By TIOL News Service

AHMEDABAD, MAY 07, 2018: THE issue is - Whether failure to take steps u/s 143(3) will render the AO powerless to initiate reassessment proceedings even when intimation u/s 143(1) has already been issued. NO is the answer.

Facts of the case:

The assessee an individual, had returned income for the relevant AY which was accepted without scrutiny u/s 143(1). However, a search operation u/s 132 was conducted in the premises of Venus Group of Ahmedabad on 10.03.2015 and accordingly, various incriminating documents were seized. On analysis of such seized documents, it was found that unaccounted cash transactions were first recorded on cash vouchers and based on them the entries were recorded on the day cash book. The documents also indicated that entries were made to record all unaccounted cash transactions of Venus Group and Vaswani family member. On the basis of the seized material, it was found that the assessee was one of the parties to the transactions in several land properties with Venus Group during the FY 2009-10 relevant to AY 2010-11. Further, it was also found that the transactions of land at various survey in which the assessee was a co-purchaser with 10% share involved unaccounted cash and assessee's proportionate share in this unaccounted cash was above the document price. Therefore, the AO believed that the invested amount was not recorded in the assessee's regular books and was out of his undisclosed income which was not brought to tax. Subsequently, to reopen such assessment, the AO issued SCN. Nevetheless, the assessee raised objections to the reopening notice however, the same were rejected by the AO.

the High Court held that,

++ at the outset, we may record the settled principles of law which would have some bearing in the present set of cases. Firstly, in a case where the return filed by the assessee is accepted u/s 143(1) without scrutiny, since the AO had not formed any opinion, principle of change of opinion would not apply. This has been made sufficiently clear in the case of Rajesh Jhaveri Stock Brokers Private Limited. These principles were reiterated by the Supreme Court in the latter judgment in case of Zuari Estate Development & Investment Company Limited. Despite this position, even in a case where the return of the assessee is accepted without scrutiny u/s 143(1), in order to reopen the assessment, the AO must have reason to believe that income chargeable to tax has escaped assessment. This issue has been discussed at considerable length by this Court in the case of Inductotherm (India) Private Limited;

++ the requirement, thus for reopening of assessment, is “reasonable belief”. This expression is not synonymous with the AO having finally ascertained the fact by any legal evidence or conclusion. In this context, the Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited had observed that "... Sec. 147 authorizes and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any AY has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification ... The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers ..." ;

++ in the case of Raymond Woollen Mills Limited v. ITO& Ors., the Apex Court has held that "... 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 ..." Lastly, it is well settled that the validity of the notice of reopening would be judged on the basis of reasons recorded by the AO for issuance of such notice. It would not be permissible for the AO to improve upon such reasons or to rely upon some extraneous material to support his action. Reference in this respect can be made to the decision of this Court in the case of Aayojan Developers;

++ from the reasons recorded by the AO, we gather that various premises of Venus Group were subjected to search operations conducted on 10th March 2015. During such search operations, various incriminating documents were seized. One of the premises searched was terrace of one Crystal Archade, a building situated on C.G Road, Ahmedabad. Number of documents relating to unaccounted cash transactions were seized from such premises. These seized documents were analyzed and co-related. It was found that unaccounted cash transactions were first recorded in the cash vouchers. On the basis of such cash vouchers, entries were recorded in the day cash-book. Further, photocopies of documents and loose papers recovered during search operations were forwarded to the AO which contained Summary-Sheet; Daily Cash-book entries. According to the AO, analyzing all these documents and by co-relating them, it was found that unaccounted cash transactions were first recorded in the cash vouchers. On the basis of recording made in these cash vouchers, entries were recorded in the day cash-book;

++ the summary sheet which was found during the search operation shows a total amount of Rs. 33,24,89,500/- (other than EC) and an amount of Rs. 8,21,105/- (by EC). The total of these two figures is also mentioned in the summary sheet as Rs. 41,46,000/-. The reasons recorded point out that the cash transactions are recorded in the name of different entities in the seized cash vouchers. Amount which is legally paid and which has been paid through banking channels, only such amount is mentioned in the sale deeds. This amount paid through bank channels and which is reflected in the total sale consideration in the sale deeds is also entered with a noting “against EC” in the seized papers. The Revenue would thus point out that the summary-sheet when indicated a figure of Rs. 8,21,105/- against EC, it reflected the total sale consideration, of course multiplied by 100, since all the figures are supposedly recorded 1/100th of the actual sum, which is received through banking channels towards the sale of lands and which is duly reflected in the sale deeds. According to the Revenue, thus, the total sale transactions reflected for sale of all these parcels of land would comes to Rs. 8,21,10,500/- (approx.) which matches with the total sale consideration under different sale deeds. In this context, Revenue would point out that the remaining figure of Rs. 33,24,895/- (other than EC) found in the summary-sheet reflects sale consideration of Rs. 33,34,89,500/- received by Venus Group for sale of different lands at Sargasan and Tarapur during the same period and which was not accounted;

++ the AO had analyzed the voluminous material collected by the Revenue during the search operations in connection with Venus Group. This material prima facie suggested huge cash transactions in connection with sale of lands against the total declared sale consideration of Rs. 8.21 Crores (rounded off). The material prima facie suggests that the total cash transactions of Rs. 33.24 Crores had taken place. The Revenue argues that the entires in Summary-sheet and Vouchers carried dates which were deliberately put 10 years backward to disguise and the figures were recorded by deleting two zeroes from the actual to avoid detection and co-relation;

++ at this stage, when we are concerned with re-opening of the assessment that too in a case where the original return filed by the assessee was accepted without scrutiny, the material at the command of the AO is sufficient to permit the process of reopening. As held by the Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited and Raymond Woolen Mills Limited, reason to believe cannot be equated with finally established fact that the income chargeable to tax having escaped assessment additions will invariably be made and further, sufficiency of reasons enabling the AO to form such a belief would not be gone into.

(See 2018-TIOL-843-HC-AHM-IT)