ACIT 11(2), MUMBAI V. KANGA & CO., MUMBAI

ITA 2037/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2138 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-04-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 02-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Reopening of assessment; Depreciation; Tangible material; Wrong claim; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 10B; 147; 148; 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI R.V. EASWAR, SENIOR VICE-PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER. I.T.A. 2037 /MUM/2009. ASSESSMENT YEAR : 2002-03. ASSTT. COMMISSIONER OF M/S KANGA & CO. INCOME TAX-11(2), MUMBAI. VS. RE ADYMONEY MANSION, 1 ST FLOOR, 43, VEER NARIMAN ROAD, MUMBAI 400 001. PAN AAAFK9525E APPELLANT RESPONDENT APPELLANT BY : SHRI MANVENDRA GOYAL. RESPONDENT BY : SHRI P.J. PARDIWALA. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-XI, MUMBAI DATED 16-01-20 09 FOR ASSESSMENT YEAR 2002-03. 2. FACTS IN BRIEF . THE ASSESSEE IS A FIRM OF SOLICITORS AND ADVOCAT ES. IT FOLLOWS THE CASH SYSTEM OF ACCOUNTING. THE ASSESSEE FILED ITS RETURN OF INCOME ON 25 TH OCT., 2002 DECLARING A TOTAL INCOME OF RS.2,37,29, 762/- ALONG WITH THE AUDIT REPORT U/S 44AB OF THE ACT. TH E RETURN WAS ACCOMPANIED WITH A COMPUTATION OF TOTAL INCOME AND OTHER PARTICULARS. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) ON 24 -02-2003. THEREAFTER THE AO RECORDED REASONS FOR REOPENING AND ISSUED A NOTICE U/S 148 DATED 2 02-05-2006 REOPENING THE ASSESSMENT. THIS NOTICE U/ S 148 WAS SERVED ON THE ASSESSEE ON 03-05-2006. THE ASSESSEE WAS ALSO P ROVIDED THE REASONS OF REOPENING OF ASSESSMENT U/S 148 OF THE ACT. IN R ESPONSE TO THIS NOTICE ISSUED U/S 148, THE ASSESSEE MADE HIS SUBMISSIONS V IDE LETTER DATED 02-03- 2006 AND HAD FURTHER REQUESTED THE AO TO TREAT THE RETURN FILED BY THEM ON 28-10-2002, AS THAT FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. THEREAFTER THE AO CONSIDERED THE INTEREST INCOME RE CEIVED BY THE FIRM ON BANK FDRS, AS INCOME FROM OTHER SOURCES. THUS HE RE DUCED THIS AMOUNT OF RS.1,19,91,812/- FROM THE BOOK PROFITS DECLARED BY THE ASSESSEE AND THEREAFTER RECOMPUTED THE ALLOWANCE OF REMUNERATION TO PARTNERS U/S 40(B) AND COMPLETED THE ASSESSMENT. AGGRIEVED, THE ASSES SEE CARRIED THE MATTER IN APPEAL, INTER ALIA, CHALLENGING THE REOPENING OF THE ASSESSMENT, ASSESSING THE INTEREST INCOME ON FDR UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT UNDER THE HEAD INCOME FROM PROFE SSION AS WELL AS THE COMPUTATION OF BOOK PROFITS BY THE AO AND ADDITION MADE ON SHARE INCOME RELATING TO AN EX PARTNER. ON APPEAL, THE FI RST APPELLATE AUTHORITY HELD HAT REOPENING WAS BAD IN LAW, AS, AS PER HIM, HE DID NOT SEE ANY CASE FOR ESCAPEMENT OF INCOME. AGGRIEVED, THE REVENUE HA D FILED THIS APPEAL ON THE FOLLOWING GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT IT IS NOT A FIT CASE FOR INITIATING