AI Insights
The case involves Kala Ramesh Parmar, the appellant, who contested the reassessment of her income for the Assessment Year 2012-13 by the Income Tax Officer (ITO), Ward-23(2)(6), Mumbai. The reassessment was based on information received from the JDIT (Inv), Mumbai, suggesting that the appellant had engaged in transactions involving shares of Scan Steels Ltd, which were allegedly used to facilitate bogus long-term capital gains. The National Faceless Appeal Centre (NFAC)/CIT(A), Delhi upheld the ITO's decision, leading the appellant to challenge the validity of the reassessment and the subsequent additions made to her income. The Tribunal, after examining the submissions and relevant legal provisions, concluded that the reassessment was unjustified as it was based on the same set of facts and information that had been previously disclosed and scrutinized during the original assessment.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 299899 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 month(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-07-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
SMC
Next Hearing Date
21-06-2023
Assessment Year
2012-2013
Appeal Filed On
26-02-2023
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 581/Mum/2023 (Assessment Year: 2012-13) Kala Ramesh Parmar 2/21,KishoreBuilding, Opp Edward Cinema, 2 nd Floor, 521, Kalbadevi Road, Mumbai- 400002. बनाम/ Vs. ITO Ward – 23(2)(6), Room No.303, 3 rd Floor, Earnest House, Nariman Point, Mumbai- 400021. ा लेखा सं./ज आइआर सं./PAN/ GIR No. : AADP P6229M ( /Appellant) ( / Respondent) Assessee by : Shri.Jitendra Singh.AR Revenue by : Shri.Abhishek Kumar Singh, DR सुनव ई क त र ख / D a t e o f H e a r i n g 22/06/2023 घोषण क त र ख /D a t e o f P r o n o u n c e m e n t 03/07/2023 आदेश / ORDER PER PAVAN KUMAR GADALE - JM: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 of the Act. The assessee has raised the following grounds of appeal: 1. The Ld. National Faceless Appeal Centre (NFAC) Delhi [hereinafter referred to as the "Ld. CIT(A)"] erred in passing the order dated 25.01.2023 upholding the action of the Ld. Income Tax Officer - 23(2)(6), Mumbai [hereinafter referred to as 'Ld. A.O.'] in determining the total income of the Appellant at Rs.5,74,900/- as against returned income of Rs.3,72,978/- without appreciating the facts and circumstances of the case. Thus, the order dated 2 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai 25.01.2023 passed by Ld. CIT(A) is bad in law and the same may be quashed. 2. Reopening of assessment is bad in law i. The Ld. CIT(A) erred in upholding the action of the Ld. A.O. in issuing the notice dated 31.03.2019 to reopen the assessment of the Appellant completed under section 143(3) of the Act vide order dated 25.03.2015 without appreciating the facts and circumstances of the case. Hence, the impugned order passed under section 250 of the Act is bad in law and the same may be. quashed. ii. The Ld. CIT(A) failed to appreciate that the Ld. A.O. has issued the impugned notice merely relying on the information received from the information wing without making any further independent inquiry. Thus, no income has escaped assessment due to failure on the part of the Appellant to disclose fully and truly all material facts necessary for completion of her assessment. Hence, impugned notice issued under section 148 of the Act as well as the reassessment order dated 19.12.2019 is void ab initio. Hence, the impugned order passed under section 250 of the Act is bad in law and the same may be quashed 3. Addition by treating the long term capital gain as unexplained cash credit under section 68 of the Act unjustified - Rs.2,01,925/- i. The Ld. CIT(A) erred in upholding the action of Ld. A.O. in making addition of Rs.2,01,925/- treating the long-term capital gain as unexplained cash credit under section 68 of the Act without appreciating the fact and circumstances of the case in proper perspective. Hence, the addition of Rs.2,01,925/- under section 68 of the Act is unjustified and the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that the Appellant has furnished all relevant documentary evidences to prove the genuineness of long term capital gains earned during the relevant year under consideration. Hence, the Appellant has discharged the primary onus cast upon her under the provisions of section 68 of the Act. Thus, the addition of Rs.2,01,925/- under section 68 of 3 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai the Act is against the provisions of law and the same may be deleted. iii. The Ld. CIT(A) further erred in treating the long term capital gains as unexplained cash credit relying on the statement of some persons with whom the Appellant has no transaction at all and the Ld. A.O. has not even provided an opportunity to cross examine them to rebut the allegations levelled against her. Thus, the impugned addition is made against the principles of natural justice and the same may be deleted. 4 The Appellant denies any liability to pay interest under section 234B and 234C of the Act. Hence, the same are not leviable. 