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Judgment
Subrata Talukdar, J
The three writ petitions raise an analogous issue. Such issue pertains to reopening of the Income Tax (IT) assessment of each of the three petitioners by issuing notices of reassessment under Section 148 of the Income Tax Act, 1961 (for short the 1961 Act).
It is the stand of each of the three writ petitioners that once assessment within the meaning of S/143(3) of the 1961 Act has been closed upon intimation to the Assessee Company/the petitioners in relation to a past assessment year (AY), no notice under S/148 can be issued on the ground that income connected to the past assessment has escaped the attention of the Assessing Officer (AO) unless there is clear proof that there are reasons to believe such escapement on the part of the Revenue over and beyond merely reasons to suspect.
Since the three writ petitions raise a common issue, i.e. WP 13685(W) of 2018 (WP-I), WP 13686(W) of 2018 (WP-II) and WP 13688(W) of 2018 (WP-III), WP-II, which has been argued first, is taken up for consideration first. The conclusions in WP-II shall hold good for both WP-I and WP-III.
The basic facts connected to WP-II are as follows:-
That for AY 2012-13 the e-return of income tax filed by the petitioner/Assessee Company was assessed to tax under S/143 (3) of the 1961 Act. The intimation of assessment under S/143 (3) was duly forwarded to the Company on the 27th of March, 2015.
On the 30th of March, 2018, a day before the date of expiry of the extended reassessment period applicable to AY 2012-13, a notice under S/148 of the 1961 Act was issued by the Respondent No.1 (R1)/Assistant Commissioner of Income Tax (ACIT) reopening the assessment for AY 2012-13 on the ground that the ACIT has reasons to believe that income connected to AY 2012-13 has escaped assessment of the AO within the meaning of S/147 of the 1961 Act.
The Company was called upon to explain the nature of the funds amounting to Rs. 27.04 lakhs reportedly transferred from the account of one M/s. Shivam Sales Corporation to the account of the Company.
Taking this Court to the proposal for reopening the assessment signed by the R1/ACIT, the R2/DDIT and R3/PCIT, Mr. Kalyan Kumar Bandyopadhyay, Ld. Senior Counsel appearing for the Company, submits that pursuant to information received from DDIT (Investigation), Kolkata the following was opined:-
"In the instant case, a credible information was received from DDIT(Inv.), Unit-1 (2)_, Kolkata that Shri Simnath Hath is maintaining four (4) bank accounts in the name of Propreitorship concerns namely M/s Ankit Enterprises, M/s Bharat Udyog, M/s Shiv Udyog and M/s Shivam Sales Corporation [A/c No. 627705054414, 627605258614, 627605258771 and 6277050544087 respectively] with ICICI Bank, Main Branch, Kolkata. Another bank account having no. 627601511278 in the name of Shri Somnath Hath is maintained in the same bank. There were transactions involving large cash deposits in Shri Somnath Hath accounts followed by immediate transfer within the aforementioned proprietorship concern accounts and ultimately transferred to beneficiary accounts. It has been reported that during the period from 31.12.2010 to 22.09.2011 total credits in the aforesaid accounts was Rs. 15.84 Crore (including cashg deposit of Rs. 11.87 Crore) and total debit was Rs. 15.84 Crore.
To verify the transactions, Investigation wing issued summons u/s 131 of the income Tax Act, 1961 to Shri Somnath hath, the Proprietor of all the business entities. Shri Somnath hath appeared before the DDIT (Investigation) and admitted in his statement that he was a dummy proprietor of the above concern and he was paid Rs. 1500/- per month by Shri Rajesh Poddar, a staff of M/s Bankabehani Trading Company for signing documents/paper. It was also found that no return of Income was filed by the Somntha Hath for AYs 2010-11 to 2017-18.
Bank statements of M/s Shri Simnath Hath, M/s Ankit Enterprises, M/s Bharat Udyog, M/s Shiv Udyog and M/s Shivam Sales Corporation were examined and analyzed by the Investigation Wing. It was found that the cash was deposited in one account and the same was subsequently transferred through cheque/RTGS to the beneficiaries which inter alia includes M/s Agarpara Jute Mills Limited. The total amount of such deposit from the account of Shivan Sales Corporation during the F.Y. 2011-12 in the account of Agarapara Jute Mills Limited is Rs. 27.04 lakh.
