Nitesh Chajjed v. Income Tax Officer,Business Ward – Ix (1),611, Anna Salai,Chennai –

IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 18.04.2017CORAMTHE HONOURABLE MR. JUSTICE S.MANIKUMARandTHE HONOURABLE MR. JUSTICE D.KRISHNAKUMARTax Case Appeal No.356 of 2016 Nitesh Chajjed .. Appellant/Appellant Vs. Income Tax Officer,Business Ward – IX (1),611, Anna Salai,Chennai – 600006. .. Respondent/Respondent PRAYER: Appeal filed under Section 260-A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal,“SMC”Bench,Chennai,dated13.11.2015passedinI.T.A.No.553/Mds./2015 against the order dated 28.11.2014 madein ITA No.1747/2013-14 on the file of Commissioner of Income Tax(A)-II, Chennai, against Assessment order dated 25.03.2013passed by Assistant Commissioner of Income Tax, Chennai-6agaisnt PAN.No. . For Appellant : Mr.B.Ramanakumar For Respondent : Mr.M.Swaminathan, Standing Counsel for the respondent JUDGMENT (Judgment of the Court was delivered by D.KRISHNAKUMAR, J.) This Appeal has been filed by the assessee against theorder of the Income Tax Appellate Tribunal, “SMC” Bench,Chennai, dated 13.11.2015 passed in I.T.A.No.553/Mds./2015. 2. The facts of the case are as follows:- (i) An information was received from DDIT (Inv), Unit –III (2), Chennai, on 25.11.2009, informing that consequent tosurvey u/s 133A in the business premises of Smt.Leela Surana, ashare sub-broker, it was found that that few assesses hadpurchased shares from her out of their unaccounted cash. Alist containing names of persons along with details of cashreceived from them were impounded from Smt.Leela Surana. From https://hcservices.ecourts.gov.in/hcservices/ the documents impounded, it was seen that the appellant herein,assessed to tax, has made cash payments during the FinancialYear 2008-09 to Leela Surana for purchase of shares.Subsequently, Smt.Leela Surana had issued bogus contract notesas if the shares were purchased during Financial Year 2007-08.However, no transactions in the contract notes had effected andthat those things were done to help the individuals to convertthe unaccounted money to accounted money. Theassessee/appellant is one of the individuals listed in theinvestigation report. The appellant had not filed the returnof income for the Assessment Year 2009-10. As the incomechargeable to tax had escaped assessment, notice under section148 was issued to the appellant. In response to Noticeu/s.148 of the Act, the assessee/appellant filed his return ofincome on 27.10.2011 admitting total income of Rs.1,68,570/-including agricultural income of Rs.7000/-. Notice u/s.143(2)and 142(1) were issued. The assessee/appellant made objectionfor reopening of the assessment and the same was rejected by wayof proceedings dated 2.11.2012 stating that the re-opening wasin accordance with law. Eventually, an order order section 143(3) r/w 147 of the Income Tax Act was passed on 25.3.2013 makingan additional income of Rs.7,10,000/- under the Head “Incomefrom other sources”. (ii) Aggrieved by the same, the appellant preferred anappeal against re-opening of assessment under section 147 of theAct before the Commissioner of Income Tax (Appeals), on thegrounds, inter alia, urging to delete the addition ofRs.7,10,000/- as unexplained income under the head “Income fromother sources”. The appellate authority/Commissioner of IncomeTax (Appeals), after hearing the arguments of the authorisedrepresentative for the assesseee, held that the appellantadmitted before the Assessing Officer that he did not maintainany books of account and further, the Assessing Officer hasbrought out the fact at Para 6 of his assessment order thatthere was neither any evidence produced to indicate the purchaseof shares in the Financial Year 2007-08 nor any capital gainswas admitted by the assessee/appellant. The assessee/appellanthad not produced any explanation for source of cash paid ofRs.7,10,000/- by him to Smt.Leela Surana for purchase of shares.From this, it is evident that the cash paid by the assessee ofRs.7,10,000/- is nothing but the unexplained income of theassessee. As such, by order dated 28.11.2014 in ITANo.1747/2013-14, the appellate authority dismissed the Appealpreferred by the assessee/appellant. (iii) Challenging the aforesaid order, theassessee/appellantpreferredanAppealinI.T.A.No.553/Mds./2015, before the Income Tax Appellate https://hcservices.ecourts.gov.in/hcservices/ Tribunal, ”SMS” Bench, Chennai, on the grounds, inter alia, thatthe Commissioner of Income Tax (Appeals) had erred in confirmingthe order of the Assessing Officer with respect to re-opening ofassessment u/s. 147/148 of the Act and that the Commissioner ofIncome Tax (Appeals) had erred in confirming the order of theAssessing Officer by disallowing a sum of Rs.7,10,000/- asunexplained