Anand Prakash Agarwal vs Commissioner Of Income Tax ...
2014 Latest Caselaw 2156 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

 AFR
 
Reserved
 

 
 Writ Petition No.1367 of 2005
 

 
	Anand Prakash Agrawal			..........	Petitioner
 
								Versus
 
Commissioner of  Income Tax		..........      Respondents.
 
(Central) and others
 
								And 
 

 
 Writ Petition No.1368 of 2005
 

 
	Smt. Usha  Agrawal				..........	Petitioner
 
								Versus
 
Commissioner of Income  Tax		..........      Respondents.
 
(Central) and others
 

 
 Writ Petition No.1369 of 2005
 

 
	Mohit  Agrawal					..........	Petitioners
 
								Versus
 
Commissioner of Income  Tax		..........      Respondents.
 
(Central) and others
 

 
Hon.Tarun Agarwala,J.

Hon. Bachchoo Lal,J.

(Delivered by Hon.Tarun Agarwala,J.)

By means of this writ petition the petitioner has prayed for the quashing of the notices dated 15.12.2004 and 16.12.2004 issued under Section 148 of the Income Tax Act by the Assistant Commissioner of Income Tax, Varanasi for the assessment years 1999-2000, 2000-01 and 2001-02. The facts leading to the filing of the writ petition is, that the petitioner filed his return for the assessment year 1999-2000, 2000-01 and 2001-02 under Section 139, which was accepted and intimation was given to the petitioner under Section 143(1) of the Act. Subsequently, a search and seizure operation was conducted under Section 132(1) of the Act at the residence of the petitioner as well as at his business premises at Varanasi and at Kolkata. Based on this search and seizure, block assessment order dated 20.12.2004 was passed under Section 158 BC of the Act for the period 01.04.1996 to 03.10.2002 which covered the assessment years 1999-2000, 2000-01 and 2001-02.

After passing of the block assessment order, the Additional Commissioner Income Tax, Varanasi issued a notice dated 15.12.2004 under Section 148 of the Act for the assessment years 1999-2000, 2000-01 and 2001-02 indicating therein that the Assessing Officer had reasons to believe that certain income chargeable to tax had escaped assessment for the year 1999-2000 and which has come to his notice subsequently and accordingly, directed the petitioner to submit his return of income within a specified period. Similar notice under Section 148 dated 15.12.2004 was issued for the assessment years 2000-01, 2001-02.

In view of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and others 259 ITR 19, the petitioner moved an application dated 25.02.2005 requesting the authority to supply him the reasons for re-opening the assessment proceedings. In response to the said application, the Assessing Officer supplied the reasons dated 10.01.2004 to the petitioner. The reasons so recorded for arriving at a belief that income had escaped assessment for the assessment year 1999-2000 is, that subsequent to the search and seizure operation which was carried out on 03.10.2002, post search enquiries were made and, it was found that the gift transaction shown in the return of income were not regular transactions but purely arranged transactions. It was found that the bank Account of three donors indicated that just before the date of issuing the gift cheque, there was no availability of fund and that one day before the issuance of the cheque, an amount was transferred in the said Account for the purpose of issuing the gift cheque. It was found that the donors were strangers and that none of the donors were related to the assessee's family. The post search enquiry further revealed that the father and mother received gift aggregating 382.5 lakhs during the assessment years 1998-2009 to 2003-2004. Prima facie, the Assessing Officer formed an opinion that the gift appeared to be not genuine and that the genuineness of the gift was required to be enquired into. The Assessing Officer accordingly formed an opinion that the assessee had understated the income within the meaning of Explanation 2(b) of Section 147 and that an amount of Rs. 20.05 lakhs received during the assessment year 1999-2000 as gift, had escaped assessment. Similar reasons were given for the assessment year 2000-01 with regard to gift of Rs. 47.07 lakhs and Rs. 35.00 lakhs for the assessment year 2001-02.

The petitioner, being aggrieved by the issuance of the notices and the reasons so recorded for proceeding to re-assess the income has filed the present writ petition.

We have heard Sri S.K.Garg, the learned counsel for the petitioner assisted by Sri Ashish Bansal and Sri Shambhoo Chopra, the learned counsel appearing for the Income Tax Department.

The learned counsel submitted that from a perusal of the "reasons recorded" it is evident that the reasons are based solely on post search enquiry. The learned counsel submitted that the material found through post search enquiry cannot constitute the "material" which could lead to form a "reason to believe" that any income chargeable to tax had escaped assessment. The learned counsel submitted that the material found on the basis of post search enquiry could only be considered in block assessment proceedings under Section 158BC and that such material could not be brought within the ambit of Section 147/148 of the Act. It was urged that the reasons so recorded was nothing but a change of opinion which cannot be permitted in view of the settled law propounded by this Court as well as by the Supreme Court. The learned counsel consequently submitted that issuance of notice under Section 148 was patently illegal and was liable to be quashed.