The report of the Investigation wing clearly reveals that above mentioned accounts are simply being used for rotation of fund. Accordingly it can be inferred that, the banking channel has been utilized as a conduit to bring back apparently unaccounted income of M/s Agarpara Jute Mills Limited in the regular books through layering. Accordingly, it is inferred that M/s Agarpara Jute Mills Limited has brought back its unaccounted income of Rs. 27.04 lakh through M/s Shivam Sales Corporation Limited.
I have, therefore reason to believe that the income chargeable to tax for the assessment year 2012-13 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 warranting issue of notice u/s 148 of the Income Tax Act, 1961. In this connection, this is further to be noted that the income has escaped assessment by reason of failure on the part of the assessee to disclosed fully and truly all materials facts necessary for assessment."
It is submitted by Mr. Bandyopadhyay that the reasons to believe as opined by the three respondents (supra) are not reasons to believe but reasons to suspect and, the reasons to suspect cannot be the basis for reopening assessment under S/147. It is argued that the satisfaction to reopen the assessment must be the real satisfaction of the Last Authority okaying the reassessment and, not a borrowed satisfaction.
It is submitted that the opinions of R1, R2 and R3 (supra) do not point to deliberate non-disclosure by the Company before the AO. The issue of notice under S/148 based on a presumption of escapement of income under S/147 presumes application of mind by the Last Authority, in this case the CIT. It is also submitted that S/147 cannot be coercively applied.
The further stand is taken by the Company that the approval Note of the PCIT was received by the Issuing Authority/the ITO on the 31st of March, 2018 although the notice under S/148 pre-dates such approval being issued on the 30th of March, 2018. Mr. Bandyopadhyay therefore submits that the ITO could not have issued the notice under S/148 one day prior to receiving the approval of the PCIT since it is the mandate imposed by S/151 that the proceedings for reassessment require prior sanction. Such sanction cannot be post facto.
Also taking this Court to the First Proviso of S/147, it is submitted by Ld. Senior Counsel that the conclusion under S/147 based on reasons to believe stand premised on an application of mind till the Last Authority on the issue whether there was a real failure on the part of the Assessee to fully and truly disclose all material facts relevant to the AY in issue. Mr. Bandyopadhyay points out that it shall not appear from the four corners of the opinions at Page 61 of the Writ Petition (WP-II) that till the Last Authority there is evidence of an independent application of mind.
Relying on the authority of AIR 1961 SC 372 (Constitution Bench), Mr. Bandyopadhyay submits that the majority opinion did not flinch in laying down the salutary legal principle that the condition precedent for assumption of jurisdiction under S/34 of the IT Act, 1948 (equivalent to S/147) is the real satisfaction of the Revenue that escapement of income has resulted from non-disclosure. The Constitution Bench therefore opined as follows:-
"The argument that the Court ought not to investigate the existence of one of these conditions viz. that the Income Tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts cannot therefore be accepted."
In support of several legal propositions connected to his fundamental argument that reasons to suspect cannot take the place of reasons to believe, Ld. Senior Counsel for the petitioner, in addition to relying upon the authority of AIR 1961 SC 372 (supra) further relies upon the following authorities.
(a) (1976) 3 SCC 757, (2017) 390 ITR 10 (SC) and (2013) 1 SCC 72 for the proposition that lack of reasons to believe under S/147 (erstwhile S/34 of the IT Act, 1948) is a fundamental fact entitling the Assessee Company to invoke the writ jurisdiction of this Court.
(b) (2017) 398 ITR 198, (2016) 384 ITR 147 and, (2017) 395 ITR 677 for the proposition that assessment proceedings cannot be simply reopened solely on the basis of an external investigation report such as, in this case, the report of the DDIT (Investigation).
