Section 147
income escaping assessment - general
Constitutional
validity
Provisions
are not unconstitutional - It
cannot be said that sections 147 and 148 contain delegation of arbitrary and uncontrolled
power to the ITO to reopen an assessment without any reason. These sections
cannot therefore be challenged as unconstitutional - Vimal Chandra Golecha
v. ITO [1982] 134 ITR 119
(Raj.).
Maintainability of
writ petition - The Supreme Court in the case of Calcutta Discount Co.
Ltd. v. ITO [1961] 41 ITR 191 has clearly indicated that a writ
petition would be maintainable to challenge invocation of proceedings for
reassessment even though it was also open to the assessee to challenge the same
before the Assessing Officer during the assessment as also challenge the same
before the appellate authorities after the reassessment proceedings were
completed. As indicated in Whirlpool’s Corpn. v. Registrar of Trade
Marks [1998] 8 SCC 1, the jurisdiction of the High Court in entertaining a
writ petition under article 226 of the Constitution would not be affected
although there exist alternative statutory remedies particularly in cases where
the authority against whom the writ has been filed is shown to have had no
jurisdiction or has purported to usurp jurisdiction without any legal
foundation. It, however, remains a matter of discretion with the court as to
whether in a particular case, it ought to interfere or not. Thus, a writ
petition challenging reassessment, cannot be thrown out at the threshold on the
ground that it is not maintainable - Techspan
Reassessment at the
instance of Commissioner - Even if there is advertence in the reassessment
proceedings to the direction of the superior officer, that by itself will not
vitiate the resultant proceedings as long as the Assessing Officer has
independently applied his mind to all the relevant aspects and has arrived at
the reasons for his belief. Reminding an officer of his statutory duty and
directing him to proceed in accordance with law after arriving at the requisite
satisfaction under the statute cannot amount to a direction to act in a
particular way. The officer to whom such a reminder is given also cannot be
said to abdicate his function if he proceeds according to law uninfluenced by
any direction from his superior. If the direction by the Commissioner is to
reopen the assessment under section 147 bypassing the statutory formalities,
that would probably amount to dictating his subordinate to act in a particular
way thereby taking away the discretion vested in the subordinate - CIT v.
Abdul Khader Ahamed [2006]
156 Taxman 206 (Ker.).
Burden of proof
Burden of proof is on revenue - In reassessment proceedings, the burden is
on revenue to establish that there was income which escaped assessment - Tin
Mfg. Co. of India v. CIT [1996]
88 Taxman 34/222 ITR 323 (All.).
Amendments
of 1989 - Circular No. 549,
dated 31-10-1980 issued by the Central Board of Direct Taxes makes it clear
that the amended provision which came into effect on 1-4-1989, would be
retrospective in the sense that it will apply prospectively in all matters
pending on 1-4-1989 which had not become closed or dead. Thus, where the notice
for assessment was issued after the amendment of law in 1989, the new law would
govern the procedure even though the assessment was made prior to the amendment
- Simplex Concrete Piles (India) Ltd. v. Dy. CIT [2003] 262 ITR 605 (Cal.).
Scope of
powers
Powers
under amended provision are wide enough even to cover cases where assessee had
fully disclosed material facts
- The provisions of section 147, as amended with effect from 1-4-1989, are
contextually different and the cumulative conditions spelt out in clauses (a)
and (b) of section 147 prior to its amendment are not present in the amended
provision. The only condition for action is that the Assessing Officer should
have reasons to believe that income has escaped assessment. Such belief can be
reached in any manner and is not qualified by a pre-condition of faith and true
disclosure of material fact by an assessee as contemplated in the pre-amended
section 147(a). Viewed in that angle, power to reopen assessment is much
wider under the amended provision and can be exercised even after the assessee
has disclosed fully and truly all the material facts - Bawa Abhai Singh
v. Dy. CIT [2001] 117
Taxman 12 (Delhi) [See also Rakesh Aggarwal v. Asstt. CIT
[1996] 87 Taxman 306 (
Proceedings are for the benefit of revenue only - Since the proceedings under section 147 are for the benefit of the revenue and not an assessee, and are aimed at gathering the ‘escaped income’ of an assessee, the same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the assessee, thereby making the machinery unworkable - CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC).
