HIGH COURT OF PUNJAB AND HARYANA
Arun Kumar Goyal
Commissioner of Income-tax, Chandigarh
IT Appeal NO. 54 OF 2012 (O&M)
NOVEMBER 21, 2012
Surya Kant, J.
This order shall dispose of four appeals bearing ITA Nos. 54 to 57 of 2012 out of which ITA Nos. 54 & 55 of 2012 are at the instance of the husband (Arun Kumar Goyal) while ITA No. 56 & 57 of 2012 are by his wife (Smt. Parveen Goyal). The assessees have preferred these appeals against the order(s) dated 17.11.2011 passed by the Income Tax Appellate Tribunal (in short, ‘the ITAT’). Since the ITAT has decided the appellants’ four appeals by assigning identical reasons, we propose to decide these appeals by passing a common order as the facts are interconnected and overlapping.
2. The facts giving rise to these appeals are that the assessees (husband and wife) filed their separate returns of income declaring business income, Long Term Capital Gains and agricultural income for the Assessment Year 2000-01. Subsequently, on the basis of proceedings initiated for the Assessment Year 2003-04, they received notices on 05.05.2006 under Section 148 of the Income Tax Act, 1961 (in short, ‘the Act’) alleging that they had purchased two-third share in SCO No. 60-61, Sector 17-D, Chandigarh for a consideration of Rs. 85 lacs as per the ‘agreement to sell’ dated 14.10.1999 but the sale deed was got registered at Rs. 19.20 lacs in the Assessment Year 2003-04 and thus the assessees made undisclosed payment to the tune of Rs. 65.80 lacs to the sellers and thus escaped assessment for the Assessment Year 2000-01 to the extent of undisclosed payment of their respective share.
3. The case of the assessees was that they had entered into an ‘agreement to sell’ dated 03.02.2000 in respect of the subject property for a total sale consideration of Rs. 16 lacs and its possession was taken immediately and stood acknowledged in their name on 03.02.2000 itself i.e. in the Assessment Year 2000-01 which was duly reflected in the returns for the Assessment Year 2001-02 also wherein the rent received from the Showroom was shown as income from the house property. The appellant-assessees claimed that earlier the subject property was being managed through one JD Gupta who was a ‘property dealer’ and had initially negotiated at their instance with the seller(s) and pursuant thereto that the ‘agreement to sell’ dated 14.10.1999 was executed in which the figure of Rs. 85 lacs was fraudulently entered into as a sale consideration by JD Gupta for his own/personal benefit. The assessees further claimed that the said ‘agreement to sell’ was got signed from them by JD Gupta without letting them see the contents of the agreement. The property in question was stately a resumed property and had no buyer as it was in possession of the Estate Officer. Hence the realizable price of the property was very low. The assessees asserted that the sale consideration of Rs. 85 lacs was a fake entry made by JD Gupta in the ‘agreement to sell’ dated 14.10.1999 for his personal gains and without giving any sanctity to the said agreement, the parties in fact bound themselves down with a fresh agreement on 03.02.2000 depicting the agreed sale consideration of Rs.16 lacs. The appellant-assessees also explained that though they were in possession of the property and had been receiving its rental income since February, 2000 yet they had to approach the Civil Court and it was pursuant to the decree passed in their favour that a Local Commissioner was appointed who got the sale deed executed on 13.02.2002 for a sale consideration of Rs. 12.80 lacs. Thereafter only that the said JD Gupta lodged a false complaint with the Income Tax Authorities which led to the issuance of notices under Section 148 of the Act to the assessees.Online GST Certification Course by TaxGuru & MSME- Click here to Join
4. The Assessing Officer (in short, ‘the AO’) vide order dated 17.03.2006 for the Assessment Year 2003-04 held that the assessees themselves have accepted the execution of ‘agreement to sell’, dated 14.10.1999 as also the payment of earnest money of Rs.10 lacs. Their plea regarding second agreement to sell dated 03.02.2000 or the agreed sale consideration amounting to Rs. 16 lacs only, was disbelieved concluding that the assessees had made an undisclosed payment of Rs. 65.80 lacs to the sellers and both of them had invested Rs. 43,86,667/- out of their undisclosed income. The AO applied the same reasoning while re-opening and passing a fresh assessment order dated 28.11.2007 for the Assessment Year 2000-01. Penalty proceedings under Section 271(C) of the Act were also initiated.
5. The assessees went in appeal(s) which were dismissed by the Commissioner of Income Tax (Appeals) (in short, ‘the CIT’) relying upon the decision of the Hon’ble Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd.  291 ITR 500. Still aggrieved, the assessees preferred appeal(s) before the ITAT but the same have been turned down vide order(s) dated 17.11.2011 on the strength of the decision cited above.
6. The short point urged before us on behalf of the appellant-assessees is peripherial to the scope of Section 147 of the Act, especially the phrase “reason to believe” as according to them the assessment has been re-opened by the AO on mere suspicion without verifying the correctness of the information received by him nor did he record his satisfaction about correctness of the said information. According to them, the Revenue has failed to discharge its onus in proving that the consideration mentioned in the sale deed dated 20.09.2002 was less than what was actually agreed to or paid to the sellers and the only evidence relied upon against them is the statement of a third party, namely, JD Gupta who had an axe to grind against the assessees due to non-payment of the commission. Since the vendors and vendees have unequivocally denied the receipt or payment of consideration in excess to what was mentioned in the ‘agreement to sell’ dated 03.02.2000 and there is no other material to establish that consideration of Rs.85 lacs ever exchanged hands, no case of escaped assessment within the ambit of Section 147 of the Act is made out. The decision in Rajesh Jhaveri’s Stock Brokers (P.) Ltd.’s case (supra) was stately distinguishable. The appellant-assessees relied upon a decision of the Delhi High Court in CIT v. Ved Prakash Choudhary  305 ITR 245 and two decisions of this Court in CIT v. Smt. Paramjit Kaur  311 ITR 38; and Paramjit Singh v. ITO  323 ITR 588, to urge that:-
(i) where the assessee and the alleged recipient have denied transfer of money between them, no contrary inference could be drawn unless the material on record says otherwise;
(ii) re-assessment proceedings cannot be initiated unless the AO on examination of the information received is personally satisfied of escaped income; and
(iii) no oral evidence contrary to the terms of a document is admissible, hence the sale consideration shown in a registered sale deed cannot be doubted or substituted on the basis of oral evidence.
