OR INFORMATION, OR A CHANGE IN TH E LEGAL POSITION, THE A.O. CANNOT REOPEN THE ASSESSMENT WHE RE THE RETURN HAD ONLY BEEN PROCESSED UNDER SECTION 143(1) (A). THERE HAS TO BE A DISTINCTION BETWEEN CASES WHEREAFTER TH E PROCESSING OR ACCEPTANCE OF THE RETURN UNDER SECTION 143(1)(A) SOME FRESH FACTS OR INFORMATION OR MATERIAL HAS COME TO THE PO SSESSION OF THE A.O., OR THERE HAS BEEN A CHANGE IN THE LEGAL P OSITION, AND CASES WHERE THERE IS NO SUCH DEVELOPMENT. IN THE FO RMER CLASS OF CASES THE NOTICE FOR REOPENING THE ASSESSMENT WOULD BE VALID. BUT IN THE LATTER CLASS OF CASES, THE A.O. CANNOT A SSUME POWERS TO ISSUE THE NOTICE UNDER SECTION 148 FIRST AND THE N MAKE ENQUIRIES IN AN ATTEMPT TO UNEARTH ESCAPED INCOME. THIS WOULD PUT ASSESSEES TO UNWARRANTED HARDSHIP AND DISTURB T HE FINALITY OF ASSESSMENTS WITHOUT ANY JUSTIFICATION. WHERE A R ETURN HAS BEEN ACCEPTED/PROCESSED WITHOUT ENQUIRY UNDER SECTI ON. 143(1)(A) AND THEREAFTER THE A.O. COMES ACROSS EVID ENCE OR MATERIAL TO SHOW ESCAPEMENT OF INCOME, HE MAY FORM THE REQUISITE BELIEF AND PROCEED TO ISSUE NOTICE U/S 14 8 AFTER RECORDING REASONS INDICATING THE NEXUS OR LIVE LINK OR RATIONAL CONNECTION BETWEEN THE MATERIAL BEFORE HIM AND THE FORMATION OF THE BELIEF. IN SUCH A CASE, HE DOES HAVE REASON TO BELIEVE AND NOT MERELY REASON TO SUSPECT. BUT IF HE HAS N O SUCH MATERIAL OR EVIDENCE, AND MERELY WANTS BY HIS IPSE DIXIT TO TAKE UP THE RETURN FOR FURTHER PROBE, IT WILL BE A CASE OF REASON TO SUSPECT. IN ADDITION, IT WILL BE A CASE OF AN ARBI TRARY EXERCISE OF THE POWER TO REOPEN THE ASSESSMENT IF ONE LOOKS AT THE REASONS RECORDED BY THE ASSESSING OFFICER IN THE PR ESENT CASE TO REOPEN THE ASSESSMENT THE ONLY REASON STATED THEREI N IS THAT 4 THE BALANCE SHEET OF THE ASSESSEE REVEALS THAT THE ASSESSEE HAS RECEIVED A GIFT OF RS. 28,90,000 FOR WHICH NO D ETAILS HAVE BEEN FILED. THERE IS NO REFERENCE TO ANY INVESTIG ATION CARRIED OUT IN THE ASSESSEES OWN CASE OR IN THE CASE OF TH E DONOR OR ANY OTHER EVIDENCE OR MATERIAL COLLECTED AS A RESULT OF ANY INVESTIGATION CARRIED OUT BY ANY INVESTIGATING AGEN CY INCLUDING THE IT DEPARTMENT IN ANY CASE WHICH COULD HAVE AFFO RDED THE REQUIRED NEXUS OR LIVE LINK OR RATIONAL CONNECTION WITH THE BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T. THE A.O. HAS MERELY REFERRED TO THE ABSENCE OF ANY DET AILS FILED WITH THE RETURN IN SUPPORT OF THE GIFTS. THE REASON S RECORDED IN THE PRESENT CASE BY THE ASSESSING OFFICER FOR REOPE NING THE ASSESSMENT ARE A MERE PRETENCE, AN EXCUSE TO ENQUIR E INTO THE GIFTS RECEIVED BY THE ASSESSEE, WITHOUT ANY MATERIA L OR EVIDENCE COMING INTO HIS POSSESSION AFTER HE PROCES SED THE RETURN U/S 143(1)(A). THE A.O. DID NOT HAVE REASON TO BELIEVE THAT INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAS E SCAPED ASSESSMENT. CONSEQUENTLY, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE REOPENING OF THE ASSESSMENT WAS NOT VALID AND, THEREFORE, THE REASSESSMENT MADE WAS VOID AB INITIO AND BAD IN THE EYES OF LAW.. 7 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISION, I AM OF THE VIEW THAT REOPENING IS NOT JU STIFIED IN THE MATTER. THOUGH THERE IS NO DISPUTE THAT REOPENING C OULD NOT BE QUASHED IN THIS CASE ON ACCOUNT OF CHANGE OF OPINIO N BECAUSE NO OPINION WAS FORMED, WHILE PROCESSING THE RETURN U/S 143(1)(A) AS IS HELD BY THE LD.CIT(A). 