Assessee
can make claims only in respect of escaped income - While the assessee cannot reagitate claims
already assessed, it is open to the assessee in reassessment proceedings to put
forward claims for deduction of any expenditure which is relatable to the
income which is sought to be assessed as escaped income in the reassessment
proceedings - CIT v. Caixa Economica De God [1994] 119 CTR (Bom.)
250.
Proceedings
under section 147 are for the benefit of revenue and not of the assessee, and
hence the assessee cannot be permitted to convert the reassessment proceedings
as his appeal or revision in disguise, and seek relief in respect of items
earlier rejected, or claim relief in respect of items not claimed in the
original assessment proceedings, unless relatable to escaped income, and
reagitate concluded matters. Allowance of such a claim in respect of escaped
assessment in the case of reassessment has to be limited to the extent to which
they reduce the income to that originally assessed. Income for the purpose of
reassessment cannot be reduced beyond the income originally assessed - K.
Sudhakar S. Shanbhag v. ITO [2000] 241 ITR 865 (Bom.).
Powers are
not unbridled - The power
conferred upon the ITO by sections 147 and 148 is not an unbridled one. It is
hedged with several safeguards conceived in the interest of eliminating room
for abuse of this power by the Assessing Officer - Sri Krishna (P.) Ltd.
v. ITO [1996]
87 Taxman 315/221 ITR 538 (SC).
Powers are
not plenary - The powers of
the ITO to reopen assessment, though wide, are not plenary. The words of the
statute are ‘reason to believe’ and not ‘reason to suspect’. The reopening of
an assessment after a lapse of many years is a serious matter - ITO v. Lakhmani
Mewal Das [1976]
103 ITR 437 (SC).
Assessee is
not obliged to instruct ITO on questions of law - Section 147 does not cast any duty on the
assessee to instruct the ITO on questions of law - CIT v. Bhanji
Lavji [1971]
79 ITR 582 (SC) - Parashuram Pottery Works Co. Ltd. v. ITO
[1977] 106
ITR 1 (SC).
ITO can
reassess entire escaped income
- Once an assessment is reopened by issuing a notice, the previous
under-assessment is set aside and the whole assessment proceedings start
afresh. Once the reassessment proceedings are validly initiated, the
jurisdiction of the ITO is not restricted to the portion of the income that
escaped assessment. Once valid proceedings are started under section 147, the
ITO not only has the jurisdiction but it is his duty to levy tax on the entire
income that has escaped assessment during that year - V. Jaganmohan Rao
v. CIT/CEPT [1970] 75 ITR 373 (SC).
Assessee cannot
reagitate questions and claims which have become final - To read the judgment in Jaganmohan Rao’s
case as laying down that the reassessment wipes out the original assessment and
that reassessment is not only confined to ‘escaped assessment’ or ‘under
assessment’ but to the entire assessment for the year and it would start the
assessment proceedings de novo giving right to an assessee to reagitate
matters which he had lost during the original assessment proceedings which had
acquired finality, is not only erroneous but also against the phraseology of
section 147 and the object of reassessment proceedings - CIT v. Sun
Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC).
Reassessment
must be confined to points of under-assessment and not entire assessment - The entire appellate remedy shall be denied
to the assessee if the ratio in V. Jaganmohan Rao’s case (supra)
is blown up out of all proportion. Therefore, the only pragmatic reading of
that judgment can be that the reassessment proceeding would confine itself to
the points of under assessment. It cannot embrace the entire assessment - Metal
Import (P.) Ltd. v. CIT [1994] 72 Taxman 375 (
Prior
opportunity to assessee is not necessary - The ITO is not required by the section to convey to the assessee or
to intimate to him the nature of the alleged escapement, or to give him an
opportunity of being heard, before he decides to operate the powers conferred
in the section - CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC).
Proceedings
cannot be initiated ignoring return showing income below taxable limit - A return showing income below taxable limit
is a valid return. The ITO cannot therefore ignore such a return and issue a
notice for reassessment - CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569
(SC).
Mere change
of opinion cannot form the basis - When the primary facts necessary for assessment are fully and truly
disclosed, the ITO will not be entitled on change of opinion to commence
proceedings for reassessment. Similarly, if he has raised a wrong legal
inference from the facts disclosed, he will not, on that account, be competent
to commence reassessment proceedings - CIT v. Bhanji Lavji [1971] 79 ITR 582
(SC).
