The DCIT, Central Circle-1(1), Ahmedabad V. Shri Pravin R.Shah, Ahmedabad

ITA 3324/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6495 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-05-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 03-08-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: P M MEHTA
• Keywords: Reopening of assessment; Depreciation; Search and seizure; Period of limitation; Question of law; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 143(1); 147; 148; 132; 139

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM DY. CIT, CEN.CIRCLE1(1), AHMEDABAD. VS. SHRI PRAVIN R. SHAH, 7, AASHISHNAGAR SOCIETY, MEGHANINAGAR, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI P. L. KUREEL, SR.D.R. RESPONDENT BY:- SHRI P. M. MEHTA, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUND:- (1) THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS.9,38,714/- MADE U/S 68 WITHOUT CONSI DERING THE FACT THAT ASSESSEE FAILED TO ESTABLISH THE GENUINEN ESS OF THE TRANSACTION AS WELL AS CREDIT WORTHINESS OF THE DEP OSITORS. AGAINST THIS, THE ASSESSEE HAS FILED FOLLOWING CROS S OBJECTION :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN UPHOLDING THE ASSESSEES CONTENTION THAT T HE CASE WAS NOT COVERED BY SECTION 147 AND THE REOPENING OF THE ASSESSMENT WAS BAD IN LAW AND, HENCE, THE RE-ASSESSMENT MADE W AS A NULLITY. ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 2 2. DURING THE COURSE OF HEARING BEFORE, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE GROUND TAKEN IN THE CROSS OBJECT ION GOES TO THE ROOT OF THE MATTER AND IF IT IS ALLOWED THEN DISCUSSION ON MERITS OF THE ADDITION WOULD BE ACADEMIC. HE, THEREFORE, PRAYED FOR TAKING UP THE CO FIRST WHICH IS ABOUT REOPENING OF THE ASSESSMENT WHICH AC CORDING TO THE LD. AR IS BAD IN LAW. 3. THE FACTS RELATING TO REOPENING OF THE ASSESSMEN T ARE THAT ASSESSEE HAD FILED RETURN OF INCOME ON 29.1.99 FOR THE ASST. YEAR 1998-99 DECLARING TOTAL INCOME OF RS.1,56,448/-. A SEARCH U /S 132 WAS CARRIED OUT ON 7.10.2004 IN THE CASE OF M/S SHRI PADMAVATI RICE , PULSE AND OIL MILLS IN WHICH ASSESSEE IS A PARTNER AND ALSO AT THE RESI DENTIAL PREMISES OF THE ASSESSEE. DURING THE COURSE OF SEARCH CERTAIN INCR IMINATING MATERIALS WERE FOUND. THE NOTICE U/S 148 WAS ISSUED TO THE AS SESSEE ON 11.3.2005 WHICH WAS DULY SERVED ON 17.3.2005. THE AO HAD RECO RDED FOLLOWING REASONS BEFORE ISSUANCE OF NOTICE:- DURING THE COURSE OF SEARCH/SURVEY OPERATION ON 7. 10.2004 IN THE CASE OF M/S SHRI PADMAVATI RICE, PULSE AND OIL MILLS, AH MEDABAD IT WAS FOUND THAT THE FIRM NARMADA AGRO PRODUCTS, 1514/3 G IDC, NARODA, HAD NOT FILED ANY RETURN THOUGH THE SAME WAS IN EXISTEN CE. DURING THE INTERROGATION IT HAS BEEN ADMITTED BY BOTH THE PART NERS SHRI PRAVIN R. SHAH AND SHRI KAMLESH S. PATEL THAT THE UNDISCLOSED INCOME OF THE FIRM FOR ASST. YEAR 1999-00, 2000-01 AND 2003-04 STANDS AT RS.18,17,394/-. IT HAS ALSO BEEN DISCLOSED THAT THERE WAS INITIAL CAPI TAL INVESTMENT IN THE ABOVE SAID FIRM OF RS.5 LACS WHICH WAS CREATED IN 1 997-98. THE ASSESSEE IS PARTNER OF M/S NARMADA AGRO AND HAS 50% SHARE IN THIS