8. IT IS NOT IN DISPUTE THAT THE ASSESSEE WHILE FILING THE ORIGINAL RETURN OF INCOME HAVE SHOWN IN THE CAPITAL ACCOUNT, THE GIFTS RECEIVED FROM FOUR PERSONS. THE AFORESAID RETURN WA S PROCESSED. THE A.O. WHILE RECORDING THE REASONS FOR REOPENING HAS MERELY MENTIONED THAT THE GIFTS ARE NOT RECEIVED IN THE NO RMAL COURSE OF HUMAN CONDUCT. THE LD.CIT(A) NOTED THAT IT IS WELL KNOWN FACT THAT GIFTS CLAIMED TO BE RECEIVED WERE AN ARRANGED AFFAI RS. THE AFORESAID FACTS NOTED IN THE REASONS FOR REOPENING AN ORDER OF THE CIT(A) CLEARLY PROVE THAT THE ASSESSEE WHILE FILING THE RETURN HAS SHOWN THE GIFTS IN THE CAPITAL ACCOUNT AND BALANCE SHEET AND THAT THERE IS NO REFERENCE TO ANY INVESTIGATION CARRIED OUT IN THE CASE OF THE ASSESSEE OR IN THE CASE OF THE DONOR. NO EVI DENCE OR MATERIAL IS BROUGHT ON RECORD, WHICH COULD HAVE AFF ORDED THE REQUIRED NEXUS ON LIVE LINK OR RATIONAL CONNECTION WITH THE BELIEF OF THE A.O. THAT INCOME CHARGEABLE TO TAX HAVE ESCAPED ASSESSMENT. THE A.O. HAS MERELY REFERRED TO THE HUMAN CONDUCT IN WHICH SUCH A GIFT COULD NOT HAVE BEEN RECEIVED GENUINELY BY TH E ASSESSEE. THE A.O., HAS, THUS, FORMED HIS OPINION ON VAGUE AND UN SUBSTANTIATED REASONS. THE BELIEF OF THE A.O. IS NOT, THUS, BASED UPON ANY INFORMATION, MATERIAL OR EVIDENCE. THE REASONS RECO RDED BY THE ASSESSING OFFICER WERE ONLY HIS SUSPICION AND PRETE NCE. THE HON'BLE SUPREME COURT IN THE CASE OF M.P. INDUSTRIES LIMIT ED VS. ITO, 57 5 ITR 637, HELD THAT NOTICE U/S 148 CANNOT BE ISSUED MERELY TO MAKE FISHING ENQUIRY INTO THE RETURN. 9. THE REASONS RECORDED BY THE ASSESSING OFFICER ARE VAGUE, INDEFINITE AND ARE NOT BASED ON ANY INFORMAT ION OR MATERIAL. IT WAS ASSUMPTION OF THE A.O. THAT GIFTS ARE NOT RECEIVED IN THE NORMAL COURSE OF HUMAN CONDUCT. THE FINDINGS OF THE LD.CIT(A) ARE PERVERSE IN THE SENSE THAT LD.CIT(A) ASSUMED THAT GIFTS SO RECEIVED WERE AN ARRANGED AFFAIRS, WHICH I S NOT BASED ON ANY EVIDENCE. THESE FACTS CLEARLY SHOWED THAT THE A .O. WAS NOT JUSTIFIED IN REOPENING THE ASSESSMENT IN THE MATTER . THE REASONS RECORDED BY THE ASSESSING OFFICER FOR FORMING HIS B ELIEF FOR REOPENING ASSESSMENT U/S 147 WERE NOT BASED UPON AN Y MATERIAL OR FACTS. THE BELIEF OF THE A.O. FOR INITIATING PROCEE DINGS U/S 147 HAD NO RATIONAL CONNECTION WITH REASONS. THERE WERE NO MATERIAL WITH THE DEPARTMENT TO JUSTIFY THE INITIATION OF THE RE- ASSESSMENT PROCEEDINGS IN THIS CASE, BECAUSE IT SHOWED THAT TH E A.O. HAD INITIATED RE-ASSESSMENT PROCEEDINGS WITHOUT APPLICA TION OF MIND. THEREFORE, IT WAS NOT FIT CASE TO SUSTAIN THE REASS ESSMENT. THE A.O., THEREFORE, DID NOT VALIDLY ASSUME JURISDICTIO N IN INITIATING PROCEEDINGS U/S 147. I RELY UPON THE DECISION OF I. T.A.T., AMRITSAR BENCH (SPECIAL BENCH) IN THE CASE OF DURGA PRASAD G OYAL VS. ITO, 98 ITD 227 (ASR) ( S. B.) IN WHICH EVEN GENERAL INFORM ATION CONTAINED IN LETTER OF ASSISTANT COMMISSIONER, INVESTIGATION CIRCLE, WAS NOT FOUND RELEVANT MATERIAL TO SUSTAIN INITIATION OF RE -ASSESSMENT PROCEEDINGS U/S 147 OF THE INCOME-TAX ACT, 1961, . THE PRESENT CASE IN APPEAL IS ON THE WORST FOOTING. THEREFORE, THE ORDERS OF THE AUTHORITIES BELOW CANNOT BE SUSTAINED IN LAW. 10. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED A BOVE, WE ARE OF THE VIEW THAT AS THERE WAS NO INVESTIGATION OR E VIDENCE COLLECTED BY THE ASSESSING OFFICER HAVING A NEXUS O R LIVE LINK OR RATIONAL CONNECTION BETWEEN THE MATERIAL BEFORE HIM AND THE FORMATION OF BELIEF TO ASSUME THERE WAS INCOME ESCA PING ASSESSMENT. THE REASONS RECORDED BY THE ASSESSING O FFICER WERE MERELY REASONS TO SUSPECT. THEREFORE, THE AUTHORI TIES BELOW WERE NOT JUSTIFIED IN REOPENING THE ASSESSMENT IN T HE MATTER. I, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND QUASH THE REASSESSMENT PROCEEDINGS. BY FOLLOWING THE SAME ORDER, WE ARE OF THE VIEW THAT THE REOPENING O F ASSESSMENT ON THE FACTS AND CIRCUMSTANCES OF THE CASE IS NOT JUSTIFIED. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND QUASH THE REASSESSMENT PROCEEDINGS. 6. AS A RESULT, THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 9.1 HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V. BATRA BHATTA COMPANY, 220 CTR 531 NOTED THE REASONS RECORDED FOR REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE INCOMETAX ACT W HICH READ AS UNDER :- THE ASSESSEE FIRM HAS SOLD AN AGRICULTURAL LAND FOR RS.57,37,500 IN MARCH, 1996 AND CLAIMED EXEMPTION UNDER PROVISIO NS 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 6 ACQUISITION IS SHOWN AT RS. 4,41,279/-. I HAVE REAS ON 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. HON'BLE HIGH COURT OF DELHI CONSIDERING THE AB OVE REASONS DISMISSED THE DEPARTMENTAL APPEAL AND HELD AS UNDER :- A READING OF THE REASONS RECORDED DOES NOT DISCLOS E THAT THE AO IN FACT HAD REASONS TO BELIEVE THAT ANY INCOME HAD ESC APED ASSESSMENT. IT IS NOT JUST THE BELIEF OF THE AO TH AT IS MATERIAL, BUT SUCH A BELIEF MUST BE BASED ON CERTAIN REASONS. THE FIRST SENTENCE OF THE REASONS RECORDED IS MERELY A STATEMENT OF FA CT 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 SEN SE THAT IT SAYS THAT THE CLAIM OF THE ASSESSEE THAT THE LAND IS AGR ICULTURAL AND HENCE NOT A CAPITAL ASSET REQUIRES MUCH DEEPER SCR UTINY. 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 RETUR N AND TILL THE ISSUANCE OF THE NOTICE UNDER S. 147. THE PROCEEDIN GS UNDER S. 147 ARE NOT TO BE INVOKED AT THE MERE WHIM AND FANCY OF AN AO AND IT HAS TO BE SEEN IN EVERY CASE AS TO WHETHER THE INVO CATION IS ARBITRARY OR REASONABLE. MERELY BECAUSE THE AO FEL T THAT THE ISSUE REQUIRED MUCH DEEPER SCRUTINY IS NOT GROUND ENOUG H FOR INVOKING S. 147. IT IS NOT BELIEF PER SE THAT IS A PRE-COND ITION USED IN S. 147 BUT A BELIEF FOUNDED ON REASONS. THE EXPRESSION USE D IN SECTION IS IF THE AO HAS REASON TO BELIEVE AND NOT IF THE A O BELIEVES. THERE MUST BE SOME BASIS UPON WHICH THE BELIEF CAN BE BUI LT. IT DOES NOT MATTER WHETHER THE BELIEF IS ULTIMATELY PROVED RIGH T OR WRONG, BUT, THERE MUST BE SOME MATERIAL UPON WHICH SUCH A BELIE F CAN BE FOUNDED. IN THE PRESENT CASE, THE CIT(A) AS WELL A S THE TRIBUNAL HAVE FOUND