Having second
thoughts on the same material, and omission to draw the correct legal
presumption during original assessment do not warrant the initiation of a
proceeding under section 147 - ITO v. Nawab Mir Barkat Ali Khan
Bahadur [1974]
97 ITR 239 (SC).
Where it was
clear from the original assessment orders as well as order made by the
appellate authority that the Assessing Officer was well aware about the primary
facts, viz., the claim made by the assessee, the circumstances under
which the claim was made, and the provisions of law which could be applied
while granting the benefits, and the Assessing Officer consciously considered
the facts and arrived at a decision, the assessment cannot be reopened merely
because subsequently the Assessing Officer changes his opinion or some other
officer takes a different view. A decision is right or wrong is none of the
concern of the subsequent officer. If the primary facts were not available or
there was concealment or there was no application of mind at all, then a case
for reopening the assessment could be made out - Sita World Travel (India)
Ltd. v. CIT [2004] 140 Taxman 381 (Delhi).
Reassessment
based on new views on same facts is not permissible - Income-tax department cannot be permitted
to bring fresh litigations because of new views they entertain on facts or new versions
which they present as to what should be the inference or proper inference
either of the facts disclosed or the weight of the circumstances - Sirpur
Paper Mills Ltd. v. ITO [1978] 114 ITR 404 (AP).
Ignorance
of law cannot form the basis
- Where the relevant materials or facts were admittedly already available in
the concerned original assessment proceedings and there were no new facts which
came to the possession of the assessing authority, the said officer could not
be heard to say that the legal position was not known to him even though the
relevant facts and materials were available. Ignorance of law would be no
ground or any excuse for the ITO concerned to reopen the assessment - Century
Enka Ltd. v. ITO [1983] 143 ITR 629 (Cal.).
Statements
by third parties cannot form the basis - A mere confessional statement by a third party (who is a lender of
the assessee) that he was a mere name-lender and that all his transactions of
loans were bogus, without naming the assessee as one who had obtained bogus
loans, would not be sufficient to hold that the assessee’s income had escaped
assessment - S.P. Agarwalla alias Sukhdeo Prasad Agarwalla v. ITO
[1983] 140
ITR 1010 (Cal.).
Some
opinion must have been formed by ITO at original stage - There should be something positive to show
that there was in fact such formation of opinion at the original assessment
stage. If initially no opinion was formed, the question of change therein could
not be said to take place - Nawabganj Sugar Mills Co. Ltd. v. CIT
[1980]
123 ITR 287 (Delhi).
Supreme
Court decision cannot be the basis - The ITO cannot seek to reopen an assessment under section 147 on the
basis of a Supreme Court decision in a case where the assessee had disclosed
all material facts - Indra Co. Ltd. v. ITO [1971] 80 ITR 559
(Cal.).
Ignorance
of Board circular is not sufficient - The mere fact that the ITO was not aware of the circular of the Board
is not sufficient to reopen an assessment - Dr. H. Habicht v. Makhija
[1985] 154
ITR 552 (Bom.).
Omission to
notice facts by oversight cannot be the basis - When at the time of the original assessment primary facts were
already before the ITO and after some routine enquiry the ITO could have
assessed the income on the basis of such information, it is not open to him to
invoke the provisions of section 147 and reopen the assessment even though he
may have omitted to notice the facts mentioned in the return by oversight - Lokendrasingh
v. ITO [1981]
128 ITR 450 (MP).
Proceedings
are not barred when rectification proceedings are dropped - There is no provision in the Act which bars
the initiation of proceedings under sections 147 and 148 in cases where
proceedings initiated earlier under section 154 had been dropped - G.P.
Agarwal v. Asstt. CIT [1994] 208 ITR 795 (All.).
Completion
of assessment to get over time-bar cannot be a valid ground - Where there was no suppression or
concealment on the part of the assessee, but the ITO passed the assessment
order without investigating the matter in detail on the only ground that the
assessment proceedings were getting time-barred, it could not be said that the
assessee had concealed or suppressed any material so as to warrant reopening of
the assessment - Adarsh Chemicals & Fertilizers Ltd. v. IAC
[1994] 122 CTR (Guj.) 53.