(c) 1994 Tax LR 468, 321 ITR 495 and (2018) 400 ITR 397 for the proposition that the notice of reassessment issued without the prior sanction of the Last Authority, in this case the PCIT, amounts to a violation of the principles of natural justice and in the absence of a proper prior sanction the entire reassessment proceedings are liable to fail.
(d) (2013) 359 ITR 106, (2012) 344 ITR 641 and (2010) 321 ITR 495 for the proposition that opening of reassessment on grounds other than strictly specified under S/147, viz. failure on the part of the Assessee to truly and fully disclose all material particulars, cannot be considered to be a valid action.
(e) AIR 2007 SC 839 for the proposition that an Explanation/Proviso to a statutory provision cannot be pressed into service for enlarging the scope and effect of such provision. On the above grounds, it is submitted that the reassessment proceedings deserve to be set aside.
Mr. Nizamuddin, Ld. Counsel appearing for the Revenue-Respondents, submits that there is no infirmity in the reassessment proceedings since essentially the Assessee Company enjoys the right of participation in the reassessment proceedings which can, if ultimately adverse to the Assessee, be subjected to an appeal. It is submitted that such reassessment must only suffice to show that there is a non-disclosure of true and full particulars by the Company for the AY 2012-13 in issue entitling the Revenue to arrive at a finding of escapement under S/147.
Mr. Nizamuddin further submits that there is no procedural lapse on the part of the revenue in issuing the notice under S/148. Relying on the pleadings in the writ petition it is submitted that the opinion of the Last Authority/PCIT was signed on the 29th of March, 2018, i.e. a day prior to issuance of the notice by the ITO on 30th of March, 2018. Arguing that the procedure involved under S/147 and S/148 (supra) are all electronically managed, it cannot be argued that the Last Authority/PCIT did not record his satisfaction to reopening the assessment prior to issuance of the notice under S/148.
The further stand is taken by Ld. Counsel for the Revenue qua S/147 to the effect that the principles of natural justice must be read as commensurate/proportionate to the requirements of the particular statutory provision. This is for the reason that upon a conclusion of escapement resulting in a notice under S/148, it would be still open for the Assessee to place his defence before the authority/the ITO and rebut the conclusion of escapement.
Mr. Nizamuddin painstakingly takes this Court to several sections under the IT Act to make the point that qua provisions such as S/263 and S/147 (supra) a procedure for hearing the Assessee is in place beyond the stage of the reassessment notice. Accordingly, the principles of natural justice stand already extended qua the Assessee. However, such is not the case, as for example in S/92, which provides for a summary assessment. Only in cases of summary assessment, a situation requiring prior hearing to be extended to the Assessee may arise.
The stand is taken on behalf of the Revenue that the satisfaction of the Last Authority/PCIT would have to be enlarged in words only in the event the Last Authority did not agree with the findings of the ITO and the authorities immediately prior to him, viz. the ACIT and DDIT/R1 and R2 respectively. Since at the stage of S/147 all that is required of the ITO and up to the stage of the Last Authority is to weigh the subsequent materials as available qua the AY in issue, viz. AY 2012-13, the presence of materials indicative of non-disclosure is enough to initiate the reassessment proceedings.
Ld. Counsel for the Revenue therefore takes the stand that it is a ruse on the part of the petitioner/the Company to invoke the jurisdiction of the Writ Court on the ground that a mere suspicion is raised by the DDIT (Investigation) qua AY 2012-13 of the Company. Submitting that it is not for the Court to examine the sufficiency of materials, Mr. Nizamuddin points out on the basis of Page 61 of the Writ Petition (WP-II) (supra)/that the opinion of R1, R2 and R3 in favour of reopening the assessment were based on tangible materials warranting the conclusion that there has been an escapement of income.
It is argued that the principles of affording a hearing in the reassessment proceedings stand already applied since the Company has participated in the reassessment proceedings by filing its objection. Therefore, it is for the Revenue to now determine upon consideration of the Assessee' objection as to whether the materials warranting the notice under S/148 are sufficient or not to establish the belief of escapement. The ultimate conclusion in the reassessment proceedings can be then subject to a regular appeal.