AS A FACT THAT THERE WAS NO MATERIAL UPO N WHICH THE AO COULD HAVE BASED HIS BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THE CIT(A) AS WELL AS THE TRIBUNAL HAVE RETURNED TH E CONCURRENT FINDING OF FACT THAT THERE WAS NO MATERIAL BEFORE T HE AO ON THE BASIS OF WHICH THE AO COULD HAVE MAINTAINED A BELIE F THAT THE AGRICULTURAL LAND SOLD BY THE ASSESSEE WAS A CAPITA L ASSET WITHIN THE MEANING OF S. 2(14). IN FACT, THE AO DID NOT EVEN HAVE SUCH A BELIEF. AND, AS THE EXPRESSION REQUIRES MUCH DEEPE R SCRUTINY INDICATES, THE AO WAS EMBARKING ON MERE EXPLORATION WITHOUT ANY BELIEF, MUCH LESS A BELIEF BASED ON REASON AND MATE RIALS. CONSEQUENTLY, THERE IS NO ERROR IN THE DECISION OF THE TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N. 9.2 HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE R ECENT DECISION IN THE CASE OF CIT V. SMT. PARAMJIT KAUR; 311 ITR 38 CONSIDERING THE FACT THAT THE ASSESSING OFFICER HAD NOT EXAMINED THE INFORMATION RECEIVED FROM THE SURVEY, HELD THAT THE ASSESSING OFFICER HAD NOT EXAMINED THE IN FORMATION RECEIVED FROM THE SURVEY CIRCLE BEFORE RECORDING HI S OWN SATISFACTION OF ESCAPED INCOME AND INITIATING REASS ESSMENT 7 PROCEEDINGS. THE ASSESSING OFFICER HAD THUS ACTED O NLY ON THE BASIS OF SUSPICION AND IT COULD NOT BE SAID THAT IT WAS B ASED ON BELIEF THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED INCOME. T HE ASSESSING OFFICER HAD TO ACT ON THE BASIS OF REASONS TO BELI EVE AND NOT ON REASONS TO SUSPECT. THE TRIBUNAL RIGHTLY CONCLUDE D THAT THE ASSESSING OFFICER HAD FAILED TO INCORPORATE THE MAT ERIAL AND HIS SATISFACTION FOR REOPENING THE ASSESSMENT AND THERE FORE THE ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT FOR REASSESSMENT PROCEEDINGS WAS NOT VALID. 9.3 HONBLE BOMBAY HIGH COURT IN THE CASE OF TECHNOCRAF T INDUSTRIES & OTHERS (SUPRA) HELD HELD, THAT AS PER THE UNCONTROVERTED AVERMENTS IN THE PETITIONS, FOR THE AY 1979-80, THE PETITIONERS CLAIMED DEPRECIA TION ON THE PLANT AND MACHINERY ON THE BASIS OF TRIPLE SHIFT WO RKING. THE COMPUTATION OF THE CLAIM WAS GIVEN. ANALYSIS AND DE TAILS OF THE CLAIM FOR EXPORT MARKETS DEVELOPMENT ALLOWANCE WAS ALSO GIVEN. THE PETITIONERS COULD NOT BE BLAMED FOR NOT DISCLOS ING MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE NOTICE U/S 147( A) FOR THE AY 1979-80 WAS NOT VALID. THE ASSESSMENT FOR THE YEAR 1980-81 WAS COMPLETED AFTER ENQUIRY U/S 143(3) ON AN INCOME OF RS.64,099 AS AGAINST DISCLOSED INCOME OF RS.7,087. EXCEPT FOR RE FERRING TO THE DDIS LETTER TO THE COMMISSIONERS OF INCOME-TAX, WH ICH WAS NOT SHOWN TO THE COURT, THERE WAS NO INDICATION OF ANY MATERIAL WHATSOEVER WHICH COULD HAVE LED TO THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THE REASSESSMENT NOTICE FOR THE AYS 1979-80 & 1980-81 WERE NOT VALID AND WERE LIABLE TO BE QUASHE D. 9.4 HONBLE GAUHATI HIGH COURT IN THE CASE OF JCIT VS. GEORGE WILLIAMSONS (AASAM) LTD. (SUPRA) HELD HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE-COM PANY AT THE TIME OF ITS ASSESSMENT HAD PRESENTED BEFORE THE AO ALL THE MATERIAL AND RELEVANT FACTS. THE AO HAD SCRUTINIZED THOSE FA CTS AND MADE THE ORDER OF ASSESSMENT