Non-cognizance
of revised return will not vitiate ITO’s jurisdiction - Once jurisdiction to make reassessment is
conceded, one cannot perceive any reason how the non-cognizance of the
subsequent revised return on the basis of a particular view taken by the
Officer in respect of the revised return can destroy the initial jurisdiction
which the notice under section 148 has activated - CIT v. Banshidhar
Jalan & Sons [1994] 207 ITR 488 (Cal.).
Valuation
report cannot by itself form the basis - Where apart from the valuation report which was relied upon by the
ITO there was no material before him to come to the prima facie
conclusion that the assessee had received a higher consideration than what had
been stated in the sale deed, reassessment would not be justified - ITO
v. Santosh Kumar Dalmia [1994] 208 ITR 337 (Cal.).
Valuation is
always a question of opinion and unless there is a clear finding on the basis
of the materials that the assessee invested in the construction of a house
property more than what had been shown by her in the course of assessment
proceedings, the ITO cannot proceed merely on the basis of the Valuation Report
of the Department Valuer - Smt. Uma Devi Jhawar v. ITO 1994 Tax
LR 78 (Cal.).
Loss cannot
be determined in reassessment
- From a reading of clause (d) of the Explanation, one can
clearly visualise a prohibition on determination of loss for the first time in
a proceeding under section 147, on the basis of a return of loss filed in
pursuance of a notice under section 148 - Koppind (P.) Ltd. v. CIT
[1994] 207
ITR 228 (Cal.).
Loss cannot
be computed and carried forward
- In reassessment proceedings, which are always for the benefit of Revenue, the
assessee cannot claim that assessment should be completed and loss should be
determined to enable him to claim the benefit of carry forward and set off
against income of the subsequent years. In such a case, the proper course for
the ITO would be to drop the proceedings under section 147 - CIT v. State
Agro Development Corporation [2001] 248 ITR 487 (J&K).
Assessing
Officer cannot launch inquiry on grounds not covered in reassessment notice - Where the Assessing Officer initiated
proceedings for reassessment on the only ground that the assessee had claimed
excess depreciation by adopting a higher rate as against the normal rate, he
would not be justified in launching inquiry into issues which were not
connected with the claim for depreciation. A letter issued to the assessee
requiring the assessee to furnish information on issues in respect of which
there was no allegation of any escapement or under assessment of income either
in the reasons recorded or during the course of proceedings under section 147
would tantamount to reviewing the whole assessment, which is not permissible.
The letter was therefore vacated - Vipan Khanna v. CIT [2002]
122 Taxman 1 (Punj. & Har.).
When
Commissioner sets aside the assessment, and assessment is yet to be reframed - When the Commissioner acting under section
263 has set aside the original assessment and has directed the Assessing
Officer to reframe the assessment on a particular issue after examining all the
facts of the case and after providing reasonable opportunity of hearing to the
assessee, it cannot be said that income has escaped assessment. When the
reassessment proceedings pursuant to the order of the Commissioner are pending
and the Assessing Officer is entitled to examine all the aspects of the matter
on the issue involved, the question of income escaping assessment does not
arise and consequently the question of reopening the assessment on the ground
that the Assessing Officer has reason to believe that the income chargeable to
tax has escaped assessment does not arise at all. So long as the assessment
proceeding in respect of certain income subsists, the income cannot to be said
to have escaped assessment. Such a proceeding, if initiated, will have to be
held as invalid ab initio void and illegal - Ador Technopack Ltd.
v. Dr. Zakir Hussein, Dy. CIT [2004] 271 ITR 50/140 Taxman 16 (Bom.).
When
intimation under section 143(1) is issued - So long as ingredients of section 147 are fulfilled, Assessing
Officer is free to initiate proceeding under section 147 even where intimation
under section 143(1) has been issued; as intimation under section 143(1)(a)
is not ‘assessment’ there is no question of treating re-assessment in such a
case as based on change of opinion - Asstt. CIT v. Rajesh Jhaveri Stock
Brokers (P.) Ltd. [2007] 161
Taxman 316/291 ITR 500 (SC).
Others - During pendency of the return filed under
section 139 along with refund application under section 237, action cannot be
taken under section 147/148 - Trustees of H.E.H. the Nizam’s Supplemental
Family Trust v. CIT [2000] 109 Taxman 193/242 ITR 381 (SC).