5. The Appellant craves leave to add, alter, amend, delete, rescind or withdraw any of the grounds of appeal mentioned hereinabove 2. The brief facts of the case are that, the assessee is engaged in the business and has filed the return of income for the A.Y 2012-13 on 18.07.2012 disclosing a total income of Rs.3,72,978/- and the return of income was processed u/s143(1) of the Act and the asseseement was completed u/s 143(3) of the Act with the assessed the total income of Rs. 4,58,640/-.Subsequently, the Assessing Officer(AO) has received the information from JDIT (Inv), Mumbai that the assessee has dealt in shares of Scan Steels Ltd and the scrip has been used to facilitate the Long term capital gains claimed as exempt or short term capital loss and the assessee is one of the beneficiary. Therefore the AO has reason to believe that the income has escaped assessment and has issued notice u/s 148 of the Act. In response to notice, the assessee has filed the return of income on 18.04.2019 4 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai disclosing a total income of Rs.3,72,978/-, subsequently notice u/s 143(2) and 142(1) of the Act are issued and the reasons for reopening of the assessment was provided to the assessee. The assessee has filed the objections vide letter dated 13.05.2019 and objections were disposed off. 3. Whereas in respect of the transactions of sale of share of M/s Scan Steels Ltd., earlier known as M/s Clarus Finance and Securities, the assessee has furnished the details supporting transactions with the brokers bill, contract notes and statement of holding etc. Whereas the AO found that the assessee has sold 500 shares of M/s Clarus Finance and Securities on 19.07.2011 for Rs. 98,950/- and 500 shares for Rs.1,01,875/- on 21.07.2021 were the total sale value is aggregated to Rs.2,00,825/- and the assessee has claimed the exemption of Long Term Capital gains of Rs.1.94.315/-. The AO has dealt on the facts of the transactions, where the assessee has purchased the shares of M/s Clarus Finance and Securities Ltd for Rs.7,610/- and is of the opinion that the transactions are not duly supported with the evidences by the assessee and the A,O was not satisfied with the explanations and made an addition of Rs.2,01,925/- as unexplained cash credit u/sec 68 of the Act and assessed the total income of Rs.5,74,900/- and passed the order u/s 143(3) r.w.s 147 of the Act dated 19.12.2019. 4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The assessee has challenged the validity of 5 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai reassessment proceedings and the addition by the A.O. Whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO and has confirmed the validity of reassessment proceedings and dismissed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed an appeal with the Hon’ble Tribunal. 5. At the time of hearing, the Ld. AR submitted that the assessee has challenged the validity of reassessment proceedings and the assessee has made full disclosure of information and facts before the AO in scrutiny assessment u/sec 143(3) of the Act. Further the Ld. AR substantiated the purchase and sale of shares with the supporting evidences were the transactions are subject to STT. Further the Ld. AR substantiated the submissions on the legal issue of validity of reassessment with the judicial decisions and factual paper book and prayed for allowing the assessee appeal. Contra, the Ld. DR supported the order of the CIT(A). . 6. Heard the rival submissions and perused the material on record. The sole grievance of the assessee as envisaged by the Ld. AR on the validity of issue of notice u/s 148 of the Act and the assessee sold the shares in the recognized stock exchange subjected to payment of STT, which were acquired in the earlier years through banking channel and complied the criteria for claiming exemption of Long Term Capital 6 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai Gains. The Ld. AR emphasized that in the assessment proceedings U/sec143(3) of the Act, the assessee has disclosed fully all material facts with the evidence on the shares transactions. The Ld. AR submitted that the A.O has issued the notice on the same set of information which was available on record in the original assessment and no material was available to make reassessment and it is only a mere change of opinion. The Ld. AR has demonstrated the reasons recorded for the reopening of assessment at page 29 to 31 of the paper book. Further the original assessment was completed u/s 143(3) of the Act and the assessee has produced all the material information and the A.O. has duly verified the information as per the observations at page 1 para 4 of the A.O. order, which cannot be disputed. 