ONLY AFTER EXAMINATION OF T HE ENTIRE CONTROVERSY. EXCEPT THE LETTER WRITTEN BY THE COMMI SSIONER, WEST BENGAL, WHICH WAS COMMUNICATED TO THE COMMISSIONER, GUWAHATI, THE AO HAD NOT MENTIONED THAT HE HAD ANY OTHER MATE RIAL BEFORE HIM THAT THE PAYMENTS MENTIONED IN THE AFFIDAVIT WE RE NOT IN FACT MADE AND THE AMOUNT PAID IN CHEQUES WAS RETURNED IN CASH AFTER ROUTING IT THROUGH FOUR OR FIVE BANK ACCOUNTS. THE AO HAD ALSO NOT MENTIONED AS TO WHEN AND BY WHAT TRANSACTIONS SPECI FIC AMOUNTS WHICH HAD BEEN PAID BY CHEQUES HAD BEEN RETURNED IN CASH. THERE WAS NO MENTION OF ANY DATES ON WHICH BANK TRANSACTI ONS BETWEEN THE FOUR PARTIES NAMED IN THE AFFIDAVIT AND THE ASS ESSEE TOOK PLACE, NOT EVEN THE NAMES OF THE BANKS ALLEGEDLY INVOLVED. THEREFORE, THE NOTICES ISSUED TO THE ASSESSEE-COMPANY AND THE FURT HER PROCEEDINGS INITIATED EXERCISING THE POWERS UNDER SECTIONS 147 AND 148 WERE LIABLE TO BE QUASHED. 9.5 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF DASS FR IENDS BUILDERS P. LTD. VS. DCIT (SUPRA) HELD HELD, THAT THE ESCAPEMENT OF INCOME HAD BEEN INFER RED ON THE BASIS OF THE ASESED INCOME IN THE AY 1996-97 BY WAY OF BEST 8 JUDGMENT ASSESSMENT DUE TO DEFECT FOUND IN THE BOOK S OF ACCOUNT. THERE WAS NO MATERIAL THAT SOME INCOME WAS EARNED I N THE AY 1995-96. THUS, THE INFORMATION WAS BASED ON PRESUMP TION AND ON EXTRANEOUS AND IRRELEVANT CONSIDERATIONS. IN THE AB SENCE OF SPECIFIC MATERIAL FOR THE YEAR UNDER CONSIDERATION, NO BELIE F COULD BE FORMED ABOUT THE ESCAPED INCOME MERELY ON THE BASIS OF THE ASSESSMENT FOR THE YEAR 1996-97. THE NOTICE WAS NOT VALID AND WAS LIABLE TO BE QUASHED. 9.6 HONBLE BOMBAY HIGH COURT IN THE CASE OF KARSONDAS RANCHODDAS VS. CIT, (SUPRA) HELD IN THE AY 1954-55, CORRESPONDING TO THE ACCOUNT YEA R 2009 SAMVAY YEAR, THE ASSESSEE CLAIMED A LOSS OF RS.44,190 IN H IS BUSINESS OF PURCHASE AND SALE OF SHARES. THE QUESTION WAS WHETH ER THE SALES OF SHARES WHICH WERE INVOLVED IN THAT YEAR WERE ENTERE D INTO BY THE ASSESSEE AS A DEALER IN SHARES OR WHETHER THEY WERE ENTERED INTO BY WAY OF CAPITAL INVESTMENT. THE ITO FOUND THAT THE A SE HAD STOPPED HIS BUSINESS IN THE PURCHASE AND SALE OF SHARES AT THE CLOSE OF S.Y. 2000, I.E., AY 1947-48, THAT THE ASSESSEE DID NO BUS INESS IN THE PURCHASE AND SALE OF SHARES EITHER DURING THE ACCOU NTING YEAR OR THE PREVIOUS SIX YEARS AND THAT THE LOSS OF RS.44,190 W AS NOT A BUSINESS LOSS. THE APPELLATE ASSISTANT COMMISSIONER DISAGREE D WITH THE ITO AND HELD THAT THE ASSESSEE WAS A DEALER. ON FURTHER APPEAL, THE APPELLATE TRIBUNAL AGREED WITH THE ITO. ON A REFERE NCE TO THE HIGH COURT: HELD, (I) THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDIN G THAT THE BUSINESS OF DEALING IN SHARES WAS NOT BEING CARRIED ON BY TH E ASSESSEE IN THE YEAR OF ACCOUNT AND (II) THAT THE ASSESSEE WAS ENTI TLED TO THE DEDUCTION OF RS.44,190 AS BUSINESS LOSS IN THE YEAR OF ACCOUNT. BOTH THE ITO AND THE TRIBUNAL, IN THEIR ORDERS WITH REFERENCE TO THE AY IN QUESTION, MERELY HAD REGARD TO THE FACT THAT T HE ASSESSEE HAD CEASED TO DO BUSINESS IN THE PREVIOUS SIX YEARS AND DID NOT TAKE INTO ACCOUNT THE FACTS PERTAINING TO THE YEARS SUBSEQUEN T TO 1954-55 WHEN HE WAS FOUND TO CARRY ON THE SAME BUSINESS. TH ERE WERE TWO PERIODS OF ACTIVITY BEFORE AND AFTER THE INTERREGNU M OR PERIOD OF INACTIVITY AND IT IS ALMOST CONCLUSIVE THAT DURING THE PERIOD OF INACTIVITY THE ASSESSEE HAD NOT GIVEN UP HIS INTENT ION TO DO FURTHER BUSINESS. THERE MAY BE A LONG PERIOD OF INACTIVITY AND STILL THE BUSINESS MAY CONTINUE. 