2016 (11) TMI 1395 - HC - Income Tax

Validity of reopening of assessment - reasons to believe - Held that - As per the reasons recorded, the notice has been issued and assessment is sought to be reopened for deep verification of the claims. Even in the order disposing of the objections, it has been specifically stated that to verify whether all the criteria are met by the said transaction of ₹ 50 lakhs routed through the group and also to verify the claim of having recorded these transactions in the regular books of account, notice under Section 148 has been issued. Even with respect to investment in shares of M/s. Rushil Decor, it has been submitted that whether the investment in shares of M/s. Rushil Decor were acquired from the capital of the assessee and the same is duly recorded in the books of account, needs to be verified and for that purpose, the assessment for A.Y 2009-2010 is sought to be reopened. Under the guise of reopening of the assessment, the Assessing Officer wants to have a roving inquiry; as observed hereinabove. Even as per the Assessing Officer in the reasons recorded has specifically mentioned that for the purpose of verification/ deep verification of the claim, it is necessary to reopen the assessment. Under the circumstances, it cannot be said that the Assessing Officer had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. Under the circumstances, the impugned action of reopening of the assessment in exercise of power under Section 148 of the I.T Act for the reasons recorded hereinabove cannot be sustained. - Decided in favour of assessee

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income-tax Act, 1961.
2. Validity of the reasons provided for reopening the assessment.
3. Compliance with the conditions precedent for assuming jurisdiction under Section 147.
4. Adequacy of the Assessing Officer's belief regarding income escapement.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 of the Income-tax Act, 1961:
The core issue is whether the reopening of the assessment for the Assessment Year (AY) 2009-2010 under Section 147 of the Income-tax Act, 1961, was lawful. The petitioners challenged the impugned notices dated 31st March 2016, issued by the Assessing Officer (AO) to reopen the assessments. The court noted that the reopening was initiated beyond the four-year period from the end of the relevant assessment year, necessitating strict compliance with the conditions precedent under Section 147.

2. Validity of the Reasons Provided for Reopening the Assessment:
The reasons recorded by the AO for reopening the assessment included information received from ITO (Investigation) Unit II, Ahmedabad, indicating suspicious transactions involving an amount of ?50 lakhs transferred among group accounts without economic rationale. The AO also noted that the petitioner held 22,99,702 shares in M/s. Rushil Decor Limited, requiring deep verification. The court found that the AO's reasons primarily aimed at verifying these transactions, which does not constitute a valid ground for reopening an assessment.

3. Compliance with the Conditions Precedent for Assuming Jurisdiction under Section 147:
The petitioners argued that the AO had not formed a belief that income chargeable to tax had escaped assessment, a condition precedent for reopening under Section 147. The court observed that the AO's reasons indicated a need for deep verification and scrutiny rather than a specific finding of income escapement. The court cited precedents, including the Division Bench's decision in Deep Recycling Industries v. Deputy Commissioner of Income Tax and the Supreme Court's decision in Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers Private Limited, emphasizing that reopening for mere verification or roving inquiry is impermissible.

4. Adequacy of the Assessing Officer's Belief Regarding Income Escapement:
The court scrutinized whether the AO had a tangible material basis for forming a belief that income chargeable to tax had escaped assessment. The court concluded that the AO's reasons were based on suspicion and aimed at verifying claims rather than having concrete evidence of income escapement. The court reiterated that reopening cannot be justified for fishing or roving inquiries, as established in Inductotherm (India) P. Limited v. M. Gopalan, Deputy Commissioner of Income-Tax and Dishman Pharmaceuticals & Chemicals Limited v. Deputy Commissioner of Income-Tax.

Conclusion:
The court held that the reopening of the assessments for AY 2009-2010 was not justified, as the AO's reasons were aimed at verification rather than based on tangible material indicating income escapement. Consequently, the impugned notices issued under Section 148 of the Income-tax Act, 1961, were quashed and set aside. The court emphasized that reopening assessments for mere scrutiny or verification purposes is impermissible, reinforcing the need for the AO to have a bona fide belief of income escapement based on tangible material.

Judgment:
The writ petitions were allowed, and the impugned notices issued under Section 148 were quashed. There was no order as to costs.

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