7. The Assessee has complied with the scrutiny guidelines in submitting the information and the A.O. has passed the order u/s 143(3) of the Act on 23.03.2015. At this juncture, it is appropriate to refer to the provisions of Sec. 147 of the Act and the first proviso which is read as under: “1 47. If the[Assessing] Officer[has reason to believe] that any income chargeable to tax has escaped assessment 91 for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess 91 such income 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 91 under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant 7 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the 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 ” 8. Whereas the A.O has issued notice u/s 148 of the Act dated 31.03.2019 for reopening of assessment.The original assessment was completed u/s 143(3) of the Act vide order dated 23.03.2015. The A.O has recorded the reasons without any tangible material/ fresh material except charges based on the information. The assessee has purchased shares in the financial year 2007-08 The Ld.AR submitted that the information of sale and purchase of shares was already filed on record vide letter dated 20-08-2014 placed at page 12 & 13 of the paper book in the original assessment proceedings U/sec143(3) of the Act and the A.O after verifying the facts and information has passed order on 23-03-2015. Therefore the reopening of assessment is based on the same set of facts and is only a change of opinion and no inquiry or independent investigation by the A.O. The assessee in the present reassessment proceedings has submitted letter dated 11-12-2019 placed at page 48 &49 of the paper book. On the validity of issue of notice on the same share scrip, the Hon’ble Jurisdictional High Court in writ petition No. 2518 of 2019 Gateway leasing Pvt Ltd Vs. ACIT for the A.Y 2012-13 dated 11-03-2020 (426 ITR 228(Bombay)) has granted relief to the assessee and has observed at Para 19 to 40 of the order read as under: 8 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai 19. From the above, it is seen that according to Respondent No. 2 information was received from the Investigation Wing about search and seizure action carried out in the premises of Shri Naresh Jain on 19-3-2019 which concluded on 21-3-2019. The search action revealed that a syndicate of persons were acting in collusion and had managed transactions in the stock exchange, thereby generating bogus long-term capital gains, bogus short term capital gains and bogus business loss entries for various beneficiaries. The search action unravelled the workings of the syndicate and brought on record the make believe nature of paper work that is manufactured in order to show the arranged transactions as legitimate market transactions. Statements of various persons were recorded in the course of the search action. In his statement Shri Naresh Jain stated that during the assessment year 2012-13, he had used scrips of seven entities to provide bogus entries which included the scrip of M/s. Scan Steels Ltd.. Further, information revealed that the Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014/-. Therefore, Respondent No. 2 stated that he had reasons to believe that this income had escaped assessment within the meaning of section 147 of the Act. 20. Thus what is discernible is that the main ground on which assessment is sought to be re-opened is that Petitioner had traded in the shares of Scan Steels Ltd., and was in receipt of Rs. 23,98,014/-, which the Petitioner failed to disclose fully and truly before the Assessing Officer and which Respondent No. 2 believed had escaped assessment. 21. Before adverting to the initial assessment order passed under section 143(3) of the Act dated 28-3-2015, it would be apposite to advert to the averments made by the Respondents in the affidavit in reply, more particularly the reasons given to justify re-opening of the assessment. In para 3.3 of the affidavit in reply, it is stated that the Petitioner had disclosed TDS credit of Rs. 34,05,533.00 and claimed refund of the said amount. On perusal of the tax assessment form prepared and issued by the Assessing Officer alongwith the assessment order, it was noticed that Petitioner was issued a refund of Rs. 26,13,268.00 alongwith interest of Rs. 2,87,463.00 which was reduced while determining the tax liability which thereafter stood at 'NIL'. But in the return filed, Petitioner had not reduced the amount of 9 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai refund already received by him, which prima facie, resulted in excess claim of refund to the tune of Rs. 26,13,268.00 being refund already granted. However, this was not the ground for reopening the assessment as per the reasons furnished to the Petitioner on 31-5-2019 viz., that petitioner had traded in the shares of M/s. Scan Steels Ltd. and was in receipt of Rs. 23,98,014.00 which Respondent No. 2 stated that he had reasons to believe had escaped assessment. Thus, this contention of the Respondents is beyond the reasons furnished for re-opening of the assessment. 22. In para 3.4 of the affidavit in reply it is stated that though the Petitioner had furnished details relating to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.), but that did not amount to full and true disclosure of all material facts unless true and real facts are disclosed before the Assessing Officer. Assessing Officer had not discussed in the assessment order about the genuineness or camouflage nature of the transactions of purchase and sale of shares of Mittal Securities Ltd. by the Petitioner. 