ORDER
B.L. Khatri, Accountant Member
1. These appeals have been filed by the Revenue against three different orders of the ld. CIT(A) dated 4-8-2003 for the assessment years 1996-97, 1997-98 & 1998-99 respectively. There are common grounds in all the appeals and these appeals pertain to the same assessee. Therefore, these appeals are being decided through a consolidated order for the sake of convenience.
2. In these appeals Revenue is agitated on the following grounds for all the three years.
“On the facts and circumstances of the case and in law, the ld. CIT(A), Jaipur has erred in annulling the assessment order made by the AO for the following reasons:-
(a) The AO had recorded his satisfaction that income chargeable to tax had escaped assessment. Quantification of the escaped income was not necessary at the stage of recording of reasons and there is no dispute that the assessee had been carrying on income earning activities.
(b) The CIT(A) could not go into the sufficiency or correctness of the reasons recorded at the stage of initiation of proceedings under Section 147 as held by the Hon’ble Supreme Court in Raymond Woolen Mills Ltd. v. CIT .
(c) As held by the Hon’ble Gujarat High Court in the case of Praful Chunilal Patel v. CIT , the CIT (A) could not substantiate his standard of sufficient reason or his opinion for the AO’s unless it was shown that the material relied upon by the AO was wholly irrelevant. In the present case, there were two relevant facts viz. (I) the assessee continued his income earning activities and (II) had not filed return of income.
3. The brief facts of the case are that the assessee had filed last return of income for the assessment year 1991-92 showing income of Rs. 24,120/- and this return was accepted under Section 143(1)(a) on 28-1-1992. No subsequent returns of income were filed. The AO had not taken any action for assessing income of the assessee for the assessment years 1992-93 to 1995-96. On 12-5-2000, the AO had recorded the reasons regarding escapement of income for the assessment years 1996-97 to 1998-99. He had recorded separate reasons for each assessment year for initiation of proceedings under Section 147 of the Act for escapement of income and thereafter he issued notices under Section 148 of the Act. The initiation of proceedings under Section 147 and validity of notices under Section 148 were challenged before the ld. CIT (A). The ld. CIT (A) had held that proceedings initiated under Section 147 were ab initio bad in law and the assessment based on such proceedings were annulled by him for the reasons given by him in his order. Now the Revenue is aggrieved against these three orders passed by the ld. CIT (A).
4. The ld. DR relied upon the orders of the AO and argued that this was a case of assessment and not of reassessment as in this case the assessee had not filed returns for all these years and the assessments had been reopened within the limit of 4 years. Secondly, the ld. DR contended that the ld. CIT (A) cannot go into the sufficiency or correctness of the reasons recorded at the stage of initiation of proceedings under Section 147 as held in the case of Raymond Woolen Mills Ltd. v. CIT . The ld. DR also relied upon the case of Praful Chunilal Patel v. CIT and it was submitted that quantification of the escaped income was not necessary at the stage of recording the reasons.
5. The ld. AR submitted that the AO recorded the following reasons for all the three assessment years i.e. 1996-97 to 1998-99.
“Dated 12-5-2000. From the verification, it is noticed that Shri Satyanarayan Parwal was found involved in the business of finance brokerage in earning of taxable income but did not file return of income for assessment years 1996-97 to 1998-99. Therefore, the income for relevant assessment years chargeable to tax have escaped assessments. Thus, notice under Section 148 is issued.
Sd/-
JCIT, Spl. Range-2, Jaipur
6. The ld. AR further submitted that a bare look at the reasons recorded will suggest that the AO had not at all recorded the requisite satisfaction, as regards escapement of some income. The word “belief” is qualified by the word “reason” meaning thereby the belief has to be based on some basis/material. The word “believe” has to be understood in contradistinction to suspicion or opinion. Belief indicates something concrete or reliable. He relied upon the following cases laws:-
1. Gangasharan & Sons Pvt. Ltd. v. I.T.O. and Ors., 130 ITR 1 (SC)
2. I.T.O. v. Lakhmani Mewal Das, 103 ITR 437 (SC)
The belief of the AO should be as to escapement of income and the belief should not be a product of imagination or speculation. There must be reasons to induce the belief. He relied upon the case laws T.S.P.L.P Chidambaram Chettiar v. CIT, 62 ITR 774,779 (Mad.) and CIT v. T.S.PL.P. Chidambaram Chettiar 80 ITR 467 (SC). The reopening should not be for mere investigating /finding out probability of escaped income. He relied upon the decision of Hon’ble Apex Court in the case of Chhugamal Rajpal v. S.P. Chaliha, 79 ITR 603.