FIRM. HENCE THE ASSESSEE HAS ESCAPED ASSESSMENT TO THIS EXTENT, THEREFORE, INCOME ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 3 ESCAPING ASSESSMENT PROCEEDINGS ARE REQUIRED TO BE INITIATED IN THIS CASE. THESE REASONS WERE PROVIDED TO THE ASSESSEE VIDE AO S LETTER DATED 20.2.2006. IN RESPONSE TO NOTICE U/S 148 THE ASSESS EE HAD FILED THE RETURN OF INCOME ON 23.3.2006 ON A TOTAL INCOME OF RS.1,56 ,448/-. THE LD. CIT(A) HAD CONFIRMED THE REOPENING OF THE ASSESSMEN T BY HOLDING THAT REOPENING OF ASSESSMENT IS EXPRESSLY COVERED BY EXP LANATION 2(C) ATTACHED TO SECTION 147 AS EXISTING AFTER AMENDMENT W.E.F. 1.4.1989. THE LD. CIT(A) IN THIS REGARD HAD OBSERVED AS UNDER :- 4. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LD. COUNSEL AS WELL AS GONE THROUGH THE RECORD. IN THIS CASE AO HA S RECORDED REASONS FOR RE-OPENING OF ASSESSMENT WHICH HAS ALSO BEEN AD MITTED BY LD. COUNSEL. IN THIS CASE, ASSESSMENT U/S 147 WAS COMPL ETED ON 30.03.2006. NOTICE U/S 148 WAS ISSUED ON 11.03.2005. THE REASON FOR REOPENING OF THE ASSESSMENT IS EXPRESSLY COVERED IN EXPLANATION 2(C) ATTACHED TO SECTION 147 AFTER SUBSTITUTION W.E.F. 1.4.89. AFTER AMENDME NT W.E.F. 1.4.89 THE NATURE OF CONCEALMENT HAS BEEN EXPRESSLY DEFINED IN THIS SECTION 147 ITSELF INSTEAD OF LEAVING IT TO THE DISCRETION/OPINION OF THE AO AS CONTENDED BY LD. COUNSEL. THE PRESENT CASE IS SQUARELY COVERED E XPRESSLY FOR THE PURPOSE OF REOPENING. MOREOVER, THE ADEQUACY OF SAT ISFACTION OF AO IS NOT JUSTICEABLE AS WAS HELD BY HON. PUNJAB & HARYAN A HIGH COURT IN CASE OF SHRI SHRI PAL JAIN VS. ITO-II(3), LUDHIANA IN CWP NO.1444 OF 2004 VIDE JUDGMENT DATED 26.3.2004. ALSO SIMILAR VI EW WAS HELD BY HON. PUNJAB & HARYANA HIGH COURT IN CASES OF GURERA GAS CYLINDERS (P) LTD. VS. CIT 258 ITR 170 AND SWARAJ ENGINE LTD. VS. ACIT 260 ITR 202 FOLLOWING THE JUDGMENT OF HON. SUPREME COURT IN CAS E OF PHOOL CHAND BAJRANG LAL VS. ITO 203 ITR 456. HENCE THE CONTENTI ON OF LD. COUNSEL ON SATISFACTION OF AO ARE REJECTED KEEPING IN VIEW OF ABOVE JUDGMENTS AND FIRST GROUND OF APPEAL IS DISMISSED. 4. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE N OTICE U/S 148 HAS BEEN ISSUED AFTER A PERIOD OF 4 YEARS AND THE AO HA S TO COMPLY WITH THE ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 4 PROVISIONS OF SECTION 149(1)(B) AND SUCH NOTICE CAN BE ISSUED ONLY WHEN INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED IS RS.1 LAKH OR MORE. HE SUBMITTED THAT BUSINESS OF THE FIRM M/S NARMADA AG RO PRODUCTS HAS STARTED ONLY DURING ASST. YEAR 1998-99 AND THERE WA S A LOSS IN THE FIRM. THE RETURN OF THE FIRM WAS NOT FILED FOR ASST. YEAR 1998-99 BECAUSE OF THIS REASON. THE REASONS RECORDED BY THE AO DID NOT GIVE ANY FINDING THAT ASSESSEES ESCAPED INCOME IS RS.1 LAKH OR MORE. FUR THER, THERE IS NO LIVE LINK OF REASONS RECORDED WITH THE ESCAPEMENT OF INC OME WHICH IS THE ESSENTIAL CONDITION FOR REOPENING OF THE ASSESSMENT AS HELD BY HON. SUPREME COURT IN THE CASE OF ITO VS. LAKHMANI MEWAL DAS (1976) 103 ITR 437 (SC). NO SUCH LIVE LINK HAS BEEN ESTABLISHE D BY THE AO IN THE REASONS RECORDED. 