23. From the above, it is seen that what Respondent No. 2 contends is that though Petitioner had disclosed details of the transactions pertaining to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.), Petitioner did not disclose the real colour/true character of such transactions and therefore, he did not make a full and true disclosure of all material facts which was also overlooked by the Assessing Officer. 24. Reverting back to the original assessment proceeding, we find from the materials on record that after the Petitioner had filed the initial return of income on 20-9-2012, Assessing Officer had issued notice to the Petitioner under section 142(1) of the Act dated 7-8-2013, calling upon the Petitioner to produce the following documents :- "1. Reasonably detailed note on the nature of business including details of addresses, phone number of all premises - Office, Branch, Godown, Workshop etc.. 2. Complete set of audited accounts, Tax Audit Report u/s. 44AB with all schedules, computation of income and income tax and hard 10 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai copies of returns. 3. Any other details and/or documents for the purpose of assessment." 24.1 By another notice of even date, Petitioner was informed by the Assessing Officer that there were certain points in connection with the return of income submitted by the Petitioner about which he would like some further information. Accordingly, Petitioner was asked to appear before the Assessing Officer and to produce any documents, accounts and any other evidence on which it relied upon in support of the return filed. 25. On 10-6-2014 Assessing Officer issued another notice under section 142(1) of the Act, calling upon the Petitioner to submit the particulars mentioned therein including the details regarding increased authorized share capital with the list of the shareholders and details of purchase of equity shares of Rs. 7,04,92,390.44 with details of payment. Petitioner has stated that in response to such notice, all relevant details were furnished to the Assessing Officer. Finally, Assessing Officer issued another notice under section 142 (1) of the Act on 19-3- 2015, calling upon the Petitioner to furnish in writing the details party-wise with name, address and PAN with supporting evidence who had subscribed for security premium reserve or how it was created and details of statement/transactions mentioned at serial no. 2 which stated that in case of capital gain/loss, it should provide a comprehensive chart with regard to sale and purchase of securities/shares quoted/unquoted as well as dividend received. It was further stated that in case of capital loss whether the loss was adjusted after dividends in terms of section 94(7) of the Act. In his response, Petitioner informed the Assessing Officer on 19-3-2015 itself that there was no increase in the security premium reserve during the said assessment year. No capital gains were earned during the said year by the Petitioner. It had not received any dividend income during the said year too. Hence, question of applicability of section 94(7) did not arise. Petitioner did not make any investment nor was there any inventory of shares; no dividend was earned during the year. Alongwith the said letter relevant documentary evidence in respect of the concerned transactions were enclosed. 11 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai 26. Thereafter, assessment order was passed on 28-3-2015, wherein Assessing Officer had noted that during the course of scrutiny details of income, expenditure, assets and liabilities were called for, examined and placed on record. After perusing all details and after examination of those and upon discussion, total income was computed in terms of the return filed by the Petitioner. As already noted above, the assessment order was passed under section 143(3) of the Act. It was mentioned therein that representative of the Petitioner had attended the assessment proceedings from time to time and had filed details with explanations. 27. At this stage, we may briefly refer to the relevant legal provisions. 28. Section 147 of the Act deals with "income escaping assessment". Section 147 says that if the Assessing Officer has reason to believe 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 reassess such income 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 section 147 of the Act. 28.1 The first proviso to section 147 is important. As per this proviso, where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the 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. 28.2 Section 149 deals with time limit for notice under section 148. As per clause (a) of sub-section (1), no notice under section 148 shall be issued for the relevant assessment year, if four years have elapsed from the end of the relevant assessment year unless the case falls under clause (b) or clause (c). Clause (b) says that no notice shall be issued if four years have elapsed but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax 12 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Clause (c) deals with a situation where limitation is extended upto sixteen years but the escaped income must relate to any asset located outside India. 