2014 (2) TMI 1169 - HC - Income Tax

Reopening of assessment - as the provision towards an unascertained liability is not allowable under the Act it should have been disallowed and taxed - Held that - In the present case the reasons to believe nowhere highlight what if at all was the material which the Assessing Officer came up or became aware of subsequent to the original assessment. In other words what triggered the Assessing Officer s curiosity to impel him to re- examine the files and documents pertaining to a completed assessment is unknown. Nor does the materials placed in the assessment show that the petitioner had unjustifiably suppressed valid or relevant information which was otherwise available. The advertence to the disallowance of a provision for an unascertained liability points to the Assessing Officer indulging in what amounts to nothing but a masked review. What appears to have excited the Assessing Officer s mind was that the original assessment order was not framed properly as it overlooked certain materials which led to loss of revenue. The Assessing Officer in the first instance did not perform his job properly for which the assessee cannot be faulted with. In Calcutta Discount Co. Ltd. v. ITO 1960 (11) TMI 8 - SUPREME Court pointedly observed that the assessee is required to fairly disclose what is expected of him the primary facts while submitting the returns. It is up to the Assessing Officer to draw the necessary inferences. In the present case the Assessing Officer s omission appears to have been the sole basis for issuing the reassessment notice and consequently proceeding to make the impugned demand. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under section 148 of the Income-tax Act, 1961 for reopening assessment for the assessment year 2007-08.

Analysis:
The petition challenged a notice issued under section 148 of the Income-tax Act, 1961, proposing to reopen the assessment for the year 2007-08. The petitioner sought a writ to quash the demands claimed by the Income-tax Department through its order dated March 25, 2013. The petitioner reported a total income in its return and during the assessment, a notice was issued seeking clarifications. The assessment was completed, and a demand was raised. Subsequently, a notice was issued proposing reassessment proceedings based on the alleged underassessment of income due to certain provisions not being disallowed. The petitioner contended that the reassessment notice was illegal and relied on legal precedents to argue against the jurisdiction assumed by the Assessing Officer.

The Revenue defended the validity of the notice, stating that the Assessing Officer acted within rights based on existing records indicating underassessment of income. The Revenue claimed inability to produce original records due to theft. The Court analyzed the legal principles, particularly the requirement of "reasons to believe" as outlined in the Kelvinator case. The Court emphasized that the reasons for reopening an assessment must be based on objective material discovered after the original assessment. In this case, the reasons provided in the notice did not indicate any new material or circumstances triggering the reassessment. The Court found that the Assessing Officer's actions amounted to a disguised review of the assessment, which was beyond the statutory intent and characterized as an abuse of power.

The Court concluded that the reasons provided for reopening the assessment were insufficient and did not demonstrate any suppression of relevant information by the petitioner. The Assessing Officer's oversight in the initial assessment was not a valid basis for reassessment. Citing legal precedent, the Court held in favor of the petitioner, quashing the impugned notice and demands arising from it. The writ petition was allowed in favor of the petitioner.