Mr. Nizamuddin in WP-II and Mr. P.K. Bhowmick, Ld. Counsel appearing for the Revenue in WP-I and WP-III rely upon the following authorities.
(a) 2002 (125) Tax Man 963 (SC) for the proposition that absence of hearing to the Assessee under the statute does not always violate the principle of natural justice for the reason that the Assessee/the Company U/S/147 has the right to raise objection at stages of the reopening proceeding, the ultimate order whereof being also subject to an appeal.
(b) 247 ITR 818 for the proposition that the opinion of the ITO up to the stage of the Last Authority reopening the proceedings cannot be described as a change of opinion originally formed by the ITO. The point is taken by Learned Counsel for the Revenue that since the materials in the form of the Report of the DDIT (Investigation) was not available before the ITO at the stage of finalizing the original assessment Vide S/243 (3), the question of forming an original opinion, which has now changed, does not arise at all. It is trite that escapement of income follows a regular statutory procedure and cannot be seen from the point of view of a mere change in the original opinion.
It is argued by Learned Counsel for the Revenue that the reasons to believe U/S/147 does not mean sufficiency of reasons. It is only necessary and/or germane for the Authority to appreciate a prima facie nexus between the materials which have now surfaced for consideration and the possibility of the Assessee/ the Company of having failed to disclose.
Both Learned Counsel for the Revenue rely upon the Authorities of 2016 (383) ITR 597 (Calcutta) and 1971 (79) ITR 603 (SC) in support of their above recorded arguments.
Having heard the parties and considering the materials placed, this Court notices that there is both a legal challenge and a factual background to the legal challenge pleaded by the Petitioners/the Assessee/the Company as evident from WP-II.
While the legal challenge questions the blurring of the borders between reasons to suspect and reasons to believe, the factual basis to such challenge is pleaded at Paragraphs 1,2,3,4,5 & 9 of WP-II and reads as follows:-
"1. Your petitioner is a public limited company within the meaning of the Companies Act, 2013 and is inter-alia engaged in the manufacture and sale of jute products. Your petitioner states that for the Assessment Year 2012-13, the relevant previous year being Financial Year ended March 31, 2012, your petitioner filed E-Return of income on 30.09.2012 declaring a total income of Rs. 23,39,420 under Section 139 of the Income Tax Act, 1961 (the 'Act') That subsequently the Income Tax Return was selected for Scrutiny and no challenge and/or disputes regarding the veracity of the Income Tax return submitted were made and assessed the Income under section 143(3) of the Income tax of Rs. 25,85,740/-.
Your petitioner states that in its said return, your petitioner had duly disclosed sale of jute products made to various parties which includes Government agencies, private parties including consignment sale under Del Credere Commission agent including M/s Chandrakant Patel & Co. The receipt of consideration against all sales including goods sold through Del Credere Commission agent are through proper banking channels and was duly accounted for in your petitioner's books of accounts. Your petitioner states that the delcredere consignment sale of the said jute products under del credere commission basis were also recorded in your petitioner's excise records and such clearances were made on payment of requisite duty leviable thereon such jute products under the relevant Central Excise & Jute Cess Act. Your petitioner states that such jute products which were cleared for consignment sale to M/s Chandrakant Patel & Co. were cleared under proper gate pass upon the said goods being despatched and cleared from the factory premises. It is pertinent to mention that Jute Fabric is a excisable product and without the payment of cess, excise and without proper Gate Pass and Excise cess paid goods are not allowed to go outside the factory. All the documents have been duly verified by the Excise Inspector. Your petitioner further states and submits that requisite forms under the relevant Sales Tax/VAT Statutes, such as, 'F' Forms issued by the respective State Governments and Sales Tax authorities, are also available with your petitioner in respect of the goods sold through del credere agents.
Some of the Copies of such Central Excise records, duty payment particulars, gate passes etc. are annexed hereto and collectively marked as Annexure "P-1".
