Case Law Details
RELEVANT PARAGRAPH
8.3 It cannot be disputed and it is not the case of either side that the reasons extracted herein above did not precede the issuance of notice under Section 148(1) of the Act. The requirement for recordal of reasons by the Assessing Officer before issuing a notice is provided for under sub-section (2) of Section 148 of the Act.
8.4 A perusal of the reasons would thus show that the Assessing Officer was of the view that the assessee’s income chargeable to tax had escaped assessment in the relevant assessment year by virtue of the fact that the assessee had charged to its Profit & Loss account the sum of Rs 25 lacs (approx.) which was the closing balance in its MODVAT account. The Assessing Officer was of the view that the balance in the MODVAT account at the end of the previous year, relevant for the assessment year, in issue, ought to have been carried forward and shown as “loans and advances” on the asset side of the balance sheet. This fact alone propelled the Assessing Officer to form a reason to believe that the assessee‟ s income chargeable to tax had escaped assessment by virtue of what he termed as the failure on the part of the assessee in not disclosing fully and truly all material facts.
8.5. Thus the issue which arises for consideration is firstly, what is the scope of the expression “reason to believe” in Section 147 of the Act. Secondly, where an Assessing Officer issues a notice under Section 148(1) of the Act based on one particular item which forms the basis of his reasons under sub-section (2) of Section 148, is he then empowered to bring within his net other items of income or expenditure which are totally un-connected with the item which formed the basis of issuance of notice under Section 148(1) of the Act.
8.6 In so far as the first issue is concerned we do not have to go far but to look the judgment of the Supreme Court in ACIT vs Rajesh Jhaveri Stock Brokers (P) Ltd; (2007) 291 ITR 500. The Supreme Court while enunciating the law on the width and ambit of the provision of Section 147 of the Act stated in no uncertain terms stated that the word “reason” in the phrase “reasons to believe” would mean cause or justification. In other words if the Assessing Officer has cause or justification to know or suppose that income had escaped assessment it can be said to have “reason to believe” that income had escaped assessment. The Supreme Court went on to say that the expression cannot mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The Court also observed that the final outcome of the proceedings is not relevant. In other words at the initiation stage what is required is reason to believe and not an established fact of escapement of income. The test thus laid down by the Supreme Court is that at the stage of issue of notice the only aspect to be examined is whether there was relevant material before the Assessing Officer, based on which a reasonable person could have formed the requisite belief. One is not concerned at this stage whether the material would conclusively prove escapement and such a formation is within the realm of subjective satisfaction of the Assessing Officer.
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