It is trite
law that when an assessee challenges a notice to reopen assessment under section
147 on ground that no reasons under section 148 had been recorded or disclosed,
court must call for and examine the reasons - Comunidado of Chicalim v. ITO
[2000]
113 Taxman 331 (SC).
Merely because
the case of the assessee was accepted as correct in original assessment for
relevant assessment year, it does not preclude the ITO to reopen the assessment
of an earlier year on the basis of his findings of fact made on the basis of
fresh materials in the course of assessment of the next assessment year - Ess
Ess Kay Engineering Co. (P.) Ltd. v. CIT [2001] 247 ITR 818 (SC).
Where the
petitioner-bank received money under the Portfolio Management Scheme from one
of the customers under an oral understanding that the customer would require a
fixed return, and later the petitioner earned more than the fixed amount and
retained the excess amount over the amount paid as fixed return but did not
offer such excess amount to tax, the department would be justified in reopening
the assessment due to the petitioner’s failure to apprise the department of the
said oral understanding, which was a material fact - Citibank N.A. v. S.K.
Ojha [2002] 257 ITR 663 (Bom.).
‘Reason to
believe’
Belief should
not be arbitrary or irrational but based on relevant and material reasons - The important words under section 147 are
‘has reason to believe’ and these words are stronger than the words ‘is
satisfied’. The belief entertained by the ITO must not be arbitrary or
irrational. It must be reasonable or in other words it must be based on reasons
which are relevant and material. The Court cannot of course investigate into
the adequacy or sufficiency of the reasons which have weighed with the ITO in
coming to the belief, but the Court can certainly examine whether the reasons
are relevant and have a bearing on the matters in regard to which he is
required to entertain the belief before he can issue notice under section 147 -
Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC);
ITO v. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239
(SC)/Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34
(SC).
Belief must
be in good faith, and cannot merely be a pretence - The expression ‘reason to believe’ does not
mean a purely subjective satisfaction on the part of the ITO. The belief must
be held in good faith; it cannot merely be a pretence - S. Narayanappa
v. CIT [1967]
63 ITR 219 (SC).
Suspicion,
gossip or rumour should not form the basis - The words ‘reason to believe’ suggest that the belief must be that of
an honest and reasonable person based upon reasonable grounds, and that the ITO
may act on direct or circumstantial evidence but not on mere suspicion, gossip
or rumour. The ITO would be acting without jurisdiction if the reason for his
belief that the conditions are satisfied does not exist or is not material or
relevant to the belief required by the section - Sheo Nath Singh v. AAC
[1971] 82
ITR 147 (SC).
Extraneous
and irrelevant material should not be basis for conclusion - There should be some direct nexus between
the conclusion of fact arrived at by the authority concerned and the primary
facts upon which that conclusion is based. The use of extraneous and irrelevant
material in arriving at that conclusion would vitiate the conclusion of fact - CIT
v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC); ITO
v. Lakshmani Mewal Das [1976] 103 ITR 437 (SC).
Disclosure
of primary facts
Every
disclosure is not and cannot be treated to be a true and full disclosure - Every disclosure is not and cannot be
treated to be a true and full disclosure. A disclosure may be a false one or
true one. It may be a full disclosure or it may not be. A partial disclosure
may very often be a misleading one. What is required is a full and true
disclosure of all material facts necessary for making assessment for that year
- Sri Krishna (P.) Ltd. v. ITO [1996] 87 Taxman 315/221 ITR 538 (SC).
Assessee
must disclose all primary facts fully and truly - The words ‘omission or failure to disclose
fully and truly all material facts necessary for his assessment for that year’
postulate a duty on every assessee to disclose fully and truly all material
facts necessary for his assessment. What facts are material and necessary for
assessment will differ from case to case. There can be no doubt that the duty
of disclosing all the primary facts relevant to the decision on the question
before the assessing authority lies on the assessee - Calcutta Discount Co.
Ltd. v. ITO [1961] 41 ITR 191 (SC); Indian
Oil Corporation v. ITO [1986] 159 ITR 956 (SC); Parashuram
Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC); ITO
v. Lakhmani Mewal Das (supra).