29. Insofar the present case is concerned, the assessment year is 2012-13. The assessment year ends on 31-3-2013. In this case impugned notice under section 148 of the Act was issued on 31- 3-2019. Therefore, it is a case of re-opening of assessment under section 149 (1) (b) of the Act after expiry of four years but before expiry of six years. 29.1 Of course the limitation point though pleaded in the writ petition, has been given up by the Petitioner following filing of affidavit by the Respondents which clearly shows that the re- opening notice was issued within the limitation period of six years. 30. In such a case, the first condition for invoking section 147 is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for the relevant assessment year. The second condition is that the Assessing Officer must arrive at the satisfaction that income chargeable to tax has escaped assessment for the said assessment year by reason of the failure on the part of the assessee to make a return under section 139 or to respond to a notice under section 142(1) or section 148 or due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. 31. The key or crucial expressions appearing in section 147 are "reason to believe" and "failure to disclose fully and truly all material facts necessary for assessment". 31.1 Before dilating on these two expressions, it would be apposite to refer to section 148 of the Act, which deals with issue of notice where income has escaped assessment. As per sub- section (1), before making the assessment, re-assessment or re- computation under section 147, a notice in the prescribed form is required to be served upon the assessee by the Assessing Officer, calling upon him to file return of income in terms of such notice within the period specified and in such event the return so filed would be construed to be a return filed under section 139. As per sub-section (2) of the said section, the Assessing Officer 13 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai shall before issuing any notice under section 148, record his reasons for doing so. 31.2 In GKN Driveshafts (India) Ltd. (supra), Supreme Court held that when a notice under section 148 of the Act is issued, the proper course of action for the assessee is to file the return and if he so desires, to seek the reasons for issuing the notice. If sought for, Assessing Officer is bound to furnish the reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to the notice in which event the Assessing Officer would be under an obligation to dispose of the same by passing a speaking order. 32. Reverting back to the two expressions as noticed above, we may mention that these two expressions were examined and interpreted in great detail by the Supreme Court in Income-tax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437. That was also a case where notice under section 148 of the Act was put to challenge. Though provisions of section 147 of the Act as it existed then have since been reconstructed and have undergone change, the two key expressions continue to retain their relevance in so far section 147 of the Act is concerned. It may further be noticed that in Lakhmani Mewal Das (supra), Supreme Court was considering validity of notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year. Supreme Court observed that in such a case, two conditions would have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice. These two conditions are - 1. He must have reason to believe that income chargeable to tax has escaped assessment; and 2. He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return under section 139 for the assessment year under consideration or to disclose fully and truly all material facts necessary for his assessment for that year. 32.1 Both the two conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. Supreme Court observed that duty is cast upon the assessee to make a true and full 14 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer the books of account or other evidence from which material evidence with due diligence could have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law but the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. If the Income- tax Officer draws an inference, which appears subsequently to be erroneous, it would amount to change of opinion and mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment. 32.2 The grounds or reasons which led to formation of the belief that income chargeable to tax has escaped assessment must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exists reasonable grounds for the Income-tax Officer to form the above belief that would be sufficient to clothe him with jurisdiction to issue notice. However, sufficiency of the grounds is not justiceable. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income- tax Officer. 