5. AGAINST THIS, THE LD. DR SUBMITTED THAT THERE IS A CLEAR MENTION IN THE REASONS RECORDED THAT THERE IS A FRESH INTRODUC TION OF CAPITAL OF RS.5 LAKHS IN THE FIRM WHICH HAS TWO PARTNERS INCLUDING THE ASSESSEE WITH 50% SHARES. THEREFORE, THERE IS CLEAR STIPULATION IN TH E REASONS RECORDED THAT INCOME TO THE EXTENT OF RS.2.50 LAKHS IN THE CASE O F THE ASSESSEE HAS ESCAPED ASSESSMENT. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND MATE RIAL ON THE RECORD WE REFER TO SECTION 147 AS UNDER FOR ADJUDICATING T HE ISSUE OF REOPEINING:- ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 5 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEV E THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESS OR RE-ASSESS SUCH INC OME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALL OWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTIO N AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR): PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF S ECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT Y EAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON TH E PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR; [ PROVIDED FURTHER THAT THE AO MAY ASSESS OR REASSESS SUCH INCOME OTH ER THAN THE INCOME INVOLVING MATTERS WHICH ARE THE SUBJECT MATT ERS OF ANY APPEAL, REFERENCE OR REVISION WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT]. THE REQUIREMENTS OF THE SECTION ARE AS UNDER :- (1) THE AO HAS REASON TO BELIEVE; (2) THAT AN INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESS MENT; (3) IF FOUR YEARS HAVE EXPIRED FROM THE END OF THE RELE VANT ASST. YEAR THEN SUCH ESCAPEMENT WAS DUE TO FAILURE ON THE PART OF THE ASSESSEE - (I) TO FILE A RETURN U/S 139; (II) TO FILE A RETURN IN RESPONSE TO NOTICE U/S 142(1) O R SECTION 148; (III) TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR THE ASSESSMENT. ALL THESE ASPECTS MUST COME IN THE REASONINGS RECOR DED BY THE AO. THE REASONS RECORDED BY THE AO SHOULD REFLECT - (I) ASSESSEE IN RESPECT OF WHOM ASSESSMENT IS SOUGHT TO BE REOPENED; (II) ASSESSMENT YEAR AS SOUGHT TO BE REOPENED; (III) AMOUNT OF INCOME WHICH HAS ESCAPED ASSESSMENT; ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 6 (IV) HOW THE ORIGINAL ASSESSMENT HAS BEEN DONE WHETHER U /S 143(1) OR U/S 143(3) OR SEC.147/148; (V) WHAT IS THE REASON OF ESCAPEMENT OF ASSESSMENT; (VI) WHETHER THERE IS ANY FAILURE AS MENTIONED IN THE PR OVISO IF ASSESSMENT IS SOUGHT TO BE REOPENED AFTER FOUR YEAR S FROM THE END OF THE RELEVANT ASST. YEAR; (VII) IN PARTICULAR, WHETHER THERE IS ANY THE FAILURE OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS FULLY AND TRULY NECESSARY F OR THE ASSESSMENT FOR THAT ASSESSMENT YEAR. (VIII) IF ASSESSMENT IS DONE U/S 143(1), THEN WHETHER THE PROVISION OF SECTION 149 ARE APPLICABLE. 