Disclosure
must not only be ‘full’ but also ‘true’ - The material should not only be full, but also be true - K.P.
Arthanariswamy Chettiar v. First ITO [1972] 84 ITR 51 (
‘Disclose’
postulates that assessee has knowledge of facts - The duty to disclose fully and truly arises
only when an assessee has knowledge of facts. An assessee who does not have the
knowledge of the facts cannot possibly disclose such facts - Canara Sales
Corporation Ltd. v. CIT [1989] 176 ITR 340 (Kar.).
‘Disclosure’
can be only of facts/materials existing at relevant time - The assessee can disclose only such facts
or materials as are in existence at the relevant time and which are known to
him - CIT v. Shri Satyanarain Lohia [1993] 204 ITR 894 (Cal.).
Where
transaction itself is bogus, its disclosure cannot be said to be full and true - Where transaction itself, on basis of
subsequent information, is found to be a bogus transaction, mere disclosure of
that transaction at the time of original assessment proceedings cannot be said
to be a disclosure of the ‘true’ and ‘full’ facts in the case and ITO would
have jurisdiction to reopen concluded assessment in such a case - Phool
Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC).
‘Material
facts’ mean primary facts only
- It is practically a settled position of law that ‘material facts’ used in
section 147 refer only to primary facts which have been disclosed by the
assessee showing the sale, purchase and profit supported by the account books.
As such in the absence of any case of suppression, misrepresentation or
falsification of documents, it cannot be said that the provisions of section
147 are attracted - Oriental Carpet Mfrs. (
A distinction
has to be made between primary facts and collaterial facts. Where full details
are filed by the assessee of the interest account of a creditor including
interest paid to such creditor in the relevant accounting year, mere
non-production of the loan account of the creditor which constituted merely an
evidence of the primary transaction of the loan could not amount to
non-disclosure of primary facts - Dinesh Kumar Gordhandas v. CIT
[1983] 140 ITR 211 (MP).
Mere
production of books/documents/evidence will not suffice - After the insertion of Explanation
to section 147 the position remains that so far as primary facts are concerned,
it is assessee’s duty to disclose all of them, including particular entries in
account books, particular portions of documents as well as documents and other
evidences which could have been discovered by the assessing authority from the
documents and other evidence disclosed. Once all the primary facts are before
the assessing authority, he requires no further assistance by way of
disclosure. It is for him to decide what inferences of fact can be reasonably
drawn and what legal inferences have ultimately to be drawn. It is not for
somebody else - far less the assessee - to tell the assessing authority what
inferences, whether of fact or of law, should be drawn. Indeed when it is
remembered that people often differ as regards what inferences should be drawn
from given facts, it will be meaningless to demand that the assessee must
disclose what inferences - whether of fact of law - he would draw from the
primary facts - Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191
(SC).
Action under section 147 is permissible even if the Assessing Officer gathers his reasons to believe from the very same record as has been the subject-matter of the completed assessment proceedings. The argument that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts, must be rejected out of hand in the light of the provisions of Explanation 1 according to which mere production of the books of account or other evidence from which the Assessing Officer could have, with due diligence, discovered the material evidence, does not necessarily amount to a disclosure within the meaning of the proviso. The submission that even when the order of assessment does not record any explicit opinion on the aspects sought to be examined in reassessment, it must be presumed that those aspects were present in the mind of the Assessing Officer and have been held in favour of the assessee, could not be accepted. There might indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy have been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In the cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment - Consolidated Photo & Finvest Ltd. v. Asstt. CIT [2006] 151 Taxman 41 (Delhi).
Mere
production of evidence before the ITO is not enough. There may be omission or
failure to make a true and full disclosure. If some material for the assessment
lay embedded in the evidence which the assessee could have uncovered but did
not, then it is the duty of the assessee to bring it to the notice of the
assessing authority. The assessee knows all the material and relevant facts.
Whereas the assessing authority may not. In respect of the failure to disclose,
the omission to disclose may be deliberate or inadvertent. That is immaterial.
But if there is omission to disclose the material facts, then subject to the
other conditions, jurisdiction to reopen is attracted - Indo-Aden Salt Mfg.
& Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624 (SC).