7. Further, the belief must be of an honest and reasonable person based upon reasonable grounds. The Officer may act on direct or circumstantial evidence but his belief must not be based on mere suspicion, gossip or rumor. The AO 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 provision of law. The Court can always examine this aspect though the of the reasons for the belief cannot be investigated by the Court. The ld. AR relied upon the following case laws:-
1. Sheo Nath Singh v. AAC
2. Gangasharan & Sons Pvt. Ltd. v. I.T.O and Ors., 130 ITR 1 (SC)
3. Indian Oil Corporation v. 195 ITR 957- 959 (SC)
4. I.T.O. v. Lakhmani Mewal Das
5. S. Narayanappa v. CIT 63 ITR 219 (SC)
8. The AO did not have any material direct or circumstantial to have any bases for his belief that income has escaped assessment. There was no material at all in the possession of the AO to arrive at the conclusion that income has escaped assessments. It was not at all pointed out as to how the assessee was found involved in the financing brokerage business. The AO had not assessed a single penny of income from the alleged finance brokerage business from which assessee was considered to be earning taxable income.
9. A mere mention of a belief without disclosing the reasons on which such a belief had been based cannot be permitted. Even in the case CIT v. Raymond Woollens Mills Ltd.. 236 ITR 34, there was a material before the AO while forming belief under Section 147. There was some material on which the Department can reopen the cases. However, in this case, the AO has not at all referred to any such information / material. He had proceeded on suspicion that the assessee was involved in some finance brokerage business. The ld. AR relied upon the case of I.T.O. v. Umrao Construction (P) Ltd. 29 TW 166 (JP) and referred para 10 at page 170 which is reproduced as under:-
“The ld. CIT (A) also referred to the decision of the Apex Court in the case of CIT v. Raymond Woolens Mills Ltd. 236 ITR 34. In the case, the information brought was in respect of same assessee which was brought in assessment proceedings of subsequent year whereas in the case of appellant, there is no such information which can be said to have been brought by the AO. He appears to have proceeded merely on the basis of suspicion. The decision of the Apex Court in the case of M/s. Raymond Woolen Mills Ltd. (supra) therefore, cannot be said to the governing the issue at hand.”
10. The AO must have the reasons to believe that the assessee was having taxable income and he is to see whether that income exceeded the maximum not chargeable to tax. Even to satisfy the requirement as per decision in the case of Woolen Mills Ltd. v. CIT (supra), the AO must have prima facie some material. He Further submitted that last return of income available on record was for the assessment year 1991-92 and that too at Rs. 24,120/- only (below the taxable limit) and was accepted as such by the Department. No returns were filed for assessment year 1992-93 to 1995-96 nor any action was taken by the AO, which clearly suggest that the assessee was not haying any taxable, income even in the year under consideration in absence of any direct contrary evidence. The Id AR relied upon the following case laws.
1. JAY Gopal Mehra v. I.T.O. 74 ITR 594 (P&H).
2. Manik Chand Nahata v. I.T.O.
3. I.T.O. v. Induprasad Devshanker Bhatt
The AO had not referred to any transaction of finance brokerage nor any income arising therefrom for the simple reason that there was no such income during these years and the AO had not assessed such income in the assessment orders passed on 18-3-2002 under Section 143(3) / 148 of the Act meaning thereby the reasons so recorded by him did not exist at all. The Revenue had taken the Ground that assessee had been carrying on income earning activities. Such a ground had been taken only with a view to take care of the lapse narrated above. The validity of the assumption of jurisdiction has always to be judged with reference to the reasons recorded. He relied upon the cases reported in 126 ITR, 270,284 (Mad.), 114 ITR 480 (Cal.) and 160 ITR 141 (Pat.) CP 5th Ed. Vol. 3 page 5102. There is no” dispute that sufficiency /correctness of reasons cannot be gone into. However, it is settled law that the Court can see whether reasons to believe did exist or not. It was held in the case of Phool Chand Bajrang Lal, 203 ITR 456(SC) that an assessee is entitled to show that in fact there existed no belief or that the belief was not a bonafide one or was based on vague or irrelevant or non-specific information. In the case of Lakhmani Mewaldas, 103 ITR 457 (SC), it was held that “reasons” must be recorded in good faith, should not be a mere pretence, not based on mere rumour, gossips and there has to be a live link between the formation of the belief and the material coming to the notice of the AO. This decision had not been reversed by the case of Raymond Woolen Mills Ltd. v. CIT (supra). The reliance of the Revenue on Praful Chunni Lal Patel v. CIT 236 ITR 832 is therefore, totally misplaced and do not advance the case of the Revenue. Otherwise also, on facts, the same is distinguishable. Lastly, the AO had not recorded any satisfaction that assessee was having income above the taxable limit and in the absence of which he could not take shelter of explanation below Section 147. Therefore, the ld. CIT (A) has rightly held initiation of proceedings under Section 147 ab inito and the notices issued under Section 148 of the Act and also subsequent assessment is invalid in the eye of law.