PROCEEDINGS U/S 147 OF THE INCOME TAX AC T. 3. THE LEARNED DR, MR. MANVENDRA GOYAL, SUBMITTED THAT THE ONLY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THE VALIDITY OF REOPENING. THE OTHER ASPECTS WERE NOT ADJUDICATED B Y THE CIT(APPEALS) AND HENCE ARE NOT BEFORE THE TRIBUNAL. HE DREW THE ATTENTION OF THE BENCH TO PARA 5.2 OF THE CIT(APPEALS) ORDER AND SUBMITTE D THAT THE CIT(APPEALS) HAD TAKEN INTO ACCOUNT IRRELEVANT CONS IDERATION, SUCH AS, 3 INCONSISTENCY IN THE STAND TAKEN BY THE AO AND ALSO WRONGLY HOLDING THAT THE MANNER IN WHICH INTEREST IS CALCULATED BY THE A SSESSEE AND THE MANNER IN WHICH IT IS PROPOSED BY THE AO WOULD BE REVENUE- NEUTRAL. HE SUBMITTED THAT THE TERM REASON TO BELIEVE, REFERS TO A PRIMA FACIE OPINION OF THE AO THAT INCOME HAS ESCAPED ASSESSMEN T AND IT SHOULD BE A REASON WHICH A RATIONAL MAN WOULD TAKE. HE POINTED OUT THAT THE ASSESSEE DECLARED A TOTAL INCOME OF RS.2,37,29,792/- AND OUT OF WHICH AN AMOUNT OF RS.1,19,91,812/- IS RECEIVED AS INTEREST ON FDRS AND THE AO WAS OF A PRIMA FACIE VIEW THAT SUCH INTEREST INCOME IS ASSES SABLE ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES AND ALSO WAS OF TH E VIEW THAT BOOK PROFITS MEANS THE NET PROFIT AS PER PROFIT & LOSS A CCOUNT, COMPUTED U/S 28 TO 44D OF THE ACT AND THE SAID INTEREST INCOME CANN OT BE CONSIDERED FOR ARRIVING AT BOOK PROFITS. HE TOOK THIS BENCH THROUG H THE REASONS OF REOPENING AND RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LT D. REPORTED IN 291 ITR 500. 4. THE LEARNED SENIOR ADVOCATE SHRI P.J. PARDIWALA APPEARING FOR THE ASSESSEE, FILED A PAPER BOOK OF 47 PAGES. A T PAGE 2 AND 3 OF THE PAPER BOOK THERE ARE REASONS FOR REOPENING AND MR. PARDIWALA POINTED OUT THAT REASONS WERE RECORDED ON 2 ND MAY, 2006. HE REFERRED TO PAGE 18 OF THE ASSESSEES PAPER BOOK WHICH IS AN ASSESSMENT OR DER PASSED FOR THE ASSESSMENT YEAR 2001-02 DATED 15-03-2004 AS WELL A S THE PAPER BOOK PAGE 42 WHICH GIVES THE ASSESSMENT ORDER FOR THE AS SESSMENT YEAR 2003- 04 WHICH IS AN ORDER PASSED ON 17 TH MARCH, 2006 AS WELL AS PAGE NO. 44 WHICH IS AN ASSESSMENT ORDER PASSED FOR THE ASSESSM ENT YEAR 2005-06 AND SUBMITTED THAT IN NONE OF THESE ASSESSMENT PROCEEDI NG, WHICH HAD TAKEN PLACE PRIOR TO, AS WELL AS, AFTER THE RECORDING OF REASONS FOR REOPENING, THE AO HAS NOT TREATED THE INCOME FROM INTEREST ON FDRS , AS INCOME FROM 4 OTHER SOURCES, NOR HAS HE DISALLOWED THE CLAIM OF P ARTNERS REMUNERATION. HE SUBMITTED THAT THERE IS NO TANGIBLE MATERIAL OR A NEW FACT THAT HAS LEAD THE AO TO COME TO A CONCLUSION THAT HE HAS REASON T O BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. HE SUBMITTED THAT THE AO JU ST RELOOKED INTO THE RETURN OF INCOME AND RECORDED THE REASONS FOR REOPE NING AND THAT SUCH AN EXERCISE IS BAD IN LAW. HE SUBMITTED THAT EVEN OTHE RWISE THERE IS NO ESCAPEMENT OF TAX AS THE DEDUCTION GIVEN IN THE HAN DS OF THE FIRM U/S 40(B), IS TAXABLE IN THE