9.7 IT IS NOW SETTLED LAW THAT THERE MAY BE A LONG PERI OD OF INACTIVITY AND STILL THE BUSINESS MAY CONTINUE. WE RELY UPON OBSERVATIONS OF HONBLE ALLHABAD HIGH COURT IN THE CASE OF INDERCHAND HARIRAM VS. CIT, 23 ITR 437 IN WHICH IT WAS OBSERVED IT IS NOT NECESSARY THAT A BUSINESS TO BE IN EXISTENCE SHOULD HAVE WORK ALL THE TIME. THERE MAY BE LONG INTERVALS OF INACTI VITY AND A CONCERN MAY STILL BE A GOING CONCERN THOUGH IT MAY, FOR SOME TIME, BE QUIET AND DORMANT. THE MERE FACT THAT A BUSINESS MAN HAS NOT BEEN ABLE TO OBTAIN A CONTRACT AND THE BUSINESS HAS FOR SOME TIME BEEN, IN THAT SENSE, DORMANT WOULD NOT MEAN THAT IT HAS CEASED TO EXIST IF THE ASSESSEE CONTINUES TO MAINTAIN AN ESTA BLISHMENT AND INCUR EXPENSES IN THE EXPECTATION THAT WORK WOULD C OME AND THE 9 BUSINESS WILL BE SUCCESSFUL. HOW LONG HE SHALL REMA IN IN HOPE AND IN WHAT MANNER HE MUST CARRY ON HIS WORK TO GAIN SUCCE SS IS PRIMARILY HIS OWN CONCERN. THE MERE FACT THAT FOR SOME TIME H E IS NOT ABLE TO SECURE A CONTRACT OR DO THE WORK WHICH HE SET OUT T O DO SHOULD NOT DISQUALIFY HIM FROM PLEADING THAT THE EXPENDITURE T HAT HE HAD INCURRED WAS EXPENDED FOR THE PURPOSES OF HIS BUSIN ESS. 10. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF M ATERIAL AVAILABLE ON RECORD, IT IS CLEAR THAT THE AO RECORD ED REASONS FOR REOPENING THE ASSESSMENT THAT EXPENDITURE IS CLAIME D WHEN ASSESSEE HAD NO BUSINESS INCOME. THIS REASON IS NOT RELEVANT BECAUSE THERE COULD BE LOSS AS WELL IN THE BUSINESS . LD. COUNSEL FOR ASSESSEE FILED COPY OF THE ASSESSMENT ORDER FOR AY 1998-99 DATED 31.10.2003 PASSED U/S 143(3)/148 OF THE IT ACT IN W HICH THE NATURE OF BUSINESS OF ASSESSEE IS SHOWN TO BE BUILDING CON STRUCTION AND SALES AS IS STATED IN THE AY UNDER APPEAL. THE ASSES SEE FILED RETURN AT LOSS OF RS.98,510/- AND THE AO DISALLOWED SOME O F THE BUSINESS EXPENDITURE. IT WOULD PROVE THAT ASSESSEE WAS DOING BUSINESS OF BUILDING CONSTRUCTION AND SALES IN THE EARLIER YEAR S ALSO. LD. COUNSEL FOR ASSESSEE ALSO FILED COPY OF THE ACKNOWLEDGMENT OF THE FILING OF THE RETURN FOR SUBSEQUENT AY 2002-03 IN WHICH IN THE P & L A/C, ASSESSEE HAS SHOWN CONTRACT RECEIPTS AND CLAIMED DO ING THE SIMILAR BUSINESS ACTIVITIES. IN THE AY UNDER APPEAL, THE ASS ESSEE HAS CLAIMED IN THE P & L A/C THE DEDUCTION OF THE EXPEN DITURE ON A/C OF ELECTRICITY EXPENSES, MISC. EXPENSES, OFFICE EXPENS ES, PETROL & CONVEYANCE, REPAIRS AND MAINTENANCE, SALARY TO PART NER AND STAFF, TELEPHONE AND TRAVELING EXPENSES AND OFFICE RENT ET C. WHICH ARE RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. THE AO IN THE ASSESSMENT ORDER HAS NOT DISPUTED GENUINENESS OF TH ESE EXPENDITURES. THUS, THE AO HAS NOT DOUBTED THE EXIS TENCE OF THE BUSINESS OF THE ASSESSEE IN THE AY UNDER APPEAL. IT WOULD SHOW THAT