income under the head “income from other sources”.The grounds raised by the assessee/appellant was considered bythe Tribunal and as far as the re-opening of assessment isconcerned, it has been held that the Assessing Officer hasrightly invoked the provisions of sections 147 and 148 of theAct and accordingly, upheld the order of the revenue on thisissue. However, with respect to disallowing the sum ofRs.7,10,000/-, as stated above, the Tribunal found that thetrial balance of the asseesee dated 31.3.2008 shows that theassessee had invested in the purchase of 4,700 shares ofM/s.Shyam Star Gen on 03.4.2007 to establish that the assesseehad invested in the shares during the assessment year 2008-09and the assessee had also produced the contract note issued bySmt.Leela Surana, dated 3.4.2007 to support the same. However,there was no reference about the statement of accounts submittedbefore the Tribunal by both the revenue authorities in theirrespective orders. Therefore, the matter was remitted back tothe file of the Assessing Officer to examine the veracity of thestatement of accounts furnished before the Tribunal and thegenuineness of the same and thereafter, pass appropriate orderas per law and on merits, vide order dated 13.11.2015 inI.T.A.No.553/Mds./2015. Being not satisfied with the abovesaid order, the assessee has preferred the instant Appeal. 3. Mr.B.Ramanakumar, learned counsel for the appellantwould submit that consequent to survey u/s.133A in the businesspremises of one Smt.Leela Surana, a share broker, in a swornstatement, mentioning the name of the appellant as one of herclients from whom she had allegedly received cash payments forthe purchase of shares, proceedings were initiated and Noticeu/s.142(1) was issued on 29.07.2011. However, there was nosuch transaction with the appellant at all. The learned counselwould also submit that that the re-opening of assessment againstthe assessee only on the basis of an information gathered from athird party by way of sworn statement do not satisfy theingredients of the Act viz., “reason to believe”. Beforeissuing any notice u/s 148, the assessing officer must havereason to believe that any income chargeable to tax has escapedassessment. Reason to believe can not be a reason to suspectmerely. There must be a direct relation between the materialcoming to the notice of the assessing officer and the formationof the belief that there has been escapement of income of theassessee from assessment in a particular year. The material forformation of belief must be relevant and not vague. The assessing officer must record reasons in writing before issuingnotice u/s 148. Mere a reason recorded that “there isconcealment of income’ without any specific instance of entriesor material relevant to the assessee will not constitute a validreason as it is vague and general in nature. The next submissionof the learned counsel is that while section 142(1) proceedingswere pending, another notice u/s.148 was issued on 23.09.2011.Hence, initiating parallel proceedings is not valid in law. Healso questioned the validity of the re-opening of assessmentunder Sections 147/148 on the ground that such provisions cannotbe invoked on the basis of information already available.Therefore, in view of the above said grounds, the Tribunal oughtto have allowed the appeal filed by the appellant in totoinstead of remitting the matter back to the file of theassessing officer. In support of his contention, the learnedcounsel for the appellant relied on the decision in the case ofNational Thermal Power Co.Ltd., v. Commissioner of Income Taxreported in (1998) 229 ITR 383 9(SC) : (1999) 157 CTR 249 (SC). 4. Mr.M.Swaminathan, learned standing counsel for therevenue/respondent would submit that the Tribunal has rightlyheld that the reopening of assessment was in accordance with lawand there was no infirmity or illegality therein. The Tribunalhas also rightly accepted the contention of the revenue thatthere was escapement of assessment but to ascertain the veracityof the statement of accounts furnished before the Tribunal andgenuineness of the same, the matter was remitted back to theassessing officer and there is no irregularity or infirmity inthe order of the Tribunal and the same is liable to be sustainedand the instant appeal is liable to be dismissed. 5. Heard the learned counsel appearing for the partiesand perused the materials on record. 