7. We have heard learned counsel for the appellant-assessees and gone through the record.
8. Section 147 of the Act enables the AO to assess or re-assess any income chargeable to tax, if he has reason to believe that such income has escaped assessment. Such a recourse is available to the AO before the expiry of four years from the end of the relevant assessment year if for whatever reason he has reason to believe that the income has escaped assessment. The first proviso to Section 147 further confers jurisdiction on the AO to re-open the assessment if the income chargeable to tax has escaped assessment 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 Section 142(1) or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Section 148(1) contemplates that before making the assessment, re-assessment or re-computation under Section 147, the AO shall serve on the assessee a notice requiring him to furnish the prescribed information. Section 149 reinforces that 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 unless the case falls in clause (b) & (c) of the provision.
9. The assessment of an income chargeable to tax which has escaped assessment is thus permissible provided that the AO has ‘reason to believe’ so.
10. The expression ‘reason to believe’ undoubtedly is different from ‘reason to suspect’ and to draw this distinction the former phrase has been construed suggesting that the belief must be that of an honest and reasonable person based upon reasonable grounds instead of mere gossip or rumour. The AO thus cannot have ‘reason to believe’ on mere subjective satisfaction when reasons to support such belief are non-existent. The reason must be held in good faith and cannot be a mere pretence, for the reasons to be assigned by the AO are always open to the judicial review by a Court. [Ref. (i) Calcutta Discount Co. Ltd. v. ITO  41 ITR 191 (SC); (ii) Sheo Nath Singh v. Appellate CIT  3 SCC 234; and (iii) ITO v. Lakhmani Mewal Das  3 SCC 757.
11. With reference to the scope of jurisdiction exercisable under Section 147 as it stood prior to 01.04.1989, it was ruled that the Assessing Officer was required to satisfy the twin test that (i) he has ‘reason to believe’ that income, profits or gains chargeable to Income Tax have escaped assessment; and (ii) that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. [Ref. S. Ganga Saran & Sons (P.) Ltd. v. ITO  3 SCC 143].
12. There is, however, a sea-change after the amendment in Section 147 for determining jurisdictional scope for re-assessment of the escaped income. The Hon’ble Supreme Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.’s case (supra) has explained and laid down that under the substituted Section 147 “existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to re-open the assessment”. It was further held that “so long as the ingredients of Section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under Section 147 and failure to take steps under Section 143(3) will not render the Assessing Officer powerless to initiate re-assessment proceedings even when intimation under Section 143(1) had been issued”.
13. The expression “reason to believe” thus cannot be restrictively construed to say as if the AO is obligated firstly to finally ascertain the factum of escaped income on the basis of admissible evidence and then only to issue show cause to the assessee. The Supreme Court held that the final outcome of the proceedings initiated under Section 147 is not relevant and what is of relevance is the existence of reasons to make the AO believe that there has been under-assessment of the assessee’s income for a particular year. [Ref. Central Provinces Manganese Ore Co. Ltd. v. ITO  59 Taxman 17 (SC).
14. It is explicit from the post-amendment decisions cited above that once there are reasons for the AO to believe, whether such reasons originate out of the record already scrutinized or otherwise, he shall be within his competence to initiate the re-assessment proceedings. The formation of belief by the AO must always be tentative and not a firm or final conclusion as the latter will negate the very object of giving an opportunity of hearing to the assessee as it will amount to post-decisional hearing.
15. There can be no escape in the light of the above-referred interpretation of Section 147 that there existed sufficient reasons for the AO to believe that the undisclosed income in the hands of the appellant-assessees escaped assessment in the year 2000-01. The agreement to sell dated 14.11.1999 was admittedly signed by both of them. The Notary Public also supported the cause of Revenue regarding execution of the said agreement. JD Gupta was cross-examined by the assessees at length but he withstood the test of credibility. The agreement to sell dated 14.11.1999 referred to four demand drafts which were exactly the same as mentioned in the sale deed dated 13.09.2002. These very demand drafts appeared in the subsequent agreement to sell dated 03.02.2000 also. In the light of this overwhelming material brought on record the AO was fully justified in disbelieving the subsequent agreement dated 03.02.2000. Similarly, the far-fetched plea taken by the assessees that their signatures on the agreement to sell dated 14.10.1999 were obtained without disclosing its contents to them, cannot be accepted.
16. The decisions relied upon by the appellants have no bearing on the point in issue. In the case before the Delhi High Court, the AO relied upon a MOU of an agricultural land which was eventually not sold to the assessees and the vendee was not party thereto. That was not a case of escaped assessment under Section 147 of the Act. In Smt. Paramjit Kaur’s case (supra), the action initiated under Section 147 was set aside by the Tribunal holding that the nexus between the material and escapement of income was not established. In Paramjit Singh’s case (supra), oral evidence led to prove ostensible sale consideration contrary to what was mentioned in the document i.e. the sale deed, relied upon by the assessee, was disbelieved by the CIT and the Tribunal and this Court affirmed that view.
17. For the reasons afore-stated these appeals fail and the same are dismissed.