Rrb Securities Ltd. vs Joint Cit
2004 Latest Caselaw 581 Del

ORDER

P.N. Parashar, J.M.:

This appeal, preferred by the assessed, is directed against Commissioner (Appeals)'s order dated 2-2-2000, relating to assessment year 1994-95.

2. Shri Ajay Vohra and Shri Rohit Jain, advocates, appeared on behalf of the assessed, whereas Shri Rajnish Kumar, Departmental Representative, represented the department.

2. Shri Ajay Vohra and Shri Rohit Jain, advocates, appeared on behalf of the assessed, whereas Shri Rajnish Kumar, Departmental Representative, represented the department.

3. Ground Nos. 1 to 4: These grounds challenge the validity of the proceedings of reassessment initiated under section 147/148 of the Income Tax Act.

3. Ground Nos. 1 to 4: These grounds challenge the validity of the proceedings of reassessment initiated under section 147/148 of the Income Tax Act.

4. Learned counsel for the assessed submitted that before issuing notice under section 148 the assessing officer did not record reasons to justify the issuance of notice under section 148. He further submitted that there is no application of mind by the assessing officer for initiation of proceedings. The learned counsel also contended that during the assessment proceedings reasons were not supplied by the assessing officer which were later on supplied during the course of appellate proceedings before the learned Commissioner (Appeals). The learned counsel made reference to the reasons recorded by the assessing officer and submitted that on the perusal of the order-sheet of the assessing officer it is not made out as to on what basis he had reason to believe that the income of the assessed had escaped assessment. According to learned counsel, it appeared that the assessing officer simply wanted to verify certain facts and for such purpose recourse to section 147/148 could not be taken as the proceedings of reassessment could not be made for further verification or for roving enquiry. The learned counsel further pointed out that the assessing officer has not specifically pointed out any item of income which had escaped assessment and for which proceedings were to be initiated. Regarding the findings and observations of learned Commissioner (Appeals), the contention of the learned counsel was that he has attempted to substitute the reasons recorded by the assessing officer which course was not available to the learned representative, on the other hand, supported the order of learned Commissioner (Appeals) and placed reliance on the same.

4. Learned counsel for the assessed submitted that before issuing notice under section 148 the assessing officer did not record reasons to justify the issuance of notice under section 148. He further submitted that there is no application of mind by the assessing officer for initiation of proceedings. The learned counsel also contended that during the assessment proceedings reasons were not supplied by the assessing officer which were later on supplied during the course of appellate proceedings before the learned Commissioner (Appeals). The learned counsel made reference to the reasons recorded by the assessing officer and submitted that on the perusal of the order-sheet of the assessing officer it is not made out as to on what basis he had reason to believe that the income of the assessed had escaped assessment. According to learned counsel, it appeared that the assessing officer simply wanted to verify certain facts and for such purpose recourse to section 147/148 could not be taken as the proceedings of reassessment could not be made for further verification or for roving enquiry. The learned counsel further pointed out that the assessing officer has not specifically pointed out any item of income which had escaped assessment and for which proceedings were to be initiated. Regarding the findings and observations of learned Commissioner (Appeals), the contention of the learned counsel was that he has attempted to substitute the reasons recorded by the assessing officer which course was not available to the learned representative, on the other hand, supported the order of learned Commissioner (Appeals) and placed reliance on the same.

6. We have carefully considered the entire material on record and the rival submissions. The assessed has challenged the validity of the assessment on the ground of non- communication of the reasons recorded for reopening the assessment. However, to this effect no specific ground has been taken by the assessed. The learned counsel could not point out that the assessed had made request for supply of the reasons recorded but despite this request the assessing officer did not supply the reasons recorded. On the other hand, the learned counsel informed that reasons were recorded during the course of hearing before the learned Commissioner (Appeals). It is also found that before the learned Commissioner (Appeals) also no ground was taken by the assessed that reasons recorded by the assessing officer for reopening the assessment were not communicated or supplied to the assessed. In view of this position this argument carries no force.

6. We have carefully considered the entire material on record and the rival submissions. The assessed has challenged the validity of the assessment on the ground of non- communication of the reasons recorded for reopening the assessment. However, to this effect no specific ground has been taken by the assessed. The learned counsel could not point out that the assessed had made request for supply of the reasons recorded but despite this request the assessing officer did not supply the reasons recorded. On the other hand, the learned counsel informed that reasons were recorded during the course of hearing before the learned Commissioner (Appeals). It is also found that before the learned Commissioner (Appeals) also no ground was taken by the assessed that reasons recorded by the assessing officer for reopening the assessment were not communicated or supplied to the assessed. In view of this position this argument carries no force.