HANDS OF THE PARTNERS AND HENCE IT IS REVENUE NEUTRAL. HE RELIED ON THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF SIEMENS INFORMATION SYSTEM LTD. VS. ACIT 29 5 ITR 333 FOR THE PROPOSITIONS MADE BY HIM, SPECIFICALLY ON PAGES 342 & 343. FURTHER HE RELIED ON THE DEFINITION OF BOOK PROFITS AND SUBMIT TED THAT THE INTEREST IN QUESTION HAS TO BE CONSIDERED AS BOOK PROFITS AND T HE ALLOWABILITY OF PARTNERS REMUNERATION U/S 40(B) IS TO BE IN RELATI ON TO SUCH BOOK PROFIT. 5. THE LEARNED DR, ON THE OTHER HAND, COUNTERED BY SUBMITTING THAT, AT THAT PARTICULAR POINT OF TIME OF RECORDING OF REASONS, THE AO WOULD NOT KNOWN, WHETHER THE PARTNERS TO WHOM REMUNERATIO N IS PAID, ARE TAXABLE OR NOT. HE POINTED OUT THAT EACH PARTNER WO ULD BE ELIGIBLE FOR A BASIC EXEMPTION AND IT WOULD BE UNREALISTIC TO ASSU ME THAT THE TAX PAYABLE BY THE PARTNERS IS THE SAME AS THE TAX PAYABLE BY T HE ASSESSEE FIRM. 6. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL O F THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 7. THE REASONS FOR REOPENING ARE AT PAGES 2 AND 3 OF THE ASSESSEES PAPER BOOK AND HAVE BEEN GIVEN AS AN ANN EXURE TO NOTICE U/S 5 148 OF THE ACT DATED 02-05-2006. THIS IS EXTRACTED BELOW FOR READY REFERENCE : THE ASSESSEE IS A FIRM OF SOLICITOR AND ADVOCATES . RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 WAS FILED ON 25.10.2002 DECLARING TOTAL INCOME OF RS.2,37,29,760/-. THE SAI D RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961 ON 24.02 .2003. ON PERUSAL OF DETAILS FILED ALONGWITH THE RETURN, IT IS NOTICED THAT AN AMOUNT OF RS.1,27,48,000/- IS SHOWN AS REMU NERATION ACTUALLY PAID TO PARTNERS. THE REMUNERATION PAYABLE TO PARTNERS AS PER SECTION 40B(V) OF THE ACT ARE SHOWN TO BE RS.1, 46,89,032/-. THE WORKING OF REMUNERATION PAYABLE IS SHOWN AS UNDER : NET PROFIT AS PER P&L A/C RS.1,58,89,252/- ADD: DEPRECIATION RS. 28,58,859/- PROVISION FOR TAXATION RS. 85,00,000/- REMUNERATION TO PARTNERS RS.1,27,48,000/- DONATION RS. 1,39,639/- INTEREST TO PARTNERS RS.1,79,78,012/- RS.4,22,19,510/- RS.5,81,08,762/- LESS:1) DEPRECIATION RS. 28,68,423/- 2) INTEREST TO PARTNERS RS.1,79, 78,012/- 3) SHARE OF EX-PARTNERS RS. 7,1 4,746/- RS.2,15,61,181/- RS.3,65,47,581/- REMUNERATION TO PARTNERS @ 90% ON RS.100,000 RS. 90,000/- @ 60% ON RS. 1,00,000 RS. 60,00 0/- @ 40% ON BALANCE RS. 1,45,39, 032/- RS.1,46,89,032/- RESTRICTED TO REMUNERATION ACTUALLY PAID RS.1,27,48,000/- IT IS FURTHER SEEN FROM PROFIT AND LOSS ACCOUNT THA T THE NET PROFIT HAS BEEN ARRIVED AT, AFTER TAKING INTO ACCOU NT THE AMOUNTS OF RS.1,19,91,812/-BEING INTEREST FROM BANK. REMUNERAT ION TO 6 PARTNERS IS TO BE PAID ON THE BOOK PROFIT AS PER CE ILING PRESCRIBED UNDER SECTION 40B(V) OF THE ACT. BOOK PROFIT MEANS THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT COMPUTED UNDER SECTION 28 TO 141 OF THE ACT. HENCE, THE INTEREST FROM BANK BEING INCOME FRO M OTHER SOURCES, SHOULD