VALIDITY OF REASSESSMENT PROCEEDINGS INITIATED UNDER SECTION

RELEVANT EXTRACTS: ** ** ** ** ** ** 16. A bare reading of the provisions of the Act shows that the AO can initiate reassessment proceedings, if he has ‘reason to believe’ that any income chargeable to tax has escaped assessment for any assessment year subject to the provisions of sections 148 to 153 of the Act. In such a case the AO is empowered to assess or reassess such income. such escapement of income could be due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The proviso to section 147 of the Act provides that in case the assessment completed u/s 143(3) or 147 of the Act is to be reopened after the expiry of four years from the end of the relevant assessment year, the Assessing Officer could take recourse to such action only if the escapement of income chargeable to tax was on account of assessee’s failure to disclose fully and truly all material facts necessary for assessment. In case such assessment completed u/s 143(3) or 147 is to be reopened within a period of four years from the end of the relevant assessment year or the assessment was completed u/s143(1)(a) or 143(1), it is not necessary to establish the escapement of income due to omission and failure on the part of the assessee to disclose fully and truly all material facts. But the conditions precedent for initiating the reassessment proceedings must exist before such action could be initiated by the Assessing Officer. Explanation to section 2(c) of section 147 of the Act deals with deemed escapement of income where assessment has been made, but income chargeable to tax has been under assessed or such income has been assessed at too low a rate or such income has been made the subject matter of excessive relief under this Act or excessive loss or depreciation allowance or any other allowance under this Act has been allowed. 17. The expression “reason to believe” used in section 147 of the Act has special significant. It does not mean ‘reason to suspect’. It is reasonable belief of a honest and reasonable person based upon reasonable grounds. The expression used is not ‘satisfied’. The ‘reason to believe’ requires higher level of evidence and material than the requirement of ‘satisfaction of the Assessing Officer which essentially means the material which comes to the notice of Assessing Officer must be a definite, specific and direct and not unspecific or vague. This issue was considered by the Hon’ble supreme Court in the case of Income-tax Officer, I Ward Distict VI Calcutta Vs. Lakhmani Mewal Dass 103 ITR 437 where the Apex Court observed that “reason to believe” does not mean “reason to suspect”. The reasons for the formation of the belief contemplated u/s 147 of the Act necessary for reopening of an assessment must have a ra tional connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee. The apex Court further observed that it was not every material, howsoever vague and indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again this issue was considered by the Hon’ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. vs. ITO reported in 130 ITR 1, where the apex court observed that expression “reason to believe” was stronger than the words ‘satisfied’. The belief entertained by the AO must not be arbitrary or irreational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. If there is not rational and intelligible nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law. 17A. The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the Assessing Officer and the material and information referred to by him in the reasons for initiating such action. It is settled law that Assessing Officer cannot initiate the reassessment proceedings merely on the basis of suspect ion or for the purpose of making roving and fishy inquires. The Assessing Officer cannot support the reopening of the assessment by collecting the material or by making inquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the Assessing Officer initiated action u/s 147 of the Act. But at the same time the formation of the belief of the Assessing Officer is a prima facie belief on the date when he initiated the reassessment proceedings. It is not necessary that Assessing Officer must establish the factum of concealment/escapement of income on the date of initiation of the reassessment proceedings itself. The assessment reopened by the Assessing Officer is subject to normal procedure of assessment where the Assessing Officer is require ed to examine the case by issue of notices u/s 143(2)/142(1) of the Act and allow an opportunity to the assessee. Later, if it turns out that there is no escapement of income, Assessing Officer can drop the proceedings initiated u/s 147 of the Act. 18. The undisputed facts of the case are that the assessee had filed returns for the various assessment years declaring therein NIL income. All these returns were processed only u/s 143(1)(a) of the Act. It is also a fact that in all the returns, the assessee had claimed exemption in respect of tis income u/s 10(22) of the Act. It is also a fact that in all the returns, the assessee had claimed exemption in respect of its income u/s 10(22) of the Act which is admissible in a case of an Educational Institutions. The facts brought on record further confirm that this is not a case where the Assessing Officer directly initiated reassessment proceedings, merely on the basis of returns filed by the assessee. It appears that substantial portion of donations amounting to Rs. 54 lacs had been received from Tilok Vidyawati Chuttani Charitable Trust Dr. P. N. Chuttani was founder member of the said Trust. Inquiries were initiated to find out as to how the donations given to the assessee-trust had been utilized by the assessee.s uch inquiries were made after obtaining approval of the CIT under section 133(6) of the Act. Before initiating the reassessment proceedings, the assessee was asked to furnish information with regard to loans and advances given to various parties, details of creation of corpus fund etc. It was also mentioned by the Assessing Officer that failure to furnish information would result in taking action under section 147 of the Act. In the assessee’s reply dated 15-4-1999, it has again reiterated its claim u/s 10(22) of the Act. The Assessing Officer issued another letter dated 19-4-1999 stating that requisite information has not been furnished. The question of receipt of donations amounting to Rs. 25 lacs and Rs. 29 lacs from Tilok Vidyawati Chuttani Charitable Trust had been specifically asked from the assessee and the details of utilization of the same were also called for. Thereafter, the proceedings u/s 147 of the Act were initiated for all the assessment years on 2-3-2000. The assessee’s letter dated 18-12-2000 to the Assessing Officer stating therein that the reply/informat ion as per questionnaire can be furnished only after receipt of reasons recorded by the Assessing Officer clearly show that the Assessing Officer tried to ascertain the position before initiating the reassessment proceedings under section 147 of the Act and somehow the assessee has not fully complied with such information. On the contrary, the claim for exemption u/s 10(22) of the Act was reiterated. 19. A perusal of the reason recorded by the competent authority show that the basis of the initiation of such action was with regard to exemption claimed under section 10(22) of the Act. The Assessing Officer has referred to the results of inquiries made in this case which revealed that the assessee was not running any such Educational Institution/School/College or vocational institute at the given place and there was only a sing board of its name outside the room occupied by the Security Guards of family of Shri H. S. Brar. The Assessing Officer has mentioned that in the absence of such Educational Institution, the assessee was not ruled to exemption under section 10(22) of the Income-tax and, therefore, he had reason to believe that income chargeable to tax in the form of donations, subscription and interest had escaped assessment. The same are the reasons for the subsequent assessment years with variation of the amounts. The results of inquiries by the Assessing Officer in the reasons recorded, that the assessee was not running any Institution/School/College at the given place have not been cont reverted by the assessee. Therefore, on the basis of such information, the Assessing Officer was justified in forming a belief that income chargeable to tax had escaped assessment more so when the assessee did not furnish the desired information before him during the course of inquiries made before initiation of reassessment proceedings.