Your Petitioner states that very many Jute Mills sell a part or portion of this product through del credere agent for the reason that the realization against such sales are fully secured/protected. The petitioner states that finished jute products to private parties are generally sold/sent on consignment sale through agents. In course of our regular business Mr. VinodHimmatsingka/Ravi Beriwal introduced your petitioner to M/s M/s Chandrakant Patel & Co. who acted as del credere agent. Thereafter, as per instruction of Mr. Ravi Beriwal finished jute goods were transferred with the responsibility to sale on consignment basis at M/s Chandrakant Patel & Co.'s depot. His firm being an del credere commission agent so your petitioner had no risk on the value of goods.
The advantage of appointing Del Credere agent is that the value of the consignment is assured and guaranteed, otherwise if goods are sold to a party on credit on occasions it becomes difficult to recover the value of the goods.
Your petitioner states that the said delcredere consignment sale figures were duly accounted for and were duly accepted by the department. Your petitioner states that the assessment for the relevant assessment year was completed under Section 143(3) of the Act and assessment order/intimation dated 27.03.2015 was duly passed.
Copy of the said assessment order/intimation dated 27.03.2015 under Section 143(3) of the Act in relation to the Assessment Year 2012-13 is annexed hereto and marked as Annexure "P-2". Copy of computation for the said assessment year are annexed hereto and marked as Annexure "P-3".
Your petitioner states that the Respondent no.2 issued notices under Sections 142(1) and 143(2) of the Act requesting your petitioner to furnish various informations, details, documents and explanations in the instant matter. Your petitioner was asked to submit a brief write up on the nature of its business, copies of audited accounts for the financial year ended 31.03.2012 along with tax audit report and notes on accounts, complete details of bank accounts for FY 2011-12 and your petitioner was asked to explain the nature of funds of Rs. 27.04 lakhs transferred from the account of M/s Shivam Sales Corporation to the petitioner's account and the reason why the same should not be held as income in the petitioner's hands.
Copy of the said letters dated June 01, 2018 issued under Section 142(1)of the Act and under Section 143(2) of the Act are annexed hereto and collectively marked as Annexure "P-7"."
Thereafter at Paragraphs 18, 19 & 20, also of WP-II, the following is pleaded:-
"18. Your Petitioner states that we have no dealing with Shivam Sales Corporation as a sale party. On perusal of bank statement provided by Respondent No.2 it appears that a sum amount has been paid by Said M/s Chandrakant Patel & Co. through Shivam Sales Corporation.
Your petitioner states that in purported reasons it is stated that it is inferred that M/s Agarpara Jute mills Limited has brought back its unaccounted income of Rs. 27.04 lakh through M./s. Shivam Sale Corporation. Such analogy is absolutely untenable and Books of Accounts clearly shows the realization value of each and every consignment including the consignment sale sold through del credere agent M/s Chandrakant Patel & Co. In the statement given by Somnath Hath as disclosed by the Respondent, it does not show that Somnath Hath has claimed that he has received cash from Agarpara Jute Mills Limited and thereafter routed the said cash by cheque through Agarpara Jute Mills Limited and especially against the consignment sale.
Your petitioner further states that even for the sake of argument we accept the contention of the respondent that Agarpara Jute Mills Limited has brought back its unaccounted income of Rs. 27.04 lacs, even that theory does not stand because the petitioner has already accounted for this amount under its revenue from sales heading and accordingly this amount has been computed in the profit of the Company and paid Income Tax. Moreover Rs. 27.04 lacs is a substantial money and the Books of Accounts of the Company would reveal that they do not match with the figure. It is not the case of the respondent that the company has either inflated or deflated the actual sales. If the petitioner has bought back its income then how it is understated, this is contradicting to the earlier word used "bought back"."
Juxtaposing the legal challenge of the Company to the factual basis as pleaded above, this Court finds that the petitioner has itself disclosed the justification for the reasons to believe over and beyond the reasons to suspect. The entire narration of facts as pleaded in WP-II (supra) read in the context of the opinion of the Last Authority at Page 61 of WP-II (supra), leads to the fairly reasonable conclusion that there exist prima facie materials as well as the nexus connecting the Assessee to such materials warranting reopening of the assessment for seeking clarifications.