NOT HAVE BEEN CONSIDERED FOR ARRIVI NG AT BOOK PROFIT. THEREFORE, THE BOOK PROFIT, AFTER EXCLUDING THE INTEREST FROM BANK, WORKS OUT TO AS UNDER: NET PROFIT AS PER P&L A/C. RS.1,58,89,252/- LESS: INTEREST FROM BANK RS.1,19,91,812/- RS. 38,97,440/- ADD: DISALLOWANCE RS.4,22,19,510/- (AS PER STATEMENT) LESS: DEPRECIATION ETC. RS.2,15,61,181/- (AS PER STATEMENT) RS.2,06,58,329/- BOOK PROFIT RS.2,45,55,769/- ============== REMUNERATION TO PARTNER S ON THE BOOK PROFIT OF RS.2,45,55,769/- DEDUCTIBLE FROM THE INCOME OF THE FIRM IS ALSO WORKED OUT AS UNDER: 90% OF FIRST 100000 RS. 90,000/- 60% OF NEXT 100000 RS. 60,000/- 40% OF BALANCE RS.2,43,55,769/- RS. 97,42,307/- RS.98,92,307/- =========== THE REMUNERATION TO PARTNER HAS BEEN CLAIMED AT RS.1,27,43,000/- AS AGAINST THE CORRECT AMOUNT OF R S.98,92,307/- AS WORKED OUT ABOVE, RESULTING IN EXCESS ALLOWANCE OF RS.28,55,692/- I HAVE, THEREFORE, REASONS TO BELIEVE THAT INCOME O F RS.28,55,692/- CHARGEABLE TO TAX HAS ESCAPED ASSESS MENT FOR THE YEAR UNDER CONSIDERATION WITHIN THE MEANING OF THE PROVISIONS OF SECTION 147 OF THE ACT. I AM SATISFIED THAT IT IS A FIT CASE FOR INITIATING PROVISIONS OF SECTION 147 OF THE IT ACT, 1961. ISSUE NOTICE U/S. 148 OF THE I.T. ACT, ACCORDINGLY . 7 8. A PLAIN READING OF THESE REASONS SHOW THAT THE AO HAS NOTICED THAT THE ASSESSEE HAS EARNED INTEREST INCOM E ON FDRS AND HE WAS OF A PRIMA FACIE OPINION, THAT SUCH INTEREST INCOME ON FDRS, IN THE CASE OF A SOLICITOR AND ADVOCATE FIRM, IS ASSESSABLE UND ER THE HEAD INCOME FROM OTHER SOURCES AND NOT UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS AND CONSEQUENTLY THE ASSESSEE HA S CLAIMED EXCESSIVE DEDUCTION OF PARTNERS REMUNERATION. THE ISSUE NOW IS WHETHER THE AO HAD A PRIMA FACIE CAUSE OR JUSTIFICATION TO BELIEVE OR SUPPOSE THAT INCOME HAD POSSIBLY ESCAPED ASSESSMENT. THE LAW IS WELL SE TTLED THAT, AT THIS STAGE, THE AO NEED NOT, FINALLY ASCERTAIN THE FACT OF ESCAPEMENT OF INCOME, BY LEGAL EVIDENCE OR CONCLUSION. AT THE STA GE OF INITIATION, WHAT IS TO BE SEEN IS WHETHER, IT CAN BE SAID THAT THE A O, HAS RELEVANT MATERIAL, ON WHICH A REASONABLE PERSON, COULD HAVE FORMED THE REQUISITE BELIEF. IN OUR CONSIDERED OPINION, THE AO FORMING AN OPINION, THAT INTEREST INCOME FROM FDRS HELD BY A SOLICITOR AND ADVOCATE FIRM, I S ASSESSABLE UNDER THE HEAD OTHER SOURCES AND CONSEQUENTLY THE DISAL LOWANCES U/S 40(B) IS TO BE RECOMPUTED, IS AN OPINION, THAT A REASONABLE PERSON WOULD UNDER NORMAL CIRCUMSTANCES COME TO SUCH PRIMA FACIE OPIN ION CANNOT BE FAULTED OR HELD AS ON IMPOSSIBLE VIEW. 9. THE FIRST APPELLATE AUTHORITY AT PARA 5.2 HELD AS FOLLOWS : I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE M ATERIALS ON RECORD. IT APPEARS THAT THERE IS INCONSISTENCY IN T HE STAND TAKEN BY THE A.O. IN THE IMMEDIATELY SUCCEEDING AND PREVIOUS YEARS, NO ACTION HAS BEEN TAKEN UNDER THIS HEAD EVEN THOUGH S CRUTINY ASSESSMENTS HAVE