6. In the grounds of appeal, the appellant has raisedthe following substantial questions of law:- (i) Whether it is right in law toinitiate parallel proceedings u/s.148 whenproceedings u/s.142(1) is still pending? (ii) Whether the noting from theSworn Statement gathered by the department froma third party would satisfy the “reason tobelieve” clause of sections 148/147 for the re-opening of the Assessment Year of the anotherAssessee? (iii)Whethertheinformationavailable on record based on the informationreceived from a third party, would constitute avalid reason for re-opening under section 148/147? (iv) Whether “calling for records”and “not reasoning them out” would amount toany reason to believe for the purpose of re-opening under sections 148/147? 6. In the grounds of appeal, the appellant has raisedthe following substantial questions of law:- (i) Whether it is right in law toinitiate parallel proceedings u/s.148 whenproceedings u/s.142(1) is still pending? (ii) Whether the noting from theSworn Statement gathered by the department froma third party would satisfy the “reason tobelieve” clause of sections 148/147 for the re-opening of the Assessment Year of the anotherAssessee? (iii)Whethertheinformationavailable on record based on the informationreceived from a third party, would constitute avalid reason for re-opening under section 148/147? (iv) Whether “calling for records”and “not reasoning them out” would amount toany reason to believe for the purpose of re-opening under sections 148/147? (v) Whether inter departmentalinformation, without any clear satisfaction ofescape of income, based on collaborativeevidence constitute a valid reason for re-opening under section 148/147? 7. Point No.(i):- With regard to the first substantialquestion of law, it is the contention of the appellant that whennotice under section 148 of the Income Tax Act was issued, therecannot a parallel proceedings u/s.142(1) of the Income Tax Act,1961. However, in the affidavit dated 22.06.2016 filed onbehalf of the revenue, it is stated that a notice u/s.148 of theIncome Tax Act was issued on 23.9.2011 for the assessment year2009-10 and no notice was issued under section 142(1) of theIncome Tax Act for the assessment year 2009-10. The Letterdated 29.07.2011 was a covering letter addressed to theassessee. No notice u/s.142(1) was enclosed for the assessmentyear 2009-10 and it was only for the assessment year 2010-11.Therefore, the contention of the appellant that there areparallel proceedings – one under section 148 and another undersection 142(1) of the Income Tax Act is untenable. It is alsopertinent to note that no such ground was raised either beforethe appellate authority or Income Tax Tribunal. 8. Point Nos.(ii) to (v):- Considering the nature ofsubstantial questions of law Nos.(ii) to (v), they are taken uptogether for consideration. The contention of the appellant isthat the re-opening of assessment against the assessee on thebasis of an information gathered from a third party by way ofsworn statement do not satisfy the ingredients of the Act viz.,“reason to believe”. However, reasons recorded by theassessing officer was considered by the appellate authority forre-opening of the assessment and found that there are evidencesapart from the sworn statement of Smt.Leela Surana, a sharebroker, for escapement of assessment. It is an admitted factthat re-opening of assessment against the assessee was withinthe period of four years from the end of the relevant assessment 8. Point Nos.(ii) to (v):- Considering the nature ofsubstantial questions of law Nos.(ii) to (v), they are taken uptogether for consideration. The contention of the appellant isthat the re-opening of assessment against the assessee on thebasis of an information gathered from a third party by way ofsworn statement do not satisfy the ingredients of the Act viz.,“reason to believe”. However, reasons recorded by theassessing officer was considered by the appellate authority forre-opening of the assessment and found that there are evidencesapart from the sworn statement of Smt.Leela Surana, a sharebroker, for escapement of assessment. It is an admitted factthat re-opening of assessment against the assessee was withinthe period of four years from the end of the relevant assessment year. Therefore, the first proviso of Section 147 will not beapplicable to the case of the assesseee. In such circumstances,the assessing officer is empowered to re-open the assessment ifhe has reasons to believe that the income has escaped from theassessment. It is not required by the revenue to show thatincome which has escaped assessment was due to the failure onthe part of the appellant to disclose fully and truly all thematerials relevant to the assessment. Both the appellateauthority and the Income Tax Tribunal has found that theassessing officer was empowered to re-open the assessment in theinstant case. It is an admitted fact that the assessee hadfailed to file his return of income for the assessment year2009-10. Pursuant to the survey conducted under section 133Aof the Act in the business premises of Smt.Leela Surana, a