Mere fact
that ITO could have found out factual affairs is no reason for exonerating
assessee from making full and true disclosure - The assessee cannot be exonerated from the
duty to make a full and true disclosure of material facts merely because the
ITO could have in the original assessment proceedings found out correct factual
affairs by probing into the material or evidence placed before him but he
failed to do so - Ram Prasad v. ITO [1995] 82 Taxman 199 (All.).
Omission to
disclose cannot be inferred from valuation report obtained subsequently - By no stretch of imagination can the
assessee’s omission or failure to disclose any fact be inferred from a revised
departmental valuation report which came into being only subsequently and not
any time earlier - Kamala Properties v. IAC 1994 Tax LR 468
(Cal.).
Disclosure
in wealth-tax proceedings will not suffice - Arun Kumar Maheshwari v. ITO [2005] 144 Taxman 651 (All.).
Illustrative
cases where disclosure was held to be not full and true - A firm did not show in its return of income
its income from a branch, but showed that income as the income of an
independent firm - S.C. Prashar v. Vasantsen Dwarkadas [1963] 49
ITR 1 (SC).
u The assessee
had not disclosed factum of current account in the name of his father-in-law as
well as cash advanced to party, and had further not shown income from
properties in the names of his sons, wife and daughter though many of the
properties were purchased by him in their names - Sowdagar Ahmed Khan v.
ITO [1968] 70 ITR 79 (SC).
u The
assessee-firm took a company as a partner and sold some shares to it, but did
not file the sale deed, nor did it disclose the sale price or the cost price of
the shares - CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407
(SC).
u In
respect of the sale of the assessee-company to another company, the
assessee-company did not disclose the surplus price realised by it over and
above the written down value of the assets sold, nor did it inform the ITO the
price realised as well as the written down value of the assets sold - Malegaon
Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466 (SC).
u The
assessee did not return the share income from the firm, but pleaded that at the
time of filing the original return he was not aware of the share income whereas
the ITO had knowledge about the assessee’s interest in the firm - Baladin
Ram v. CIT [1969] 71 ITR 427 (SC).
u The ITO
relied upon the fact as found by the customs authorities that the assessee had
under-invoiced certain exported goods, and the assessee had not produced the
books of account relating to its foreign head office nor the original contracts
of sale as well as the accounts relating to the foreign buyers - Central
Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 (SC).
u In
respect of investments in the money-lending business of the assessee-HUF which showed
considerable increase, the assessee explained that the HUF had received
considerable cash on the partition of the bigger HUF, and that the karta of the
HUF had received gifts from his father-in-law which had not been invested
earlier. The assessee however did not produce the partition deed. The books of
account for earlier year were also not produced on the plea that they were all
lost. The assessee did not also adduce any evidence to show that his
father-in-law had sufficient means to make the gifts and had in fact made the
gifts - Kantamani Venkata Narayana & Sons v. First Addl. ITO
[1967] 63 ITR 638 (SC).
u The ITO
reopened the assessment on the ground that the commission paid by the assessee
to a party was a bogus payment, and that the purchase made from another party
was not genuine, as evidenced by the facts coming to his notice after the
completion of assessment which disclosed that the materials furnished by the
assessee earlier were untrue - IAC v. V.I.P. Industries Ltd.
[1991] 191 ITR 661 (SC).
Illustrative
cases where disclosure was held to be full and true - The ITO relied upon his own records for
determining the quantum of depreciation admissible to the assessee, but in the
process lost sight of the initial depreciation allowed, with the result that
the aggregate depreciation allowed including the initial depreciation was not
restricted to the original cost - Parashuram Pottery Works Co. Ltd. v. ITO
[1977] 106
ITR 1 (SC).
u After
completion of assessment, the ITO came to know that members of the assessee-HUF
had encashed high denomination notes, and on that basis, reopened the
assessments of the HUF as well as of the individual members so as to exclude a
portion of the amount in the hands of the HUF and the balance in the hands of
the individual members. Two days later, the ITO initiated another reassessment
proceedings against the HUF for assessing the entire amount in the hands of the
HUF - CIT v. Hemchandra Kar [1970] 77 ITR 1 (SC).