TAKEN PLACE. SECONDLY, EVEN THOUGH THE PRINCIPLE OF RESJUDI CATA DOES NOT APPLY IN INCOME-TAX CASES, THE PRINCIPLE OF REASONABLE CASE FOR RESORTING TO SECTION 147 TO BRI NG UNDER TAX NET INTEREST ARISING OUT OF FDRS, THE SAME COULD HAVE B EEN THE CASE FOR OTHER YEARS ALSO. THEREFORE, THERE IS INCONSISTENCY IN THE STAND TAKEN BY THE A.O. THIRDLY, THE WAY INTEREST IS CALC ULATED BY THE APPELLANT AND THE WAY IT IS PROPOSED BY THE A.O. IT WOULD BE 8 REVENUE-NEUTRAL IN THE END. I, THEREFORE, DO NOT SE E ANY CASE FOR ESCAPEMENT OF INCOME AND HENCE IN MY OPINION IT WAS NOT A FIT CASE FOR INITIATING PROCEEDING U/S 147. THE REASONS GIVEN BY THE FIRST APPELLATE AUTHORITY, IN OUR HUMBLE OPINION, ARE NOT CORRECT. JUST BECAUSE NO ACTION HAS BEEN TA KEN, ON THIS ISSUE EITHER IN THE PREVIOUS ASSESSMENT YEARS OR IN THE IMMEDIAT ELY SUCCEEDING ASSESSMENT YEAR, IT CANNOT BE SAID THAT NO ACTION CAN BE TAKEN FOR REOPENING OF THE ASSESSMENT. A PLAIN READING OF SEC TION 147 OF THE I.T. ACT DOES NOT SUGGEST SUCH INTERPRETATION. IT IS VER Y CLEAR THAT, IN NONE OF THESE ASSESSMENT YEARS, THIS ISSUE HAS BEEN CONSIDE RED BY THE AO. THE ISSUE WAS NEVER DISCUSSED, NOR A CONSIDERED VIEW WA S TAKEN THEREON. JUST BECAUSE IN A SUBSEQUENT ASSESSMENT YEAR, THE AO HAD NOT MADE A DISALLOWANCE ON THIS ISSUE, DESPITE REOPENING OF TH E ASSESSMENT OF THE EARLIER YEAR, IT DOES NOT TAKE US TO A CONCLUSION, THAT IN REOPENING WHICH WAS DONE AT AN EARLIER DATE, FOR THE VALID PRIMA F ACIE REASON RECORDED, WOULD BE BAD IN LAW. THE SECOND COMMENT OF THE CIT( APPEALS) THAT THE PRINCIPLES OF CONSISTENCY HAS NOT BEEN FOLLOWED, IS ALSO DEVOID OF MERIT, FOR THE REASON THAT, NO VIEW HAS BEEN TAKEN ON THIS ISSUE, IN ANY OF THE EARLIER ASSESSMENT YEARS. THE THIRD REASON GIVEN B Y THE CIT(APPEALS) FOR HOLDING THAT THE REOPENING IS BAD IN LAW, IS THAT, IF THE AO PASSES AN ORDER, ON THE LINES GIVEN IN THE REASONS FOR REOPEN ING, IT WOULD BE REVENUE-NEUTRAL IN THE END, IS ALSO, IN OUR OPINION , FACTUALLY INCORRECT. AS RIGHTLY STATED BY THE LEARNED DR, MR. MANVENDRA GOY AL, IN THE HANDS OF THE PARTNERS, THERE MAY BE BASIC EXEMPTIONS OR CERT AIN OTHER DEDUCTIONS OR SET OFF OF LOSSES ETC. THAT ARE NOT WITHIN THE K NOWLEDGE OF EITHER THE AO OR THE CIT(APPEALS). IN ANY EVENT, THE REOPENING, I F TAKEN TO ITS LOGICAL CONCLUSION, WOULD NOT BE REVENUE-NEUTRAL IN THE HAN DS OF THIS ASSESSEE. AT THE STAGE OF REOPENING, THE AO CANNOT BE EXPECTED T O VERIFY ALL THE FILES OF THE RECIPIENTS OF REMUNERATION AND THEN ESTIMATE T HE ESCAPEMENT OF 9 INCOME. THIS IS NOT CONTEMPLATED UNDER THE ACT. HEN CE IN OUR CONSIDERED OPINION, THE ORDER OF THE CIT(APPEALS) IS ERRONEOUS , ON ALL THREE COUNTS, ON WHICH HE HELD THAT THE REOPENING IS BAD IN LAW. 10. COMING TO THE SUBMISSION OF SHRI PARDIWALA THA T THERE WAS NO TANGIBLE MATERIAL AND THAT THE AO JUST RELOOKED AT THE RETURN OF INCOME AND RECORDED REASONS FOR REOPENING AND THERE