7. The emphatic contention of the learned counsel was that reasons recorded by the assessing officer cannot justify a valid initiation of proceedings for reassessment because in the reasons recorded the assessing officer has not recorded any finding that the assessed had concealed particulars of its income or its income had escaped assessment. For proper analysis and appreciation of the issue we deem it necessary to reproduce the reasons recorded which are as under:

7. The emphatic contention of the learned counsel was that reasons recorded by the assessing officer cannot justify a valid initiation of proceedings for reassessment because in the reasons recorded the assessing officer has not recorded any finding that the assessed had concealed particulars of its income or its income had escaped assessment. For proper analysis and appreciation of the issue we deem it necessary to reproduce the reasons recorded which are as under:

"An intimation ha been received from Asstt. CIT Commpany Circle 3(2), New Delhi, wherein it has been stated that M/s. RRB Securities Ltd. has invested a sum of Rs. 1,20,000 as share capital with M/s. Merrygold Investments Ltd. during the financial year 1993-94. The intimation is not verifiable from the return filed by the assessed. Therefore, assessed's claim of exemption of capital gains of Rs. 1,24,66,883 under section 47(iv) requires verification. As such notice under section 148 is hereby issued."

8. The contention of the learned counsel was that the assessing officer had proceeded to reopen the assessment only for verification of certain information which is not legally correct approach. According to him, before the assessing officer proceeded to initiate proceedings under section 147/148 he should have recorded a categorical finding that the income of the assessed had escaped assessment. On perusal of the reasons recorded as reproduced above, we find sufficient force in this submission.

8. The contention of the learned counsel was that the assessing officer had proceeded to reopen the assessment only for verification of certain information which is not legally correct approach. According to him, before the assessing officer proceeded to initiate proceedings under section 147/148 he should have recorded a categorical finding that the income of the assessed had escaped assessment. On perusal of the reasons recorded as reproduced above, we find sufficient force in this submission.

9. So far as, the argument of the learned counsel that while recording reasons, the assessing officer did not apply his mind is concerned, we find sufficient force in this submission also. On perusal of the reasons recorded, it is found that the assessing officer got intimation that M/s RRB Securities Ltd. had invested a sum of Rs. 1,20,000 as share capital with M/s Merrygold Investment Ltd. during financial year 1993-94. As per the reasons recorded the information was not verifiable from the return filed by the assessed. The observation of the assessing officer is not to the effect that the investment in the shares of M/s Merrygold Investment Ltd. has not been shown by the assessed and the same has been concealed. It appears that the assessing officer himself did not make any attempt to investigate the facts correctly before initiating proceedings. As mentioned in the order of learned first appellate authority, the version of the assessed was that investment of Rs. 1,20,000 in the shares of M/s Merrygold Investment Ltd. was duly recorded in the books of account and was verified to the assessing officer's satisfaction. In any case, the reopening only for the purpose of verification was not justifiable.

9. So far as, the argument of the learned counsel that while recording reasons, the assessing officer did not apply his mind is concerned, we find sufficient force in this submission also. On perusal of the reasons recorded, it is found that the assessing officer got intimation that M/s RRB Securities Ltd. had invested a sum of Rs. 1,20,000 as share capital with M/s Merrygold Investment Ltd. during financial year 1993-94. As per the reasons recorded the information was not verifiable from the return filed by the assessed. The observation of the assessing officer is not to the effect that the investment in the shares of M/s Merrygold Investment Ltd. has not been shown by the assessed and the same has been concealed. It appears that the assessing officer himself did not make any attempt to investigate the facts correctly before initiating proceedings. As mentioned in the order of learned first appellate authority, the version of the assessed was that investment of Rs. 1,20,000 in the shares of M/s Merrygold Investment Ltd. was duly recorded in the books of account and was verified to the assessing officer's satisfaction. In any case, the reopening only for the purpose of verification was not justifiable.

10. The other reason for reopening was that the assessed's claim of exemption of capital gain of Rs. 1,24,66,883 under section 47(iv) required verification. Again, this was not adequate and sufficient basis for initiating proceedings under section 147 or for issuance of notice under section 148. In view of the above, it is clear that what the assessing officer was proposing was only verification of certain information.

10. The other reason for reopening was that the assessed's claim of exemption of capital gain of Rs. 1,24,66,883 under section 47(iv) required verification. Again, this was not adequate and sufficient basis for initiating proceedings under section 147 or for issuance of notice under section 148. In view of the above, it is clear that what the assessing officer was proposing was only verification of certain information.