THERE WAS CONTINUATION OF BUSINESS ACTIVITY OF THE ASSESSEE FROM THE EARLIER YEARS TILL THE SUBSEQUENT AYS WITHOUT ANY BR EAK IN THE BUSINESS OF THE ASSESSEE. IT IS NOT ALWAYS NECESSAR Y ON DOING BUSINESS ACTIVITY, THERE SHOULD BE EARNING OF THE I NCOME BECAUSE THERE COULD BE LOSS AS WELL. THE FINDING OF THE AO THAT NO PROOF IS FILED TO SHOW EARLIER BUSINESS WAS GOING ON IS, THE REFORE, INCORRECT. THERE IS ABSOLUTELY NOTHING ON RECORD TO SHOW THAT ASSESSEE HAD ANY INTENTION TO CEASE TO DO SIMILAR BUSINESS IN THE AY UNDER APPEAL. THERE IS NO EVIDENCE ON RECORD THAT ASSESSEE CARRIE D ON ANY OTHER BUSINESS IN THE YEAR UNDER APPEAL. THE AUTHORITIES BELOW HAVE NOT TAKEN INTO CONSIDERATION THAT IN THE EARLIER YEARS AND SUBSEQUENT YEARS, ASSESSEE WAS DOING THE SAME BUSINESS. IT IS, THEREFORE, NOT POSSIBLE TO HOLD THAT BY MERE LULL IN ACTIVITY OF A SSESSEE, IT HAD CEASED TO DO BUSINESS. THE REASONS FOR REOPENING OF THE ASSESSMENT U/S 147 THAT THERE WAS NO BUSINESS INCOME, SO NO EX PENSE IS ALLOWABLE IS IRRELEVANT CRITERIA FOR REOPENING THE ASSESSMENT. THUS, THERE WAS NO MATERIAL OR BASIS TO REOPEN THE ASSESS MENT. THE ASSESSEE HAS FILED COMPUTATION OF INCOME WHICH SHOW S THAT INCOME FROM BUSINESS & PROFESSION HAS BEEN SEPARATELY COMP UTED SHOWING BUSINESS LOSS AND FURTHER INCOME FROM HOUSE PROPERT Y IS COMPUTED 10 AND THEREAFTER, THE ASSESSEE CLAIMED SET OFF OF BUS INESS LOSSES AGAINST THE INCOME FROM HOUSE PROPERTY AS PER PROVI SION OF SEC. 71 OF THE IT ACT. THE AUTHORITIES BELOW HAVE NOT GIVEN ANY ADVERSE FINDING AGAINST THE ASSESSEE ON THIS COMPUTATION. T HUS, THE WHOLE BASIS OF THE AO TO REOPEN THE ASSESSMENT IS INCORRE CT AND WITHOUT ANY BASIS. IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ASSESSEE WOULD BE ENTITLED FOR CLAIM OF EXPENDITURE EVEN IF NO BUSINESS INCOME IS EARNED IN THE AY UNDER APPEAL DUE TO CONTI NUATION OF BUSINESS OF THE ASSESSEE. 11. THE DECISIONS CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE NOTED ABOVE WOULD NOT SUPPORT THE CA SE OF THE REVENUE IN ANY MANNER. THE LEARNED DEPARTMENTAL RE PRESENTATIVE HEAVILY RELIED UPON EXPLANATION 2(B) TO SECTION 147 OF THE ACT WHICH IS ALSO CONSIDERED BY THE HON'BLE HIGH COURT OF MAD RAS IN THE CASE OF ITO V. K.M.PACHIAPPAN (SUPRA). HOWEVER, IN THE AF ORESAID DECISION THE HON'BLE HIGH COURT OF MADRAS CONSIDERING THE PR OVISIONS OF SECTION 147 NOTED THAT THE CONDITIONS PRECEDENT FOR PROCEEDINGS UNDER SECTION 147 ARE THAT THE ASSESSING OFFICER SH OULD HAVE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. IT IS NOT NECESSARY THAT THE ASSESSMENT SHOULD HAVE BEEN COMP LETED UNDER SECTION 143(3) OF THE ACT BEFORE IT COULD BE REOPEN ED. EXPLANATION 2(B) TO SECTION 147 SPECIFICALLY PROVIDES THE CASES WHERE THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS UND ERSTATED THE INCOME IN THE RETURN OF INCOME. THE WORD NOTICED USED IN EXPLANATION 2(B) OF SECTION 147 OF THE INCOME-TAX A CT IS VITAL AND SIGNIFICANT IN THE SENSE THAT THERE SHOULD BE SOME BASIS UPON WHICH THE BELIEF CAN BE BUILT BY THE ASSESSING OFFICER. IT DOES NOT MATTER WHETHER THE BELIEF IS ULTIMATELY PROVED RIGHT OR WR ONG BUT THERE MUST