IS NO NEW FACT, WE REFER TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF AC IT VS. RAJESH JHAVERI STOCK BROKERS P. LTD. 291 ITR 500 WHEREIN UNDER SIMILAR CIRCUMSTANCES THE AO FIRST PROCESSED THE RETURN OF INCOME U/S 143(1) AND THEREAFTER ISSUED NOTICE U/S 148 OF THE ACT, ON TH E GROUND THAT THE CLAIM FOR BAD DEBTS HAS EXPLAINED WAS NOT ACCEPTABLE. IN THAT CASE ALSO THERE WAS NO FRESH MATERIAL EXCEPT THE CLAIMS OF THE ASSE SSEE MADE IN THE RETURN OF INCOME WHICH WAS EARLIER PROCESSED U/S 143(1). T ANGIBLE MATERIAL, IN OUR HUMBLE OPINION, CANNOT BE HELD AS THAT WHICH IS COLLECTED BY THE AO FROM SOURCES OTHER THAN, WHAT IS PRESENT IN THE RE TURN OF INCOME ITSELF. WHEN RETURN WAS PROCESSED U/S 143(1), AS HELD BY TH E HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P . LTD. (SUPRA), IT CANNOT BE SAID THAT THE AO HAS LOOKED INTO ALL THE ASPECTS CONTAINED IN THE RETURN OF INCOME. WHEN HE HAS NOT LOOKED INTO T HE RETURN OF INCOME, THE QUESTION OF RELOOKING AND COMING TO A NEW CONCL USION DOES NOT ARISE. IN CASES WHERE, THE RETURNS ARE PROCESSED U/S 143(1 ), AND WHERE AT A LATER DATE, THE AO NOTICES CERTAIN WRONG CLAIMS ETC. IN T HE RETURN OF INCOME, AND FORMS A PRIMA FACIE OPINION THAT INCOME HAS ESC APED ASSESSMENT, HE IS AUTHORISED TO RECORD REASONS AND REOPENING OF TH E ASSESSMENT U/S 147. 11. SUB CLAUSE (B) TO EXPLANATION 2 TO SECTION 147 READS AS FOLLOWS : ( B ) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY TH E ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY TH E ASSESSING 10 OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOM E OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR REL IEF IN THE RETURN ; A PLAIN READING OF THE ABOVE CLEARLY INDICATES THAT THE AO CAN CONSIDER THE RETURN OF INCOME AND THE ACCOMPANYING DOCUMENT S TO FORM AN OPINION THAT THE INCOME HAS ESCAPED ASSESSMENT. 12. COMING TO THE JUDGMENT OF SIEMENS INFORMATION SYSTEM (SUPRA) RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE AO PASSED AN ORDER U/S 143(3), HAD CONSIDERED T HE ISSUE OF DEDUCTION CLAIMED BY THE ASSESSEE U/S 10A AND 10B AND THEREAF TER PASSED THE ASSESSMENT ORDER. IN THE CASE ON HAND, NO ORDER WAS PASSED U/S 143(3) NOR WAS THIS ISSUE CONSIDERED AND ADJUDICATED UPON BY T HE AO. THUS THIS CASE LAW DOES NOT APPLY TO THE FACTS OF THE CASE. WHEN N O OPINION IS FORMED WHILE PROCESSING THE RETURN U/S 143(1), THE QUESTIO N OF CHANGE OF OPINION DOES NOT ARISE. 13. IN OUR CONSIDERED OPINION, THE DECISION IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD. (SUPRA) APPLIES ON AL L FOURS TO THE FACTS OF THIS CASE. IN THAT JUDGMENT THE HONBLE SUPREME COU RT AT PAGE 511 HELD AS FOLLOWS : 16. SEC. 147 AUTHORISES AND PERMITS THE AO TO ASSE SS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESC APED 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 INCO ME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON T O BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOUL D HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR C ONCLUSION. THE FUNCTION OF THE AO IS TO ADMINISTER THE STATUTE WITH 11 SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE DELHI HIG H COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. VS. ITO (1 991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), FOR INIT IATION OF ACTION UNDER S. 147(A) (AS THE PROVISION STOOD AT T HE RELEVANT TIME) FULFILMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF T HE 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 ST AGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COUL D HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIALS WO ULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCER N AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF B Y THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION [SEE IT O VS. SELECTED DALURBAND COAL CO. (P) LTD. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC); RAYMOND WOOLLEN MILL S LTD. VS. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)]. 17. THE SCOPE AND EFFECT OF S. 147 AS SUBSTITUTED W ITH EFFECT FROM 1ST APRIL, 1989, AS ALSO SS. 148 TO 152 ARE SU BSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR T O SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF S. 147, S EPARATE CLS. (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS C OULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION U NDER S. 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE AO MUST HAVE REASON TO BELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME-TAX HAVE ESCAPED ASSESSMENT, A ND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT S UCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER (I) OMI SSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE AO COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER S. 148 R/W S. 147(A). BUT UNDER THE SUBSTITUT ED S. 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE AO FOR WHATEVER REASON HAS REASON TO BELIEVE TH AT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTI ON TO REOPEN THE ASSESSMENT. IT IS HOWEVER TO BE NOTED TH AT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE 12 AMBIT OF THE PROVISO TO S. 147. THE CASE AT HAND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE VALI DITY OF REOPENING OF ASSESSMENT U/S 147 AND SET ASIDE THE ORDER OF THE C IT(APPEALS) ON THIS ASPECT. 14. IN THE RESULT, THIS GROUND OF THE REVENUE IS A LLOWED. 15. AS THE FIRST APPELLATE AUTHORITY HAD NOT ADJUD ICATED THE ISSUE ON MERITS, WE SET ASIDE THE MATTER TO THE FILE OF T HE CIT(APPEALS) FOR FRESH ADJUDICATION OF THE MERITS OF THE CASE. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE-PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 14 TH MAY, 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TR UE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.