7. IF REASONS RECORDED DID NOT REFLECT THESE INGRED IENTS THEN REOPENING CANNOT BE SUSTAINED. ON THE ASPECT OF NECESSITY TO MENTION THE FAILURE OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERI AL FACTS NECESSARY FOR ASSESSMENT HON. ALLAHABAD HIGH COURT IN CIT VS. PRA DESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF UTTAR PRADESH LTD (20 11) 332 ITR 324(ALL) HAS OBSERVED AS UNDER :- ADMITTEDLY, NOTICE UNDER SECTION 148 OF THE ACT WA S ISSUED AFTER THE EXPIRY OF FOUR YEARS. THE NOTICE UNDER THE PROVISO OF SECTION 147 OF THE ACT CAN BE ISSUED AFTER THE EXPIRY OF FOUR YEARS ONLY IN CASE WHERE INCOME CHAR GEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PAR! OF THE ASSESSES TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATE RIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. FROM THE PERUS AL OF THE REASON RECORDED IT IS APPARENT THAT NO CASE HAS BEEN MADE OUT THAT THE AS SESSES HAD FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT AND NO OBSERVATION HAS BEEN MADE IN THIS REGARD, ON THE BASIS OF THE SAME MATER IAL WHICH WAS AVAILABLE ON RECORD, THE ASSESSING AUTHORITY WAS OF THE VIEW THA T THE DEDUCTION HAD BEEN WRONGLY ALLOWED UNDER SECTION 36(1)(VIII) OF THE ACT. THE T RIBUNAL OBSERVED THAT THE ASSESSEE HAD FURNISHED THE REQUISITE DETAILS IN RESPECT OF L EASING INCOME AND UPFRONT FEE AS RECEIVED IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE SAME WAS DULY DISCLOSED IN THE AUDITED PROFIT AND LOSS ACCOUNT, AS IS EVIDE NT FROM PAGES 4 AND 5 OF THE PAPER BOOK READ WITH PAGE 23 OF THE PAPER BOOK AND ALSO C OMPUTATION OF INCOME FILED ALONG WITH RETURN, A COPY OF WHICH IS PLACED AT PAGES 33 TO 35 OF THE PAPER BOOK. THIS FINDING OF THE TRIBUNAL HAS NOT BEEN DISPUTED BY RA ISING ANY QUESTION AND DURING THE COURSE OF THE ARGUMENT BY THE LEARNED COUNSEL FOR T HE APPELLANT. THEREFORE, WE ARE OF THE VIEW THAT ON THE FACTS AND CIRCUMSTANCES, NO SU BSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION BY THIS COURT. ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 7 LEARNED COUNSEL FOR THE APPELLANT CITED A DECISION OF THE BOMBAY HIGH COURT IN THE EASE OF DR. AMIN'S PATHOLOGY LABORATORY V. P. M. PR OSAD, JOINT CIT [2001] 252 ITR 673 ; [2002] 172 CTR 696. WE HAVE GONE THROUGH THE DECISION OF THE BOMBAY HIGH COURT. WE ARE OF THE VIEW THAT THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE SAID CASE, THE BOMBAY HIGH COU RT HAS HELD THAT THE ASSESSING AUTHORITY HAS OVERLOOKED THE DISPUTED ITEM WHICH HE HAS NOTICED SUBSEQUENTLY AND AT THE TIME OF PASSING THE ORIGINAL ORDER OF ASSESSMEN T, HE COULD NOT BE SAID TO HAVE OPINED ON THE ABOVE ITEM. THEREFORE, THERE WAS NO C HANGE OF OPINION. WHILE IN THE PRESENT CASE, COMPLETE DETAILS WERE FURNISHED ALONG WITH THE RETURN AND DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND AFTER AN A PPLICATION OF MIND, THE DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT WAS ALLOWED. I N THE REASON RECORDED NO CASE HAS BEEN MADE OUT THAT THERE WAS FAILURE TO DISCLOSE AN Y MATERIAL PARTICULAR ON THE PART OF THE ASSESSEE. THEREFORE, LIMITATION BEYOND THE PERI OD OF FOUR YEARS WAS NOT AVAILABLE TO THE ASSESSING AUTHORITY. ADMITTEDLY, THE NOTICE WAS ISSUED AFTER FOUR YEARS, THEREFORE, THE PROCEEDING WAS BARRED BY TIME AND TH E TRIBUNAL HAS RIGHTLY HELD SO. FOR THE REASONS STATED ABOVE, THE APPEAL FAILS AND IS DISMISSED. 