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. To this limited extent, initiation of proceedings in respect of income escaping assessment is open to challenge in a court of law. 32.3 Dilating further, Supreme Court held that reasons for 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 Income-tax Officer 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. But it has to be borne in mind that it is not any and every material howsoever vague and indefinite or distant, 15 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai remote and far-fetched which would warrant formation of the belief relating to escapement of income. Moreover, powers of the Income-tax Officer to reopen assessment, though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". Reopening of assessment after the lapse of many years is a serious matter. 33. It may be mentioned here that the proposition of law enunciated in Lakhmani Mewal Das (supra) has withstood the test of time and is being consistently applied while examining challenge to a notice issued under section 148 of the Act. 34. In Prashant S. Joshi v. ITO [2010] 189 Taxman 1/324 ITR 154, this Court observed that the basic postulate which underlines section 147 is formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. In other words, the Assessing Officer must have reason to believe that income chargeable to tax for a particular assessment year has escaped assessment for the relevant assessment year before he proceeds to issue notice under section 148. The reasons which are recorded by the Assessing Officer for re-opening an assessment are the only reasons which can be considered when the formation of the belief is impugned. Recording of reasons distinguishes an objective from a subjective exercise of power and is a check against arbitrary exercise of power. The reasons which are recorded cannot be supplemented subsequently by affidavits. The question as to whether there was reason to believe within the meaning of section 147 that income has escaped assessment must be determined with reference to the reasons recorded by the Assessing Officer. Even in a case where only an intimation is issued under section 143(1), the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment. 35. Having discussed the above, we may once again revert back to the reasons furnished by Respondent No. 2 for re-opening of assessment under section 147 of the Act. After referring to the information received following search and seizure action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014.00 and therefore, Respondent No. 2 concluded that he had reasons 16 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai to believe that this amount had escaped assessment within the meaning of section 147 of the Act. 36. First of all it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where-after the Assessing Officer had concluded the assessment proceedings by passing assessment order under section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings. 37. In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent No. 2 could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the same, Respondent No. 2 could not have assumed jurisdiction and issued the impugned notice under section 148 of the Act. 38. That apart, Respondents have tried to traverse beyond the disclosed reasons in their affidavit which is not permissible. The same cannot be taken into consideration, while examining validity of notice under section 148. As has been held in Prashant S. Joshi (supra), the reasons which are recorded by the Assessing Officer for re-opening an assessment are the only reasons which can be considered when the formation of the belief is impugned; such reasons cannot be supplemented subsequently by affidavit (s). 39. Therefore, in the light of the discussions made above, we are of the view that the attempt made by Respondent No. 2 to reopen the concluded assessment is not at all justified and consequently the impugned notice cannot be sustained. 40. Accordingly, we allow the Writ Petition by setting aside the impugned notice dated 31-3-2019 issued under section 148 of the Act and also the impugned order dated 26-8-2019. However, there shall be no order as to costs. 17 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai 9. Considering the facts, circumstances and the ratio of the judicial decision, the notice issued by the A.O falls beyond the period of time limit specified and the assessing officer has to show/high light the failure on part of the assessee to disclose fully and truly all material facts at the time of assessement. Accordingly, the notice issued for reassesement is bad in law and quash the assessment order passed u/s 143(3) r.w.s 147 of the Act. Since the legal issue is decided in favour of the assessee and again adjudicating on merits becomes academic and are left open. And the grounds of appeal are allowed in favour of the assessee. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 03.07.2023. Sd/- (PAVAN KUMAR GADALE) JUDICIAL MEMBER Mumbai, Dated 03/07/2023 KRK, PS आदेश की ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. ! / The CIT(A) 4. !( ) / Concerned CIT 18 ITA No. 581/Mum/2023 Kala Ramesh Parmar, Mumbai 5. " # , ण, मु瀓बई / DR, ITAT, Mumbai 6. # $% & / Guard file. आदेशानुसार/ BY ORDER, //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु瀓बई मु瀓बईमु瀓बई मु瀓बई / ITAT, Mumbai
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