BE SOME MATERIAL UPON WHICH SOME BELIEF CAN BE FOUNDED. IN THE PRESENT CASE, WE HAVE NOTICED AS A FACT THAT TH ERE WAS NO MATERIAL ON RECORD UPON WHICH THE ASSESSING OFFICER COULD HAVE BASED HIS BELIEF THAT THE INCOME HAS ESCAPED ASSESS MENT. THE LEARNED DEPARTMENTAL REPRESENTATIVE MERELY SUBMITTE D THAT THE INFORMATION CONTAINED IN RETURN IS SUFFICIENT FOR T HE ASSESSING OFFICER TO FORM HIS BELIEF THAT THE INCOME HAS ESCA PED ASSESSMENT. WE DO NOT AGREE WITH THE SUBMISSION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE BECAUSE IN THE ABSENCE OF ANY MATERI AL OR INFORMATION ON RECORD, THE ASSESSING OFFICER MERELY HAD REASON TO SUSPECT THAT THE BUSINESS EXPENDITURE IS NOT ALLOWA BLE WHEN THERE IS NO BUSINESS INCOME. THERE WAS NO MATERIAL ON REC ORD TO SUPPORT THE BELIEF OF THE ASSESSING OFFICER. THUS, IT IS A CASE WHERE THERE WAS NO MATERIAL OR INFORMATION OR BASIS AVAILABLE T O THE ASSESSING OFFICER TO FORM HIS BELIEF THAT THE INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT ON ACCOUNT OF INADMISSIBLE EXPEN DITURE FOR WANT OF BUSINESS INCOME. THE AO NEVER DOUBTED EXIST ENCE OF BUSINESS OF ASSESSEE AS WELL AS DID NOT DISPUTE GEN UINENESS OF EXPENDITURE FOR WHICH ASSESSEE CLAIMED DEDUCTION. T HEREFORE, IT IS NOT A FIT CASE FOR REOPENING THE ASSESSMENT OR TO D ISALLOWANCE BUSINESS EXPENDITURE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS NOTED ABOVE. 11 12. CONSIDERING THE ABOVE DISCUSSION, WE ARE OF THE VIE W THAT THERE WAS NO JUSTIFICATION FOR THE AO TO REOPEN THE ASSESSMENT IN THE FACTS AND CIRCUMSTANCES OF THIS CASE AS WELL AS THERE WAS NO JUSTIFICATION TO DISALLOW THE CLAIM OF BUSINESS EXP ENDITURE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BE LOW AND QUASH THE REASSESSMENT PROCEEDINGS AS WELL AS DELETE THE ENTI RE DISALLOWANCE OF THE EXPENDITURE. 13. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 MAY, 2009 . IN THE LIGHT OF THE AFORESAID ORDER WHERE THE ADDIT ION MADE IN THE ASSESSMENT ORDER, ON THE BASIS OF WHICH PENALTY FOR CONCEALMENT WAS LEVIED, HAS BEEN DELETED, THEREFORE, THERE REMA INS NO BASIS AT ALL FOR LEVYING THE PENALTY FOR CONCEALMENT, THE REFORE, IN SUCH A CASE NO SUCH PENALTY CAN SURVIVE AND THE SAME IS LI ABLE TO BE CANCELLED. ORDINARILY, PENALTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SET ASIDE. WHERE AN ORDER OF ASSESSMENT O R REASSESSMENT ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED ON THE ASSESSEE HAS ITSELF BEEN FINALLY SET ASIDE OR C ANCELLED BY THE TRIBUNAL OR OTHERWISE, THE PENALTY CANNOT STAND ITS ELF AND IS LIABLE TO BE CANCELLED. OUR VIEW FINDS SUPPORT FROM THE RA TIO LAID DOWN IN THE CASES OF CIT V. S.P. VIZ CONSTRUCTION COMPAN Y (NO. 3) (1989) 176 ITR 47 (PAT), K.C. BUILDERS V. ACIT (200 4) 265 ITR 562/135 TAXMAN 461 (SC). IN VIEW OF THESE FACTS AN D JUDICIAL PRONOUNCEMENTS, THE STAND OF THE LEARNED CIT(A) IS UPHELD. 12 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES AT THE CONCLUSION OF THE HEARING ON 16 TH DECEMBER, 2009. SD SD (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER 16 TH DECEMBER, 2009 COPY TO APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE *DBN/-