Reasons recorded to be supplied for income which escaped assessment

Niraj Kumar Jain for the Petitioner. K.K. Bissa for the Respondent.

ORDER

1. By way of this writ petition, the petitioner has questioned legality of notice dated 28.3.01 and 3.5.01 issued by the Income Tax Officer, Ward II, Churu under Section 147 of the Income Tax Act, 1961 (for short “the Act”), for re-assessment of the income of the petitioner for the Assessment Year 1993-94.

2. The petitioner submitted his income tax return for the Assessment Year 1993-94 declaring the income during the period from 1.4.92 to 31.3.93 at Rs. 24,780/-. The petitioner also declared income from agriculture a sum of Rs. 25,500/-. No notice was issued to the petitioner under Section 143(2) of the Act within a period of one year, however, after a lapse of about 7 years, the petitioner was served with the notice under Section 147 of the Act for re-assessment of the income which escaped assessment. The petitioner made an application for inspection of the record to find out the reasons recorded for initiating the re-assessment proceedings. However, the petitioner was not permitted to inspect the record. Hence, this petition.

3. On 25.6.01, while admitting the writ petition and issuing notice to the respondents, an interim order was passed by this court in favour of the petitioner in the following terms:

“In the meanwhile and till further orders, further proceedings before the Income Tax Officer-respondent no.1 in pursuant to the notice Annex. D dated 28.3.2001 shall remain stayed.”

4. The interim order granted as aforesaid was confirmed by this court till the disposal of the writ petition vide order dated 9.4.02.

5. Learned counsel for the petitioner submitted that the notice issued by the Assessing Officer for the relevant financial year 1992-93, after a lapse of more than 4 years, from the date of completion of the assessment, is without jurisdiction. Learned counsel submitted that the Assessing Officer is under an obligation to disclose the reasons recorded for initiating the re-assessment proceedings. Learned counsel submitted that before initiating the re-assessment proceedings, two conditions are required to be satisfied; firstly that the Assessing Officer has reasons to believe that income, profit or gain chargeable to tax has escaped assessment and secondly, he must have reasons to believe that such escapement has occurred by reasons of either omission or failure on the part of the assessee to make return under Section 139 or has failed to disclose fully and truly all material facts necessary for his assessment for the assessment year. Learned counsel submitted that the re-assessment proceedings appears to have been initiated by the Assessing Officer against the petitioner on the basis of valuation of the property by the Departmental Valuation Officer which is ex facie without jurisdiction. In this regard, learned counsel has relied upon a decision of Hon’ble Supreme Court in the matter of “ Asstt. CIT v. Dhariya Construction Co.” [2010] 328 ITR 515  (SC) and a decision of this court in the matter of “CIT v. Smt. Prem Kumar Surana” [1994] 206 ITR 715  (Raj.).

6. On the other hand, learned counsel appearing for the respondents submitted that the writ petition preferred by the petitioner against the notice issued under Section 147/148 of the Act is pre mature. Learned counsel submitted that it is open for the petitioner to make his submissions in response to the notice, which shall be considered by the Assessing Officer objectively in accordance with law. Learned counsel submitted that the respondents are ready to supply the reasons recorded for initiating the re-assessment proceedings to the petitioner.

7. I have considered the rival submissions of the learned counsel for the parties and perused the material on record.

8. As per the provisions of Section 147 of the Act, the Assessing Officer is empowered to initiate the reassessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, notwithstanding that the assessee has disclosed fully and truly all material facts necessary for his assessment for that year. However, proviso to Section 147, puts an embargo to confer jurisdiction in cases where the reassessment is sought to be initiated after expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of assessee to make a return under Section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for that assessment years. But then, as per provisions of Section 148 of the Act, the Assessing Officer has to record the reasons for formation of the belief that any income of the assessee chargeable to tax for the relevant assessment year has escaped assessment. It is well settled that the belief entertained by the Assessing Officer must not be arbitrary or irrational, it must be reasonable and based on material on record. The assumption of jurisdiction by the Assessing Authority under the provisions of the Act pre supposes due application of mind by the Assessing Officer on the material on record and formation of the belief by the Assessing Officer that the income has escaped assessment cannot be based on his whims and fancy, there must exist a rational and intelligible nexus between the reasons and the belief.

It is settled law that the sufficiency and adequacy of the reasons which have led to formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court but, the court can certainly examine as to whether the reasons are relevant and have bearing on the matters in regard to which he is required to entertain the belief before he can issue notice for reassessment u/s 147 of the Act.

9. In the instant case, the reasons, if any, recorded for formation of the belief by the Assessing Officer that income of the assessee has escaped assessment have neither been supplied to the assessee nor the same are placed on record. It is open for the assessee to establish that in fact there existed no belief or that the belief was not at all bona fide one or was based on vague, irrelevant and non specific information and therefore, it is absolutely necessary that the reasons recorded for formation of the belief that the income of the assessee has escaped the assessment, are supplied to the assessee so that he may be in position to question the legality of the re-assessment proceedings initiated on all available grounds.

10. In GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19  (SC), the Hon’ble Supreme Court held as under:

“5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the IT Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking Order before proceeding with the assessment in respect of the abovesaid five assessment years.” (Emphasis Supplied)

11. Accordingly, the writ petition is disposed of with the directions to the Assessing Officer to furnish the reasons recorded for formation of the belief that the income of the assessee has escaped assessment, to the assessee within a period of two weeks from the date of receipt of certified copy of this order. Needless to say that after reasons being furnished, the assessee shall be at liberty to file objections questioning the legality of the re-assessment proceedings initiated, if any, within a period of two weeks thereafter. The Assessing Officer shall consider the objections to be raised by the petitioner against the re-assessment proceedings initiated objectively in accordance with law and shall dispose of the same by passing a speaking order. No order as to costs.