Having noticed as above this Court must now respectfully notice the view of the Hon'ble Apex Court as reported in 1976 (103) ITR 437, inter alia, observing that the reasons for the formation of the belief as contemplated by S/147 must have a reasonable nexus to or, relevant bearing on the formation of a belief. In other words, the ITO requires to be in possession of some materials warranting the belief of escapement of income at the stage of original assessment.
On a comparative reading of the pleadings at Paragraphs 1 to 9 and 18,19 and 20 (supra) of WP-II with the Report of the DDIT (Investigation), this Court is not under any confusion to hold that the petitioner owes a duty to the Revenue to explain its position. The reason for the duty and the corresponding reasons for the formation of belief by the Revenue lies in the very pleadings of WP-II explaining the circulating nature of the petitioner' business activities.
This Court is accordingly satisfied that the principles enunciated in 1976 (103) ITR 107 (supra) stand satisfied in the facts of the present case.
Also with regard to this discussion, this Court may usefully refer to Paragraphs 8, 9, & 11 of 1994 Tax LR 468 which read as follows:-
"8. It is not dispute that in each of these cases sub-sec. (2) of S. 151 would be applicable.
It is now well settled that the duty of the assessee is merely to bring and disclose before the relevant officer all the relevant information in regard to the assessment. The view to be taken thereupon must be the view of the assessing officer himself and in that regard the cease with the bringing on record of all the relevant and complete material without any attempt to hide or suppress. Through the authorities are numerous and clear yet two cases were cited in this regard, being the cease of Calcutta Discount and Lakhmani Mewal Das respectively reported in (1961) 41 ITR 191: (AIR 1961 SC 372) and (1976) 103 ITR 437: (1976 Tax LR 726). These cases support the above proposition of law which was relied upon by learned counsel for the petitioner. In particular in the Calcutta Discount case the point arose whether share transactions were made for the purpose of reinvestment or for the purpose of earning some income. It was not the duty of the assessee to do anything but bring on record the facts relating to the share transaction. The view to be taken thereupon was to be taken by the Officer on the facts disclosed and if one particular view, was taken, reopening of assessment, thereafter, on the allegation of the assessee's default, would be incompetent because the assessee had not made any omission or suppression.
The respondents would also be entitled to reopen assessment notwithstanding no omission or failure of the assessee under the provisions of S. 147 (b) of the Act but that under S. 149(1) (b) of the Act, the time limit for the same is set at four years only. The said time having elapsed the enquiry would be whether the Officers could come to a conclusion as to any lack of full or true disclosure of material facts on the part of the assessee."
In this connection the observations in volume 236 ITR read as follows:-
"In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs."
For the above reasons this Court is of the further view that there has been no failure of natural justice since the petitioner all along enjoys the benefit of defence in the reassessment proceeding with the liberty to challenge the same in a regular appeal, if found adverse to its interest.
The only point now requiring this Court to be circumspect while noticing the conduct of the Revenue relates to the charge of grant of sanction by the Last Authority/the PCIT on 31st March, 2018, that is a day after the notice under S/148 was issued by the ITO. In connection with the above, this Court notices the record of the satisfaction expressed by the Last Authority/ PCIT as signed on the 29th of March, 2018, that is a day prior to the notice under S/148.
This Court thus finds that up to the stage of the Last Authority the evenue has applied its collective mind and sanctioned the reassessment. In the above view of the matter read with the further fact that the the prior sanction of R1, R2 and R3 exist and were transmitted in electronic form as part of the records of the Revenue, it cannot be said that the opinion of the Last Authority violated the conditions of sanction as laid down by S/151.
In the backdrop of the above discussion, no intervention is called for at this stage by Court. It will be however open to the Assessee/the Company/the present petitioner to take all points before the Revenue Authority in accordance with law.
WP 13685(W) of 2018, WP 13686(W) of 2018 and WP 13688(W) of 2018 stand thus disposed of.
Urgent Xerox certified photocopies of this judgment, if applied for, be given to the parties upon compliance of the requisite formalities.