- (1.) The petitioner has challenged the reassessment proceeding under Sections 147 and 148 of the Income Tax Act (hereinafter referred to as the Act). For the said assessment year 2007-08, the assessee filed a return declaring a net loss of Rs. 7,48,180/-. The return was processed under Section 148(1) of the Act, but subsequently, the case was taken under scrutiny and a notice under Section 148(2) of the Act was issued along with a questionnaire. The petitioner filed its reply along with supporting documents. The Assessing Officer examined the profit and loss account from the books of account and other documents and, thereafter, made an assessment declaring a net loss of Rs. 66,70,410/-. Thereafter, it transpires that the Assessing Officer issued a notice under Section 154 of the Act alleging that an error had occurred in the assessment order, which was apparent on the face of the record. On an objection being filed, the proceedings were dropped and, thereafter, a notice dated 23.02.2011 was issued under Section 148 of the Act contending that the internal Revenue Audit Party in its report had submitted that the petitioner had debited an amount of Rs. 5,87,16,00/- and Rs.31,63,868/-, which was not allowable under Section 36 (1) (viia) of the Act and, therefore, the Department has "reasons to believe" that an income of Rs. 6,18,79,868/- had escaped assessment. The petitioner filed his objection contending that reassessment proceedings were patently erroneous and that reasons to believe was nothing but a change of opinion on which no reassessment proceedings could be initiated. By an order dated 19.09.2011, the objection of the petitioner was rejected. We have heard Sri Shakeel Ahmad, the learned counsel for the petitioner and Sri Ashish Agarwal, the learned counsel for the Income Tax Department.
(2.) The learned counsel for the petitioner submitted that the reassessment proceedings could not be initiated on the basis of an audit report. According to the learned counsel, such audit report does not amount to "information" nor does it give any "reasons to believe" that income had escaped assessment to tax. The learned counsel contended that on the basis of an audit report, assessment proceedings could not be reopened, inasmuch as the Assessing Officer had not applied its own mind nor came to any conclusion that based on such audit report, income had escaped assessment. The learned counsel submitted that since the Assessing Officer did not hold any belief that income had escaped assessment, consequently, the reassessment proceedings were without jurisdiction. The learned counsel submitted that reopening of assessment proceedings on the basis of an audit report amounts to a change of opinion. In support of his submission, the learned counsel has placed reliance upon the decisions in Indian And Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, 1979 AIR SC 1960, Commissioner of Income Tax Vs. Lucas T.V.S.Ltd, 1998 234 ITR 296 , Commissioner of Income Tax Vs. Lucas T.V.S. Ltd.,249 ITR 306 and Indian Oil Corporation Limited Vs. Income Tax Officer, Central Circle V, Calcutta, 1987 AIR(SC) 1897 . On the other hand, the learned counsel for the Department submitted that the condition precedent for initiating reassessment proceedings existed in the instant case and that the Assessing Officer had reasons to believe that the income had escaped assessment, which was based on the audit report. It was also submitted that in the instant case, it was not the internal audit report but the report given by the Comptroller and Auditor General. The learned counsel further submitted that the decisions cited by the petitioners are not applicable as they relate to the interpretation of Section 147 of the Act, which existed prior to 01.04.1989, which provision underwent a substantial change from 1.4.1989. The learned counsel in support of his submission has relied upon a decision of the Supreme Court in Assistant Commissioner Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 2007 AIR(SC) 2163 .
(3.) Having heard the learned counsel for the parties, we find that Section 147 of the Act authorises and permits the Assessing Officer to assess or reassess the income chargeable to tax, if he has reasons to believe that the income for any assessment year has escaped assessment. The phrase "reasons to believe" would mean cause or justification. If the Assessing officer has cause or justification to know that income had escaped assessment, it can then be said that the Assessing Officer had reasons to believe that an income had escaped assessment. The scope and effect of Section 147 of the Act as substituted with effect from 01.04.1989 and also Section 148 of the Act are substantially different from the provisions as they stood prior to such substitution. Clause (a) and (b) of Section 147 of the Act laid down the circumstances under which income escaped assessement could be assessed or reassessed. Section 147 contemplated two conditions which were required to be satisfied, namely, that the Assessing Officer must have reasons to believe that income, profit or gain chargeable to tax have escaped assessment, and secondly, he has reasons to believe that such escapement had occurred by reason of omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment. Both these conditions are conditions precedent and are required to be satisfied before the Assessing Officer could assume jurisdiction under Section 148 of the Act read with Section 147 of the Act. After 01.04.1989 only the first condition is required, namely, "reasons to believe", but both the conditions are required to be fulfilled in the event the case falls within the ambit of the proviso to Section 148 of the Act. In the instant case, the case is covered by main section and not by the proviso.;