8. SIMILAR VIEW WAS EXPRESSED BY HON. ALLAHABAD HIG H COURT IN DHARAMPUR SUGAR MILLS LTD. VS. ACIT (2011) 330 ITR 72 (ALL) AS UNDER:- ON A PLAIN READING OF SECTION 147 AND SECTION 149 THE LEGAL POSITION IN RESPECT OF LIMITATION EMERGES AS FOLLOWS : (I) IN V IEW OF THE PROVISO TO SECTION 147 NO ACTION CAN BE TAKEN UNDER SECTION 14 7 BEYOND THE PERIOD OF FOUR YEARS IF THERE IS NO CASE OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS WHICH A RE NECESSARY FOR ASSESSMENT FOR THE YEAR OF ASSESSMENT. (II) IF THE CASE FALLS UNDER THE EXCEPTION MENTIONED IN THE PROVISO TO SECTION 147, THEN ACTION CAN BE TAKEN BEYOND FOUR YEARS SUBJECT TO THE ISSUE OF NOT ICE UNDER SECTION 148 WITHIN THE PERIOD OF LIMITATION PROVIDED UNDER SECT ION 149 OF THE ACT. (III)WHERE A CASE FALLS UNDER THE EXCEPTION OF THE PROVISO TO SECTION 147 AND ESCAPED INCOME EXCEEDS RUPEES ONE LAKH THE NOTI CE UNDER SECTION 148 CAN BE ISSUED BEYOND THE PERIOD OF FOUR YEARS BUT W ITHIN SIX YEARS UNDER SECTION 149(1)(B). (IV) IN A CASE WHERE THE ESCAPED INCOME IS LESS THAN RUPEES ONE LAKH THE LIMITATION TO ISSUE THE NOTICE UNDER SECTION 148 IS ONLY FOUR YEARS, EVEN IF THE CASE FALLS UNDER THE E XCEPTION OF THE PROVISO TO SECTION 147. 9. A PERUSAL OF REASONS RECORDED SHOW THAT THERE IS AN INVESTMENT OF RS.5 LAKHS IN THE FIRM IN ASST. YEAR 1998-99 IN WHI CH ASSESSEE IS A ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 8 PARTNER OF 50%. THE FIRM HAD NOT FILED THE RETURN O F INCOME AND, THEREFORE, SUM OF RS.5 LAKHS WAS NOT CLEARLY DECLAR ED BY THE FIRM TO THE DEPARTMENT. EXPLANATION OF THE ASSESSEE IS THAT RET URN WAS NOT FILED BECAUSE THE FIRM HAD INCURRED LOSS IN THAT YEAR. IN OUR CONSIDERED VIEW THE REASONS FOR NOT FILING THE RETURN BY THE FIRM ARE N OT CRUCIAL FOR DECIDING WHETHER REASONS RECORDED FOR REOPENING OF THE ASSES SMENT IN THE CASE OF THE PARTNER IS VALID. AS OBSERVED ABOVE, REASONS RE CORDED MUST CLEARLY INDICATE THE OMISSION OR FAILURE OF THE ASSESSEE PA RTNER IN DISCLOSING THE MATERIAL FACT. THE ASSESSEE PARTNER HAD FILED THE R ETURN ON 29.1.99 ON AN INCOME OF RS.1,56,448/-. THERE IS NO MENTION IN THE REASONS RECORDED WHETHER ASSESSEE PARTNER HAD FILED ANY CAPITAL ACCO UNT OR NOT AND IF FILED WHETHER IT HAD SHOWN ANY CAPITAL INVESTMENT IN THE FIRM OR NOT. THESE TWO ASPECTS ARE MISSING FROM THE REASONS RECORDED A ND, THEREFORE, IT CANNOT BE HELD THAT CONDITIONS LAID DOWN IN PROVISO TO SECTION 147 ARE SATISFIED. FURTHER IN THE REASONS RECORDED IT IS NO WHERE MENTIONED THAT SUM OF RS.5 LAKHS INTRODUCED BY THE PARTNERS WAS UN DISCLOSED EITHER IN THE CASE OF THE FIRM OR IN THE CASE OF THE PARTNERS . SINCE AT PRESENT IT IS THE CASE OF THE PARTNER, WHICH IS BEFORE US, IT HAS TO BE SPECIFICALLY MENTIONED IN THE REASONS BY THE AO THAT INVESTMENT MADE BY TH E PARTNERS IS UNDISCLOSED AND, THEREFORE, INCOME OF THE PARTNER H AS ESCAPED THE ASSESSMENT. THUS, THE IMPORTANT ASPECT THAT CERTAIN AMOUNT INVESTED BY THE PARTNER IN THE FIRM IS UNDISCLOSED AND HAS ESCA PED THE ASSESSMENT IS ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 9 MISSING FROM THE REASONS RECORDED. HON. BOMBAY HIGH COURT IN PURITY TECHTEXTILE PVT. LTD. VS. ACIT, WRIT PETITION NOS.2 68 & 269 OF 2010 PRONOUNCED ON FEBRUARY 2010 HELD THAT