2014 (8) TMI 1136 - HC - Income Tax

Reasons for reopening of the assessment u/s.147 - non disposing of the objections - Held that - In this case we find that the order disposing of the objections refers to and relies upon investigation carried out by Sales Tax department the information put up by Sales Tax department on it s website and the affidavit cum declaration filed by the defaulting parties with the Sales Tax authorities. None of the above facts were even remotely adverted to in the grounds recorded for reopening the assessment. It is settled position in law that the validity of reopening of an assessment can only be tested by the reasons recorded at the time of issuing the notice for reopening an assessment. These grounds for reopening of assessment can neither be substituted and / or supplemented. The reopening of assessment will either stand or fall only upon the reasons recorded before issuing the impugned notice. Thus the order disposing of the objection relying on facts which were not a part of the reasons recorded makes the same unsustainable in law. There can be no dispute with regard to the submissions of the Revenue that an assessment which has been processed under Sec.143(1) of the Act can be reopened as held by the Supreme Court in Assistant Commissioner of Income-tax V Rajesh Jhaveri (2007 (5) TMI 197 - SUPREME Court). However even when an assessment which had been earlier processed under Sec.143(1) of the Act the jurisdictional requirement for reopening an Assessment is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment must be satisfied. Besides where the proviso to Section 147 of the Act is invoked the additional requirement viz. failure to disclose fully and truly all facts necessary for assessment should also be satisfied. Therefore the aforesaid decision relied upon by the Revenue does not address the grievance of the petitioner. The order disposing of the objections is beyond the reasons recorded for reopening the assessment we set aside the order dated 23 July 2014 disposing of the objections. We direct the Assessing Officer to dispose of the objections of the petitioner dated 23 July 2014 to the impugned notice dated 21 March 2014 afresh keeping in mind the reasons recorded for issuing the impugned notice.

Summary

Issues:

1. Challenge to notice dated 21 March 2014 under Section 148 of the Income Tax Act, 1961 for reopening assessment for the Assessment Year 2007-2008.
2. Validity of reasons recorded for reopening the assessment.
3. Disposal of objections by the Assessing Officer.
4. Jurisdictional requirements for reopening an assessment processed under Section 143(1) of the Act.

Issue 1: Challenge to Notice for Reopening Assessment (Para 2-3):

The petition challenges the notice dated 21 March 2014 issued under Section 148 of the Income Tax Act, seeking to reopen the assessment for the Assessment Year 2007-2008. The petitioner filed its return of income declaring total income at Rs. 2.35 lakhs for the said assessment year, which was processed under Section 143(1) of the Act. The reasons for reopening the assessment were based on a search and survey action carried out by the DGIT (Investigation) Mumbai, revealing the assessee's involvement in providing accommodation entries through benami concerns. The Assessing Officer believed that income chargeable to tax had escaped assessment for the A.Y. 2007-2008, leading to the issuance of the impugned notice.

Issue 2: Validity of Reasons for Reopening (Para 4-5):

The petitioner objected to the reasons recorded for reopening the assessment, seeking information on the basis for deeming the purchases as non-genuine. The Assessing Officer disposed of the objections by referring to a Sales Tax department investigation revealing a widespread practice of issuing bogus purchase/sales bills. These new reasons were not part of the basis for the impugned notice, rendering the order disposing of objections unsustainable in law. The court emphasized that the validity of reopening an assessment can only be tested based on the reasons recorded at the time of issuing the notice.

Issue 3: Disposal of Objections (Para 6-7):

The Revenue argued that assessments processed under Section 143(1) of the Act can be reopened, citing a Supreme Court decision. However, the court noted that the jurisdictional requirement for reopening an assessment is the Assessing Officer's belief that income chargeable to tax has escaped assessment. The order disposing of objections relied on new facts not present in the reasons recorded for reopening, making it legally unsustainable. The court emphasized that the assessment's reopening stands or falls based solely on the reasons recorded before issuing the notice.

Issue 4: Jurisdictional Requirements for Reopening (Para 8-9):

While acknowledging that assessments processed under Section 143(1) of the Act can be reopened, the court highlighted the necessity for the Assessing Officer to have a genuine belief that income chargeable to tax has escaped assessment. Additionally, when invoking the proviso to Section 147, the failure to disclose all necessary facts for assessment must also be satisfied. The court set aside the order disposing of objections and directed the Assessing Officer to reconsider the objections in light of the reasons recorded for issuing the notice, emphasizing adherence to legal requirements.

In conclusion, the High Court of Bombay held that the order disposing of objections, based on new facts not part of the reasons for reopening, was legally unsustainable. The court emphasized the importance of adhering to the jurisdictional requirements for reopening assessments, particularly when invoking the proviso to Section 147 of the Income Tax Act. The Assessing Officer was directed to reconsider the objections in line with the recorded reasons for issuing the notice, ensuring compliance with legal standards.