Sri Garg further submitted that the provision of Section 158 B(b) relating to "undisclosed income" has undergone a change by the Finance Act, 2002, which has amended the provision with retrospective effect from 01.07.1995. The learned counsel further submitted that the Finance Act has amended Section 158 B(b) to clarify that block assessment of "undisclosed income" is based on the evidence found in the search and seizure operation and the material or information recovered during post search enquiry. In the light of this amendment, the learned counsel submitted that the "reasons to believe" as well as the counter affidavit clearly indicates that the formation of the belief was the material found in post search enquiry. The learned counsel consequently, submitted that such material found through post search enquiry could only be utilized in block assessment proceedings and could not be utilized in re-opening the assessment. The learned counsel consequently, submitted that the entire proceedings initiated under Section 148 was patently illegal, without jurisdiction and was liable to be quashed. In support of his submissions, the learned counsel placed reliance on the decision of the Madras High Court in Mrs. Kumari Kanagam Vs. Commissioner of Income Tax, [2014] 363 ITR 105 (Mad), Indra Prastha Chemicals Pvt. Ltd. And Others Vs. Commissioner of Income-Tax And Another, (2004) 271 ITR 113 (Alld.), Assistant Commissioner of Income-Tax Vs. Rajesh Jhaveri Stock Brokers P.Ltd., (2007) 291 ITR 500 (SC), Commissioner of Income-Tax Vs. (1) Kelvinator of India Ltd., [2010] 320 ITR 561 (SC) and Commissioner of Income-Tax Vs. Orient Craft Ltd., [2013] 354 ITR 536 (Delhi).

The learned counsel has also placed reliance upon a decision of the Supreme Court in Commissioner of Income-Tax Vs. Mukundray K.Shah, [2007] 290 ITR 433 (SC), wherein the judgment of the Calcutta High Court was reversed wherein the High Court held that since all the documents were available for regular assessment, therefore, these documents could not be said to be incriminating material for holding that the amounts disclosed in these documents were undisclosed income.

The Supreme Court while reversing the judgment of the High Court held that the department was right in invoking the provisions of Chapter XIV-B of the Income Tax Act. The assessment order originated on account of a search conducted under Section 132 (1), in which the diary was identified. The diary made the Assessing Officer hold an enquiry and in the enquiry the case flow statement emerged and resulted in the detection of undisclosed income. The Supreme Court further held that the undisclosed income was detected by the Assessing Officer wholly and exclusively as a result of a search and, therefore, the assessment order was rightly passed under Section 158BC.

The learned counsel also placed reliance upon a decision of the Rajasthan High Court in Commissioner of Income-Tax Vs. Elegant Homes Pvt. Ltd., (2003) 259 ITR 232, in which it was held that in Chapter XIV-B of the Income-Tax Act special provisions for assessment in search cases have been given and if any amount of income has not been taxed and during the course of search, some "undisclosed" income was found on the basis of material seized, then, that should be treated as undisclosed income as per the scheme of special assessment under the said chapter.

On the other hand, Sri Shambhoo Chopra, the learned counsel for the department submitted that the Assessing Officer had wide powers to re-open the assessment if he had reasons to believe that the income chargeable to income tax had escaped assessment. The learned counsel submitted that if the Assessing Officer has reason to believe that there has been a non-disclosure of the primary fact, which could have a material bearing on the question that the assessment so made was under assessed, in that event it would be sufficient to initiate proceedings for re-assessment. Sri Chopra further submitted that the assessment for the block period could be done on the basis of the books of account or document and such other material by which the information was available to the Assessing Officer.

The learned counsel submitted that only "undisclosed income" found in proceedings under Section 132A of the Act could be utilised in block assessment under Chapter XIV B of the Act but such income, which had already been disclosed in the return but had escaped taxation could not be assessed in block proceedings and that the same could be done in proceeding initiated under Section 148 of the Act. The learned counsel for the department further submitted that where the transaction itself on the basis of subsequent information was found to be a bogus transaction, the mere disclosure of the transaction at the time of original proceeding could not be said to be a disclosure of true and full facts and, therefore, the Assessing Officer would have jurisdiction to re-open the concluded assessment by issuance of a notice under Section 148 of the Act.

In support of his submissions the learned counsel has placed reliance upon the decisions in Assistant Commissioner of Income-Tax and Another Vs. Hotel Blue Moon, [2010] 321 ITR 362 (SC), Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, [1993] 203 ITR 456 and Commissioner of Income-Tax Vs. P.K.Ganeshwar [2009] 308 ITR 124 (Mad). The learned counsel further submitted that re-assessment proceeding is only for the benefit of the revenue. In support of this submission, he has placed reliance on Satyamangalam Agricultural Producer's Co-operative Marketing Society Ltd. Vs. Income-Tax Officer, [2013] 357 ITR 347 (Mad).

Having heard the learned counsel for the parties we find that the chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting the regular assessment made or to be made. Search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of the undisclosed income, which has been detected as a result of search. It is not intended to be substituted for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during a search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under section 132 or requisition under section 132A of the Act. The aforesaid view was observed by the Supreme Court in Hotel Blue Moon (Supra).