u The
assessee had executed three trust deeds in favour of three ladies who were
described as his wives. During assessment, the ITO accepted the assessee’s
explanation that the three ladies were only ‘ladies of high position’ but were
referred to as wives in view of the special favour bestowed upon them. The ITO
was apparently satisfied with this explanation, and did not invoke the clubbing
provisions while completing the assessment. Later, the ITO sought to reopen the
assessment on the ground that, under the personal law governing the assessee,
the ladies were the legal wives of the assessee, and that hence the clubbing
provisions were attracted - ITO v. Nawab Mir Barkat Ali Khan Bahadur
[1974] 97
ITR 239 (SC).
u The
assessee had at the time of original assessment produced all the hundies on the
strength of which it had obtained loans from creditors as also entries in the
books of account showing payment of interest. The ITO allowed the interest paid
as a deduction, but later reopened the assessment to withdraw the deduction on
the basis of his belief that the transactions were not genuine and that the
creditors were bogus, without setting out any material to support his belief - ITO
v. Madnani Engg. Works Ltd. [1979] 118 ITR 1 (SC).
u The
assessee sold shares acquired before 1-1-1954 in respect of which it received
bonus shares after 1-1-1954, and the option to substitute the market value as
on 1-1-1954 exercised by the assessee was accepted by the ITO while computing
the capital gains. Later the ITO reopened the assessment on the ground that the
market value as on 1-1-1954 required adjustment because of the issue of bonus
shares - Shekhawati General Traders Ltd. v. ITO [1971] 82 ITR 788
(SC).
u An
investment company sold certain shares, and disclosed full details of the
sales. It stated that the sales were casual transactions and were in the nature
of mere change in investments, and this was accepted by the ITO. Later the ITO
reopened the assessment on the ground that the company had failed to disclose
the true intention behind the sale of the shares - Calcutta Discount Co.
Ltd. v. ITO [1961] 41 ITR 191 (SC).
u While
completing a best judgment assessment after rejecting the books of account of
the assessee, the ITO had written a detailed order, and in respect of certain
bank drafts not mentioned in the assessee’s books he had collected all the
requisite details and had even obtained the statement of one of the partners.
However, the ITO later reopened the assessment on the ground that the assessee
had utilised certain drafts for making purchases and that the transaction had
not been disclosed in the assessee’s books - Gemini Leather Stores v. ITO
[1975] 100 ITR 1 (SC).
u Eleven
individuals who were members of three different HUFs filed their returns of
income for the assessment years 1943-44 and 1944-45 in the status of individuals.
The ITO however assessed the income in the hands of the respective HUFs and
passed orders of ‘No assessment’ in respect of the individuals. Later, when the
Tribunal held for the assessment year 1943-44 that the income was assessable
only in the hands of individuals, the ITO reopened the assessments for the
assessment year 1944-45 - CIT v. Onkarmal Meghraj (HUF) [1974] 93
ITR 233 (SC).
u Where
Assessing Officer made assessment under section 147(a) on ground that
land in question was not agricultural land and, hence, capital gains income
chargeable to tax had escaped assessment and apart from statement in
communication to Commissioner seeking sanction that he had reason to believe
that income escaped assessment, there was no material on record to indicate
that land was not agricultural land, and reassessment was set aside by
Commissioner (Appeals) and Tribunal holding that land in question was
agricultural land, High Court could not be said to be justified in setting
aside Tribunal’s order - Ram Bai v. CIT [1999] 103 Taxman 121/236
ITR 696 (SC).
u When
there was no omission or failure on the part of assessee to make a return under
section 139 as contemplated in clause (a) of section 147 nor was there
any information in the possession of the Assessing Officer obtained by him
subsequent to the assessment order, reopening of assessment the on basis of
AAC’s order in another assessee’s case could not be sustained - CIT v. Tarajan
Tea Co. (P.) Ltd. [1999] 102 Taxman 697/236 ITR 477 (SC).
u Where
assessment was reopened to treat income from mining and management contracts as
fee for technical services while in original assessment it was treated as
business income and notice for reassessment was issued after expiry of four
years from the end of relevant assessment year, it was held that since
admittedly there was no failure on the part of petitioner to make return or to
disclose fully and truly all material facts necessary for assessment, proviso
to new section, which bars issue of notice under section 148 after expiry of
four years from end of relevant assessment year, squarely applied to facts of
instant case and, therefore, impugned notice was barred by limitation - CIT
v. Foramer France [2003] 129 Taxman 72 (SC).