Re-Assessment Proceedings u/s 147 of Income Tax Act can be Initiated on Relevant Material on Which Reasonable Person can Form Requisite Belief that Income Tax has Escaped: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that if there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under Section 147 of the Income Tax Act, 1961 can be validly initiated, and thus restored the matter to  Commissioner of Income Tax (Appeals) [CIT(A)] for de novo adjudication.

The assessee Ramesh Kumar Jain being an individual filed the return of income for the year under consideration, declaring a total income of Rs.37,17,260. Subsequently, on the basis of information received from DGIT (Director General of Income Tax) (Investigation), New Delhi that the assessee has traded in penny stock scrip M/s. Global Capital Market Ltd, and has sold shares worth Rs.53,60,000, proceedings under Section 147 of the Income Tax Act were initiated and notice under Section 148 of the Income Tax Act was issued.

It was alleged that the assessee is a beneficiary of the tax-exempt bogus longterm capital gains through the above scrip and thus the income chargeable to tax amounting to Rs.53,60,000, has escaped assessment in the meaning of Section 147 of the Income Tax Act.

During the reassessment proceedings, the Assessing   Officer (AO) issued statutory notices under Section 143(2) as well as Section 142(1) of the Income Tax Act on the assessee, requesting the assessee to explain as to why the sale of shares of M/s Global Capital Market Ltd should not be treated as bogus and as to why the amount of Rs.53,60,000, should not be added to the total income of the assessee. In response thereto, the assessee submitted that the sale consideration received by the assessee from the sale of scrip of M/s.Global Capital Market Ltd is genuine.

The AO did not agree with the submissions of the assessee and held that Since the enquiries conducted by the Directorate of Investigation, Kolkata has established that the above scrips a penny scrips, the entire sale consideration of Rs.53,60,000, was considered as unexplained cash credit under Section 68 of the Income Tax Act and added to the total income of the assessee. The AO also made an addition of 3% of the aforesaid sum under Section 69C of the Income Tax Act being commission paid in such transaction.

The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which allowed the appeal filed by the assessee and held that the year under consideration falls within the ambit of Section 153A of the Income Tax Act and therefore the assessment proceedings can only be initiated in the aforesaid section and the same cannot be initiated under Section 147 of the Income Tax Act.

Being aggrieved, the Revenue is in appeal before the Tribunal.

The Bench comprising of B.R. Baskaran, Accountant Member and Sandeep Singh Karhail, Judicial Member observed that since the dispute in the present appeal is pertaining to the provision under which the assessment can be initiated, therefore, it is pertinent to analyse both the provisions.

In case of search under Section 132 or requisition under Section 132A of the Income Tax Act, the AO assumes the jurisdiction to assess or reassess the total income of six assessment years under Section 153A of the Income Tax Act. Whereas under Section 147 of the Income Tax Act if the AO has reason to believe that any income chargeable to tax has escaped assessment then he may assess or reassess such income.

Thus, if there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under Section 147 of the Income Tax Act can be validly initiated.

In the present case, proceedings under Section 147 of the Income Tax Act were not initiated on the basis of the search conducted in the case of the assessee but the same were initiated on the basis of the information received from the DDIT (Investigation).

The Tribunal referred the case of PCIT v. Abhisar Buildwell, where it was held that in case of the completed/unabated assessments the AO in the exercise of powers under Sections 147/148 of the Income Tax Act can re-open the assessment, subject to fulfilment of the conditions as envisaged/mentioned under Sections 147/148 of the Income Tax Act.

Since in the present case, the assessment proceedings were initiated on the basis of information received by the AO, it was held that the CIT(A) had completely erred in holding that the assessment proceedings for the year under consideration can only be initiated under Section 153A of the Income Tax Act and the same cannot be initiated under Section 147 of the Income Tax Act.

Accordingly, the tribunal aside the impugned order passed by the CIT (A) and restore the appeal to the file of the CIT (A) for de novo adjudication.

Hence grounds raised by the Revenue were allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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