Under Section 147 of the Act, proceedings initiated for re-assessment proceedings can only be done if the Assessing Officer had reasons to believe, namely, that any income chargeable to tax had escaped income in any assessment year. The question whether the Assessing Officer had reason to believe is a question of jurisdiction, which can always be investigated in a petition filed under Article 226 of the Constitution of India. The expression "reasons to believe" as contained in Section 147 of the Act does not mean purely subjective satisfaction on the part of the Assessing Officer but it means that the belief must be held in good faith and it is open to the Court to examine whether the reasons to believe have a rational connection or bearing to the formation of belief or is based on irrelevant or extraneous considerations. The Supreme Court has clearly held that the formation of the opinion and belief of the Assessing Officer is a condition precedent and without such formation, the Assessing Officer would not have any jurisdiction to proceed further under Section 148 of the Act.

In Rajesh Jhaveri Stock Brokers P.Ltd. (Supra) the Supreme Court held that the expression "reason to believe" means cause or justification and that if the Assessing Officer had a cause or justification to know that income had escaped assessment it could be said that the Assessing Officer had reason to believe that the income had escaped assessment. The expression "reason to believe" cannot be read to mean that the Assessing Officer had finally ascertained the fact by legal evidence or conclusion. What is required, is "reason to believe" but not the established fact of escapement of income. The Supreme Court held that at the stage of issuance of notice, the only question to be considered was whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether the material would conclusively prove escapement of income was not the concern for the Court to look at that stage. This is because the formation of belief was within the realm of subjective satisfaction of the Assessing Officer.

In the light of the aforesaid, it is essential for the Court to consider the meaning of "undisclosed income" as defined under Section 158B(b) of the Income Tax Act as amended by the Finance Act, 2002 with effect from 01.07.1995. For facility, the said provision is extracted hereunder:

"158B(b) where returns of income have been filed under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns."

The Finance Act, 2002, while amending the definition of "undisclosed income" in Section 158B, specially included income based on entries in books of account or other documents which represents a false claim of any expense, deduction, or allowance under the Act. The Finance Act, 2002 further clarified that block assessment of "undisclosed income" is to based on the evidence found in the search and material or information gathered in post search enquiries made on the basis of evidence found in the search.

Block assessment is in addition to regular assessment and what is included in regular assessment cannot be assessed again in the course of block assessment and similarly, what is assessed in block assessment cannot be the subject matter of regular assessment.

In the instant case, we find that the petitioner had disclosed the gift cheques in his return filed under Section 139 of the Act. It is pertinent to note here, that no notice was issued to the petitioner under Section 143(2) of the Act by the Assessing Officer and the returns were accepted by issuance of an intimation under Section 143(1) of the Act. Under Section 143 of the Act, it is the discretion of the Assessing Officer to accept the return as it is or to proceed further with the assessment of income. Once the Assessing Officer decides to proceed, he has to issue notice under Section 143(2) of the Act within the prescribed period, which in the instant case, at the relevant moment of time, was 12 months to make the petitioner aware that his return has been selected for scrutiny assessment.

It may also be noticed here that when the petitioner filed his return under Section 139 of the Act, the Assessing Officer did not have any material other than the return filed by the petitioner. If the Assessing Officer had reasons to believe that any claim made in the return was inadmissible, he would serve a notice to the assessee under Section 143(2) of the Act directing him to produce evidence in support of his claim. This was not done as there was no material before the Assessing Officer.

The material came into existence during post search enquiry when it became known that the gift cheques shown in the return filed under Section 139 of the Act were not regular transactions but were purely arranged transactions to avoid income tax.

Such income disclosed in the return filed under Section 139 of the Act could not become "undisclosed income", merely because in post search enquiry, it came known that the gift cheques was a sham transaction. An amount which has already been included in the regular assessment cannot be assessed again in the course of block assessment. The gift cheques, having been disclosed in the return under Section 139 of the Act could not be re-assessed in block assessment proceedings under Section 158BC. The authorities were justified in not including the gift cheques in block assessment proceedings. The material found in post search enquiries could form a "reason to believe" that income had escaped assessment by issuance of a notice under Section 143(2) of the Act. Since the period under Section 143(2) of the Act had expired, the Assessing Officer having genuine reasons to believe that income had escaped assessment and consequently, could issue a notice under Section 148 of the Act. Such notices so issued were perfectly justified and was within the powers of the Assessing Officer. The Supreme Court in Rajesh Jhaveri (Supra) clearly held that the expression "reason to believe" in Section 147 of the Act would mean cause of justification to know that income had escaped assessment. At the stage of issue of notice, the only question is, whether there was relevant material on which a reasonable person could form the requisite belief that income had escaped assessment. We are of the opinion that in the given circumstances, the Assessing Officer was justified in forming an opinion, that income had escaped assessment and was, therefore, justified in issuing notice under Section 148 of the Act.

In the light of the aforesaid, we do not find any infirmity in the notices so issued under Section 148 of the Act. The writ petition fails and is dismissed. In the circumstance of the case, there shall be no order as to cost.

Dated: 29th May, 2014

MAA/-

(Bachchoo Lal,J.)    (Tarun Agarwala,J.)