11. We have heard the rival submissions and perused the materials available on record. For all the years, the AO recorded the similar reasons. He noticed that Shri Satya Narayan Parwal is involved in the business of finance broker and earning of taxable income but he did not file the return of income for all these years. The facts already narrated are that as per last return for assessment year 1991-92 which was filed showing income of Rs. 24,120/- and accepted under Section 143(1)(a) of the Act on 28-1-1992. The income for the assessment year 1991-92 was below taxable limit. The assessee had not filed any return of income for assessment years 1992-93 to 1995-96 for which ‘ Revenue had not taken action. Even for all these years, the assessee had filed returns of income which were below exemption limit as under:-
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Assessment Exempt Returned filed year Limit (Rs.) income (Rs.) ------------------------------------------------ 1996-97 40,000.00 32,300.00 ------------------------------------------------ 1997-98 40,000.00 35,780.00 ------------------------------------------------ 1998-99 40,000.00 39,260.00 ------------------------------------------------
The AO did not take any action under Section 142(1) of the Act for calling for all the returns of income. However, the AO had invoked provisions of Section 147 of the Act and issued notices under Section 148 of the Act for all the assessment years. While recording the reasons, the AO had given the details of the transactions which came to notice but he had not given any reason that the assessee had taxable income from those transactions. These transactions had not been brought on record nor the income from these transactions had been assessed in the orders passed by the AO. Thus, the AO had no information nor any material in his possession to entertain reasonable belief that income chargeable to tax has escaped assessment. It is pertinent to reproduce the provision of Section 147 and Explanation 2 as under.
Section 147: If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153 assessee or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year).”
Explanation 2: For the purpose of this section, the following shall also deemed to be cases where income chargeable to tax has escaped assessment namely:-
(a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax.
From perusal of the provisions contained under Section 147 of the Act, it is evident that the AO should have reason to believe that income chargeable to tax has escaped assessment and such income exceeded maximum amount which is chargeable to tax. From the perusal of the record , it is evident that income of the last assessment year was shown at Rs. 24,120/- which was below taxable limit and even the returns filed in response to notices under Section 148 of the Act were also below taxable limit. The AO has no reason to believe that income chargeable to tax has escaped assessment. Secondly, we have already mentioned that the AO had no specific information/ material in his possession to arrive at the conclusion that assessee had any taxable income during the years under appeal. We are also of the opinion that it was necessary for the AO to quantify the escaped assessment at the stage of recording of reasons in order to know that assessee enjoyed taxable income. The AO did not mention the amount of income escaped for initiation of proceedings under Section 147 of the Act. Section 149 of the Act makes it clear and obligatory on the part of the AO to mention specific income escaped and the time limits for issue of notice under Section 148 of the Act. The ld. AR for this purpose placed reliance on the decision of ITAT, Jodhpur Bench in the case of Uttamchand Nahar v. I.T.O., Tax World XXVIII page 435.
12. The Revenue’s contention is that the ld. CIT (A) cannot go into the sufficiency or correctness of the reasons recorded at the stage of initiation of proceedings under Section 147 as held in the case of Raymond Woolen Mills Ltd. v. CIT, 236 ITR 34. In this case, it was held that at the time of commencement of reassessment proceedings, only the prima facie material is to be taken into account. However, in the case before us, we find that the AO had no prima facie material / basis at all to initiate proceedings under Section 147 of the Act. The Revenue has also relied upon the case of Praful Chunilal Patel v. CIT, 236 ITR 832 at page 842. In this case, the AO clearly had a reason to believe that income chargeable to tax had escaped assessment in the relevant assessment year. In the case before us, the AO had no material or reason to believe that income chargeable to tax has escaped assessment. It was held in the case of Phoolchand Bajrang Lal v. I.T.O., 203 ITR 456 (SC) that reassessment proceedings cannot be initiated on the basis of taking irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the AO ad examine whether there was any material available on record from which the requisite belief could be formed by the AO and further whether that material had any rational connection with or live link for the formation of the requisite belief. We also find that in order to consider the validity of the jurisdiction to reason on the ground of relevancy of material available to the AO at the time of initiation of the reassessment proceedings, it is only those material that were available to him then that would have to be looked into, and not any further material that came to light in the course of the reassessment proceedings. The material available at the time of initiation of proceedings under Section 147 is to be taken into account and the material gathered through investigation or enquiry cannot be taken into account. We also find that the AO 10 had reason to believe that income had escaped assessment and the assessee enjoyed taxable income from the business of the finance brokerage. However, ultimately he had not assessed single penny from this business, in fact, no such business existed during the years under appeal. In view of the reasons give by us and by the ld. CIT (A), the orders of the ld. CIT (A) are sustained for all the three assessment years.
13. In the result, the appeals of the Department are dismissed.