ShareSub-Broker, on 25.11.2009, it came to light that the assesseehad made cash payments of Rs.6,80,000/- on 17.09.2008 andRs.30,000/- on 24.9.2008 to Smt. Leela Surana for purchase ofshares and had obtained 'back dated' contract note for thepurchase of 4,700 share of 'Shyam Star'. Subsequently, theassessee had sold these shares on 17.9.2008 and 24.9.2008 forRs.6,75,838.61 and 27,378.47 and remitted the sale proceeds tohis bank account. Therefore, the assessing officer had thereasons to re-open the assessment of the assessee. Hence, inour view, the Tribunal was justified in assessing thecorrectness of the notice for reopening the assessment underSection 148 on the basis of the reasons which were disclosed bythe Assessing Officer. 9. Reliance was placed by the appellant, on thedecision rendered in the case of National Thermal Power Co.Ltd.,v. Commissioner of Income Tax reported in (1998) 229 ITR 383 9(SC) : (1999) 157 CTR 249 (SC) wherein, it has been held inParagraph 7 as follows: 7. The view that the Tribunal is confinedonly to issues arising out of the appeal beforethe Commissioner of Income-tax (Appeals) takestoo narrow a view of the powers of theAppellate Tribunal [vide, e.g.,C.I.T, v. AnandPrasad [1981] 128 ITR 388 (Delhi), C.I.T.v.Karamchand Premchand P. Ltd. [1969] 74 ITR254 (Guj) and C.I.T. v. Cellulose Products ofIndia Ltd. [1985] 151 ITR 499 (Guj) .Undoubtedly, the Tribunal will have thediscretion to allow or not to allow a newground to be raised. But where the Tribunal isonly required to consider a question of lawarising from the facts which are on record inthe assessment proceedings we fail to see whysuch a question should not be allowed to be raised when it is necessary to consider thatquestion in order to correctly assess the taxliability of an assessee.“ In the aforesaid decision, it has been held that the Tribunalwill have the discretion to allow or not to allow a new groundto be raised. In the instant appeal, there is no such questioninvolved. Hence, the aforesaid decision will not beapplicable to the facts of the present appeal. raised when it is necessary to consider thatquestion in order to correctly assess the taxliability of an assessee.“ In the aforesaid decision, it has been held that the Tribunalwill have the discretion to allow or not to allow a new groundto be raised. In the instant appeal, there is no such questioninvolved. Hence, the aforesaid decision will not beapplicable to the facts of the present appeal. 10. Similarly, reliance was placed by the appellant onthe decision in the case of Santosh Hazari v. Purushottam Tiwarireported in (2001) 251 ITR 84 (SC) : (2001) 170 CTR 160 (SC),also relied on by the appellant is not applicable to the factsof the present appeal. In that case, the matter was remittedback to the High Court after framing substantial question of lawon the ground that no substantial question of law was framed andheard by the High Court. In the instant appeal, It is not thecase as if no substantial question of law was framed. 11. However, the ratio laid down in the case ofRimmalapudi Subba Rao v. Noony Veeraju AIR 1951 Mad 969 (FB) ofthis High Court, it has been held that “ ... when a question of law is fairlyarguable, where there is room for differenceof opinion on it or where the Court thought itnecessary to deal with that question at somelength and discuss alternative views, then thequestion would be a substantial question oflaw. On the other hand, if the generalprinciples to be applied in determining thequestion are well settled and the onlyquestion was of applying those principles tothe particular facts of the case it would notbe a substantial question of law.” 12. In the light of the aforesaid discussion anddecision, we are of the considered view that there is nosubstance in the questions of law raised and they are answeredagainst the assessee. Hence, we are not inclined to interferewith the order of the Income Tax Appellate Tribunal, “SMC”Bench,Chennai,dated13.11.2015passedinI.T.A.No.553/Mds./2015 and the Tax Case Appeal fails and thesame is dismissed. No costs. The matter is remitted back to https://hcservices.ecourts.gov.in/hcservices/ the Assessing Officer to examine the veracity and genuineness ofthe statement of accounts furnished before the Income TaxAppellate Tribunal as has been directed by the Tribunal in itsorder. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant RegistrarasvmTo1.Income Tax Officer, Business Ward – IX (1), 611, Anna Salai, Chennai – 600006.2.The Income Tax Appellate Tribunal, “SMC” Bench, Chennai.3. The Commissioner of Income Tax(A) II,Chennai4.The Assistant Commissioner of Income Tax,Chennai-6 +1 cc to Mr.M.Swwaminathan Advocate sr 23894 T.C.A.No.356 of 2016 aa27/06/2017 https://hcservices.ecourts.gov.in/hcservices/