11. It is settled legal proposition that proceedings under section 147 cannot be initiated only for making of roving or fishing enquiry. On the other hand, such proceedings can be started only when the assessing officer has reason to believe that income chargeable to tax has escaped assessment. In the present case, the assessing officer has not specified the basis of his belief that any item of income chargeable to tax has escaped assessment. As observed earlier, proceedings cannot be initiated for further verification of the income shown in the return or otherwise. This could be done by issuing notice under section 143(2). In the present case instead of taking recourse to section 143(2), the assessing officer proceeded to initiate proceedings under section 147/148 for making enquiry and verification as is clear from the order sheet entry dated 24-10-1996, referred to above. As the assessing officer has not recorded any finding regarding escapement of income, the notice issued by him on the basis of reasons recorded cannot be legally justified. Before the learned Commissioner (Appeals) the assessed has made a detailed submission and in support of such submission also made reference to certain decisions. However, the learned Commissioner (Appeals) has rejected the contention of the assessed. On perusal of the order of learned Commissioner (Appeals) it is also found that he has tried to substitute the words and sentences adopted in the reasons recorded as he has observed that the words required verification" are misplaced and instead of this the assessing officer should have mentioned "that due to incorrect claim of the assessed under an incorrect head, income has been underassessed". He has further observed that "in fact the words 'require verification' should be substituted with the words "is incorrect/not proper". Thus, the learned Commissioner (Appeals) tried to justify the order of the assessing officer by substituting the words which course is not permissible to the appellate authority. The reasons are to be recorded by the assessing officer for initiating proceedings under section 147/148 and no superior authority can substitute the reasons so recorded by him. In our considered opinion, therefore, the learned Commissioner (Appeals) was not justified in upholding the order of the assessing officer by substituting the words or sentences in the reasons recorded, as has been done by him. This approach too cannot be justified.

11. It is settled legal proposition that proceedings under section 147 cannot be initiated only for making of roving or fishing enquiry. On the other hand, such proceedings can be started only when the assessing officer has reason to believe that income chargeable to tax has escaped assessment. In the present case, the assessing officer has not specified the basis of his belief that any item of income chargeable to tax has escaped assessment. As observed earlier, proceedings cannot be initiated for further verification of the income shown in the return or otherwise. This could be done by issuing notice under section 143(2). In the present case instead of taking recourse to section 143(2), the assessing officer proceeded to initiate proceedings under section 147/148 for making enquiry and verification as is clear from the order sheet entry dated 24-10-1996, referred to above. As the assessing officer has not recorded any finding regarding escapement of income, the notice issued by him on the basis of reasons recorded cannot be legally justified. Before the learned Commissioner (Appeals) the assessed has made a detailed submission and in support of such submission also made reference to certain decisions. However, the learned Commissioner (Appeals) has rejected the contention of the assessed. On perusal of the order of learned Commissioner (Appeals) it is also found that he has tried to substitute the words and sentences adopted in the reasons recorded as he has observed that the words required verification" are misplaced and instead of this the assessing officer should have mentioned "that due to incorrect claim of the assessed under an incorrect head, income has been underassessed". He has further observed that "in fact the words 'require verification' should be substituted with the words "is incorrect/not proper". Thus, the learned Commissioner (Appeals) tried to justify the order of the assessing officer by substituting the words which course is not permissible to the appellate authority. The reasons are to be recorded by the assessing officer for initiating proceedings under section 147/148 and no superior authority can substitute the reasons so recorded by him. In our considered opinion, therefore, the learned Commissioner (Appeals) was not justified in upholding the order of the assessing officer by substituting the words or sentences in the reasons recorded, as has been done by him. This approach too cannot be justified.

12. As the issuance of notice under section 148 and initiation of proceedings for reassessment are not legally justified, the whole assessment order is liable to be quashed on that basis. Hence, while allowing ground Nos. 1 to 4 taken in this appeal, we hold that the assessment made in this case is illegal and void and the same is liable to be annulled.

12. As the issuance of notice under section 148 and initiation of proceedings for reassessment are not legally justified, the whole assessment order is liable to be quashed on that basis. Hence, while allowing ground Nos. 1 to 4 taken in this appeal, we hold that the assessment made in this case is illegal and void and the same is liable to be annulled.

13. Since we have annulled the assessment order by allowing ground Nos. 1 to 4 taken by the assessed in this appeal, we are not required to adjudicate the other grounds on merits.

13. Since we have annulled the assessment order by allowing ground Nos. 1 to 4 taken by the assessed in this appeal, we are not required to adjudicate the other grounds on merits.

14. In the result, assessed's appeal stands allowed.

14. In the result, assessed's appeal stands allowed.