REASONS RECOR DED BY THE AO ARE CRUCIAL AND IT IS ON THE BASIS OF THOSE REASONS ALO NE THAT THE VALIDITY OF REASONS FOR REOPENING OF THE ASSESSMENT HAS TO BE D ECIDED. THE PROVISIONS OF SECTION 147 HAVE BEEN INTERPRETED BY HON. SUPREM E COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD. (2010) 320 ITR 561 (SC) WHEREIN IT IS HELD AS UNDER :- ......., ONE NEEDS TO GIVE A SCHEMATIC INTER PRETATION TO THE WORDS REASON TO BELIEVE FAILING WHICH, WE ARE AF RAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICE R TO RE OPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION , WHICH CANNOT BE PER SE REASON TO RE OPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE ASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE ASSESS. BUT RE ASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF RE OPENING TH E ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN IN BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST APRIL , 19 89, ASSESSING OFFICER HAS POWER TO RE OPEN, PROVIDED THERE IS TAN GIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK W ITH THE FORMATION OF THE BELIEF. 10. IN PRASHANT JOSHI VS. ITO (2010) 1 TAXMANN.COM 90 (BOM.) HON. BOMBAY HIGH COURT HELD THAT REASONS WHICH ARE RECOR DED BY THE AO FOR REOPENING OF THE ASSESSMENT ARE TO BE EXAMINED ONLY ON THE MATTER RECORDED BY THE AO IN THE FORMATION OF BELIEF WHEN THEY ARE CHALLENGED. ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 10 THESE REASONS CANNOT BE SUPPORTED OR UNDER-MINED BY SUBSEQUENT REPLIES OR AFFIDAVITS. THUS THE PRINCIPLE OF LAW IS WELL SE TTLED THAT THE QUESTION AS TO WHETHER THERE WAS REASON TO BELIEVE WITHIN THE M EANING OF SECTION 147 THAT INCOME HAS ESCAPED ASSESSMENT MUST BE DETERMIN ED WITH REFERENCE TO THE REASONS RECORDED BY THE AO. THEY CANNOT BE SUPP LEMENTED SUBSEQUENTLY. IN THE PRESENT CASE THE REASONS DO NO T REFLECT - (1) WHAT IS THE CAPITAL INVESTMENT OF THE ASSESSEE IN THE FIRM? (2) WHETHER SUCH CAPITAL INVESTMENT IS UNDISCLOSED IN THE RETURN OF INCOME FILED BY THE ASSESSEE? (3) REASONS ALSO DO NOT SHOW THAT SUM OF RS.5 LAKHS FOUND TO BE INVESTED BY THE PARTNERS IN THE FIRM ARE UNDISCLOSE D OR UNDECLARED TO THE DEPARTMENT EITHER BY THE FIRM OR BY THE PART NERS. EVEN IF RETURN IS NOT FILED BY THE FIRM ON ACCOUNT OF THERE BEING LOSS IT CANNOT BE SAID THAT SUCH SUM IS NOT UNDISCLOSED UNLESS SAME IS NOT FOUND RECORDED IN THE REGULAR BOOKS OF THE FIRM WHOSE MENTION IS NECESSARY IN THE REASONS RECORDED. THEREFORE, TH E CHARGE OF ESCAPEMENT OF INCOME IN THE HANDS OF PARTNER IS NOT CLEARLY VISIBLE FROM THE REASONS RECORDED AND HENCE THERE IS NO LIV E NEXUS IN FORMATION OF BELIEF AND ESCAPEMENT OF INCOME. 