IN THE ITAT, DELHI BENCH `D’ DELHI
JAGAN LAMPS LTD. v. ITO
ITA NOS. 428 & 2181 (Del) of 2004and ITA Nos. 4398 & 4399 (Del) of 2005
August 29, 2008
RELEVANT EXTRACTS:
18.6 Hon’ble Supreme Court in the case of CIT v Rajesh Jhavery 291 ITR 500 has held that “the expression” reason to believe in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped. The expression cannot be read to mean that the Assessing Officer should have 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. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income L not the concern at that stage. This is so because the formation of the belief is within the realm -of the subjective satisfaction of the Assessing Officer.
19. Now we will examine the facts of the case before us in the light of judicial pronouncements referred to above. In this case, the assessee tiled return of income at nil after claiming deduction u/s 10B on interest income earned on fixed deposits. The interest income on FDRs was shown under other income. The assessee had claimed deduction on interest income on FDRs treating the same as income derived from industrial undertaking. As per return of income neither tax was payable by assessee nor was any refund due to it. Therefore acknowledgement of return of income issued was deemed intimation. As held as above it cannot be treated as an “assessment” . The assessing officer issued notice after recording reasons that “the income received from the bank against FDRs. texable as income from other sources, has escaped taxation as this income has also been merged with the business income of exporting articles things and deduction under section 10-B has wrongly been claimed.” Excess claim of deduction, allowance or relief amounts to escapement of income within the meaning of Explanation 2 of section 147 of the Act. From the reasons recorded we find that there is nexus between the income earned from FDRs and claim of exemption of the same under section 10B of the Act. At the relevant time any profit and gain derived by an assessee from a hundred percent export oriented undertaking was eligible for exemption under section 10B of the Act. According to assessing officer the interest income from FDRs was assessable under the head other sources and not as profits derived from hundred percent export oriented undertaking. Therefore the assessing officer has material before him to form a belief that income has escaped assessment within the meaning of section 147 read with the provisions of Explanation 2 of the said section. The expression “reasons to believe” cannot be read to mean as held by Hon’ble Supreme Court on several occasions that the assessing officer should have finally ascertained the facts by legal evidence or conclusion. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person would have form the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of belief is within the realm of the subjected satisfaction of the assessing officer. Since deduction under section 10-B has been claimed by the assessee on interest earned on FDRs in return of income and accepted by the Revenue under section 143(1), the assessing officer has rightly invoked the provisions of section 147 for assessment of the interest income under the head ‘other sources.
20. The next contention of the Id. AR of the assessee is that there should be fresh material on record in order to enable the assessing officer to initiate proceedings under section 147 of the Act. It is also contended that the material available in the return of income cannot form basis to re-opening of assessment. We are unable to agree with this proposition. As held above the accepting of returned income under section 143(1) is not an assessment the question of change of opinion does not arise as no opinion was formed by the assessing officer while accepting the return of income under section 143(1). Hon’ble Kerala High Court in the case of Abad Fisheries (supra) has held that so long as the ingredients of section 147 are fulfilled, the assessing officer is free to initiate proceedings under section 147 of Act and failure to take steps under section 143(3) will not render the assessing officer powerless to re-initiate re-assessment proceedings even when intimation under section 143(1) have been issued. The view of Hon’ble Kerala High Court in the case Abad Fisheries finds support from the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) wherein it has been held that income escaping assessment in the case of intimation under section 143(l)(a) is covered by the main provision of section 147 as substituted with effect from April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by. The main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued. Therefore the decisions relied by Id Sr. counsel of the assessee including the decisions of Hon’ble Delhi High court in the case of Kelvinator of India; and KLM Airways are of no help in view of decision Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra).
21. Next contention of Ld AR of the assessee is that assessing officer in order to circumvent the provisions of section 143(2) has issued notice under section 147 of the Act. Reliance has been placed on the decision of IT AT in the case of ACIT v O.P. Chawla (TM) (supra). As discussed above the assessing officer can issue notice under section 143(2) within the period of twelve months from the month in which the return of income is furnished. If no notice is issued within the period of twelve months, according to Ld Sr. counsel for the assessee no notice under section 147 can be issued unless there is some fresh material before assessing officer. Issue of notice under section 147 without fresh material will amount to circumventing of provisions of section 143(2). We are unable subscribe this opinion of Ld Sr. counsel for the assessee in view of decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) wherein it has been held that failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued. If the contention of Ld AR of the assessee is accepted provisions of main section 147 will be rendered redundant in so far as the escapement of income in intimation/deemed intimation under section 143(1) is concerned. Issue of notice u/s 147 immediately after expiry of period of twelve months will not in any way circumvent the provisions of section 143(2). The assessment under section 143(3) relates to verification of entire information contained in the return of income. Entire assessment is open before him. On the other hand the assessment or reassessment under section 147 relates to income that has escaped assessment The assessing officer can only assess or reassess income that has escaped after recording of reasons including any other income escaped assessment that conies to his notice during the course of proceedings under section 147. Thus the scope of section 143(2) is wider than section 147 in the sense that the income escaping assessment has to fall within the ambit of provisions of Explanation 2 of section 147. Hence it will be incorrect to say that the provisions of section 147 cannot be substituted for verification of correctness of entire information contained in the return of income. The contention of the assessee that the decision of Third Member in the case of ACIT Vs. 0. P. Chawla (supra) is binding on the division bench of the IT AT wherein it has been held that provisions of section 147 cannot be substituted for section 143(2) for verification of the correctness of return. In our respectful opinion the decision of Third Member in the case of ACIT Vs. O. P. Chawla (supra) after the decision of the Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Broker Pvt. Ltd (supra) (rendered on 23rd May, 2007 after the decision of Third Member .rendered on 29th May. 2006) is of no’help. Secondly the decision relates lo an assessment year prior to substitution of present section 143 by the Finance Act, 1999 w.e.f 1.6.1999. From this date under section 143(1), the assessing officer is not empowered to look into the return of income except computation of tax payable/refundable on the basis of income returned. Therefore issue of notice under section 147 after expiry of period of twelve months cannot be termed as circumventing of provisions of section 143(2) as contended by Id Sr. counsel of the assessee. The decision of Hon’ble Punjab & Haryana High Court in the case of Vipin Khanna also of no help to the assessee as in the later decision in the case of Metal Products of India Vs. OT 293 ITR 618 (P & H), Their Lordships of Hon’ble Punjab and Haryana High Court rejected the arguments of counsel for assessee that once the returns were processed under section 143(1) of the Act, proceedings under section 148 of the Act could not be initiated. In Metal Products of India, it has been held that if the ingredients of section 148 of the Act are satisfied, there is no bar in initiation of proceedings under section 148 of the Act. Accordingly, in our view, the assessing officer was justified in assuming jurisdiction under section 147 of the Act.
