In case assessment is based on change of Opinion than order is Void Ab Initio
Fact and Issue of the case
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company filed return of income for AY 2009-10 on 29.09.2009 which was processed under section 143 (1) of the Income-tax Act, 1961 (for short ‘the Act’). Thereafter, assessee’s case was reassessed at the returned income of Rs.58,49,432/- on 27.03.2014 u/s 147/143(3) of the Act. Again, AO received information from Investigation Wing vide letter dated 15.03.2012 that assessee had obtained accommodation entries amounting to Rs.50,00,000/- under the garb of share capital/share premium from Aseem Gupta group, whose residential and business premises were searched/surveyed by the Investigation Wing on 26.03.2010.
Appellant, M/s. SJM International Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 08.03.2018 passed by the Commissioner of Income-tax (Appeals)-28, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :-
“1. That the order of CIT(A) is bad in law and on facts.
2. On the facts and under the circumstances of the case, the assessment framed by the AO u/s 147/143(3) is void ab initio as the jurisdiction assumed by the AO u/s 147 is bad in law and on facts.
3. On the facts and under the circumstances of the case, the jurisdiction assumed by the AO u/s 147, is bad in law, as the AO has presumed existence of non-existing facts/ incorrect facts.
4. On the facts and under the circumstances of the case the AO has erred in relying on the statement of Sh. Aseem Gupta, ignoring that statements recorded on oath under survey have no evidentiary value.
5. The AO has further erred in overlooking the guidelines of CBDT vis-a-vis relying on the statement of third party without there being any cross examination.
6. The Jurisdiction assumed by the AO u/s 147 read with 148 after the expiry of four years from the end of relevant assessment year, is bad in law as there is no whisper in the reasons recorded that there is failure on the part of assessee to disclose the material facts fully and truly, particularly where original assessment has been made u/s 143(3) of the Act. .
7. The Jurisdiction assumed by the AO u/s 147 read with 148 is bad in law as it is a case reopened after the expiry of four years from the end of relevant assessment year, and hence it is incumbent on AO to satisfy the requirements of the proviso of section 147.
8. On the facts and circumstances of the case the AO has failed to appreciate that for assuming jurisdiction u/s 147 there must be reason to believe and the jurisdiction cannot be assumed for scrutinising the returns filed u/s 139(1) of the Act.
9. Without prejudice to the above it is settled position of law that jurisdiction u/s 147 cannot be assumed for reappraisal of the already examined facts, as per the principle of change of opinion.
10. Without prejudice to the above the sanction accorded by the CIT was mechanical as is evident from the sanction granted u/s 151 of the Act.
11. The CIT (A) has erred in sustaining the addition of Rs.50,00,000/- as unexplained cash credit u/s 68 ignoring that the assessee has successfully discharged his burden and the AO failed to enforce the attendance as per the provisions of section 131 of the Act.
12. The CIT (A) has erred in law and on facts in sustaining the additions made by the AO ignoring that AO has failed to refute the documentary evidence filed by assessee vis-a-vis establishing the ingredients of section 68.
13. The CIT (A) has erred in sustaining the direction to charge interest u/s 234B and 234A.
Observation of the Tribunal
The issue in question that assessee company has received accommodation entry from Moderate Corporate Corp. belonging to one Aseem Gupta, CA was subject matter of the earlier assessment framed u/s 147 read with section 143 (3) of the Act.
Ld. DR for the Revenue contended that return of income filed by the assessee company does not disclose the factum of share premium received, so this issue was not discussed earlier. We are of the considered view that when assessment was reopened for the first time this issue was before the AO who recorded statement of Jasdeep Singh qua the issue in question and has also during the assessment proceedings perused balance sheets, statement of accounts, ITR, bank statements, to enquire into the share capital received by the assessee from M/s. Moderate Corporate Corp., reopening on the same issue certainly amounts to “change of opinion” which is not permissible under the law.
Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. – (2010) 320 ITR 561 (SC) while examining the identical issue as to reopening on the basis of change of opinion has held that it would give arbitrary power to the AO to reopen assessment u/s 147 on the basis of mere “change of opinion”, which cannot be per se reason to reopen. Operative part of the judgment is extracted for ready perusal as under :-
“6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-conditions and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of “change of opinion” as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word” opinion” in section 147 of the Act.
However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated October 31, 1989 ( 182 ITR (St.) I, 29), which reads as follows:
“7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in section 147.-A number of representations were received against the omission of the words ‘reason to believe’ from section 147 and their substitution by the ‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new section 147, however, remain the same.”
For the aforestated reasons, we see no merit in these civil appeals filed by the Department; hence, dismissed with no order as to costs.”
Furthermore, it is contended by the ld. AR for the assessee that in the reasons recorded, AO has observed that he has assumed the jurisdiction to examine genuineness and creditworthiness of the alleged entities, which cannot be a ground to reopen the assessment.
Last sentence of the reasons recorded apparently goes to prove that AO has reopened assessment u/s 147/148 of the Act to verify the genuineness, identification and creditworthiness of the aforesaid transaction. It is settled principle of law that jurisdiction u/s 147 can only be assumed to enquire into the escapement of income or on the basis of some tangible material. Identical issue has been decided by the coordinate Bench of the Tribunal in case of SBS Realtors in ITA No.7791/Del/2018 order dated 01.04.2018 and held that jurisdiction u/s 147 of the Act cannot be assumed for verification of the cash credit entry by returning following findings :-
“The conclusion of the Assessing Officer at the end of the reasons recorded as noted above is contradictory. In the first two lines, the Assessing Officer has recorded the finding that the sum of Rs.2,35,00,000/- has escaped assessment but in the last two lines, he has recorded that the case is being reopened to verify the genuineness, identification and creditworthiness of the aforesaid transactions. If the case is being reopened for the purpose of verification of the genuineness, how can there by satisfaction of escapement of income. Any satisfaction with regard to escapement of income or otherwise can be recorded only after the verification of genuineness, identification and creditworthiness of the transaction and not earlier. Thus, we are of the opinion that the Assessing Officer has reopened the case under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of the transactions mentioned in the information supplied by the DIT (Investigation) and this is what the Assessing Officer has concluded at the end of the reasons recorded for issue of notice under See/ion 148. Now, the question remains whether an assessment can be reopened under Section 147 for the purpose of verification of genuineness, Identification and creditworthiness of any transaction. In our opinion, the reply is clearly NO.”
In view of what has been discussed above, tribunal is of the considered view that assessment framed in this case is not sustainable since the very jurisdiction assumed by the AO u/s 147 of the Act is bad in law and assessment framed on the basis of “change of opinion” u/s 147/143 (3) is void ab initio and is not sustainable in the eyes of law, hence quashed. Since assessment framed is not sustainable in the eyes of law on legal grounds, grounds raised on merits are not required to be disposed off. Consequently, appeal filed by the assessee is allowed.
The tribunal has ruled in favour of the assessee and disposed off the petition.
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