11. HOWEVER, THE CONTENTION OF THE LD. AR IN THIS R EGARD FOR REOPENING OF THE ASSESSMENT INCOME ESCAPED SHOULD BE ABOVE RS .1 LAKH IS RELEVANT BECAUSE IN ABSENCE OF ANY AMOUNT MENTIONED AGAINST THE ASSESSEE PARTNER AS HAVING ESCAPED ASSESSMENT IT CANNOT BE SAID THAT AMOUNT ESCAPED WAS MORE THAN RS.1 LAKH. FURTHER THE PRESUMPTION OF THE DR THAT WHILE RECORDING THE REASONS 50% OF RS.5 LAKHS WOULD HAVE BEEN INVESTED BY THE ASSESSEE PARTNER CANNOT BE SAID TO BE CORRECT BECAU SE IT IS NOT NECESSARY ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 11 THAT IF PARTNER IS HOLDING 50% SHARES IN THE PROFIT S, THEN HE WOULD NECESSARILY BE INVESTING 50% IN THE CAPITAL UNLESS SO SPECIFIED IN THE PARTNERSHIP DEED, WHOSE REFERENCE, THEREFORE, IN TH E REASONS RECORDED BECOMES RELEVANT. MERELY ON THE PRESUMPTIVE BASIS, ONE CANNOT INFER THAT ASSESSEE PARTNER WOULD HAVE INVESTED 50% OF RS. 5 L AKHS I.E. RS.2.50 LAKHS AND WITH FURTHER PRESUMPTION THAT SUCH RS.2.5 0 LAKHS WOULD BE UNDISCLOSED. ENTIRE REASONS RECORDED ABOUT ESCAPEME NT OF INCOME IN CASE OF ASSESSEE PARTNER IS BASED ON HYPOTHESIS AND PRES UMPTION. THERE IS NO MATERIAL BROUGHT INTO THE REASONS RECORDED SO AS TO SHOW THAT ASSESSEE PARTNER HAS INVESTED A SUM OF RS.1 LAKH OR MORE IN THE FIRM AND SUCH SUM IS NOT DECLARED IN THE RETURN OF INCOME FILED BY TH E ASSESSEE PARTNER ON 29.1.99 AT AN INCOME OF RS.1,56,448/-. 12. THERE IS ANOTHER ISSUE WHICH REQUIRES TO BE DIS CUSSED IN THIS REGARD. IN ENTIRE MATERIAL PUT UP BEFORE US, THE ONLY INFOR MATION SUPPLIED IS THAT ASSESSEE PARTNER HAD FILED HIS RETURN OF INCOME ON 29.1.99 AT AN INCOME OF RS.1,56,448/-. THERE IS NO INFORMATION AS TO WHETHE R THIS RETURN WAS ACCEPTED U/S 143(1) ON ANY ORDER U/S 143(3) WAS PAS SED. NOTWITHSTANDING, WE ARE OF THE VIEW THAT REOPENING OF THE ASSESSMENT ON THE BASIS OF REASONS RECORDED BY THE AO CANNOT BE UPHELD EVEN WH ERE EITHER ORIGINAL ASSESSMENT IS COMPLETED U/S 143(3) OR RETURN HAS BE EN ACCEPTED U/S 143(1). THERE IS NO CHARGE OF OMISSION OR FAILURE O N THE PART OF THE ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 12 ASSESSEE PARTNER IN THE REASONS RECORDED, THEREFORE , CONDITIONS LAID DOWN IN THE PROVISO ARE NOT SATISFIED. FURTHER THERE IS NO CHARGE OF ESCAPEMENT OF INCOME ABOVE RS.1LAKH SO AS TO CONFER JURISDICTI ON ON THE AO TO REOPEN THE ASSESSMENT BETWEEN 4 YEARS AND 6YEARS FR OM THE RELEVANT ASST. YEAR WHERE ORIGINAL ASSESSMENT IS ACCEPTED U/S 143( 1). THUS PROVISIONS OF SECTION 149(1)(B) ARE NOT SATISFIED IN THE PRESE NT CASE. WE HAVE ALREADY DISCUSSED ABOVE THAT MERELY MENTIONING REASONS THAT THERE WAS INITIAL INVESTMENT IN THE CAPITAL IN THE ABOVE SAID FIRM OF RS.5 LAKHS..THE ASSESSEE IS A PARTNERAND HAS 50% SHARE IN THE F IRM IS NOT SUFFICIENT COMPLIANCE OF PROVISIONS OF SECTION 149( 1)(B). 13. IN VIEW OF ABOVE, WE HOLD THAT AO WAS NOT JUSTI FIED IN REOPENING THE ASSESSMENT. THE CO FILED BY THE ASSESSEE ACCORD INGLY IS ALLOWED. 14. SINCE REOPENING OF THE ASSESSMENT WAS NOT FOUND VALID THE QUESTION OF DISCUSSION ON MERITS OF THE ADDITION BECOMES ACA DEMIC. AS A RESULT, THE CO FILED BY THE ASSESSEE IS ALLOWED AND APPEAL FILE D BY THE DEPARTMENT IS DISMISSED. ITA NO.3324/AHD/2007 ALONG WITH CO NO.223/AHD/2010 ASST. YEAR 1998-99 13 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CO FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 27/5/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 27/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 25/05/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 26/05/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..