2011 (10) TMI 11 - HC - Income Tax

Reason to believe - The challenge in these proceedings under Article 226 of the Constitution is to the action of the Assessing Officer in reopening the assessments for Assessment Years 2005-06 and 2006-07 on the basis of certain documents impounded on survey u/s 133A. - Held that - When the reopening takes place within a period of four years of the relevant Assessment Year, the powers of the Assessing Officer are substantially wider than when a reopening is beyond a period of four years. - The record impounded in survey constitute tangible material for reopening the assessment for Assessment Years 2005-06 and 2006-07. Decided against Assessee

Issues Involved:
1. Reopening of assessments for Assessment Years 2005-06 and 2006-07.
2. Validity of the reasons for reopening based on discrepancies found during a survey.
3. Examination of the sufficiency of tangible material for reopening.
4. Consideration of whether the reopening constitutes a mere change of opinion.

Detailed Analysis:

1. Reopening of assessments for Assessment Years 2005-06 and 2006-07:
The challenge in these proceedings under Article 226 of the Constitution is to the action of the Assessing Officer in reopening the assessments for Assessment Years 2005-06 and 2006-07. The Assessing Officer issued notices on 29 March 2010, proposing to reopen the assessments on the ground that income chargeable to tax had escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. The reasons for reopening were disclosed in a communication dated 8 April 2010, which highlighted discrepancies found during a survey conducted under Section 133A on 10 September 2009.

2. Validity of the reasons for reopening based on discrepancies found during a survey:
The reasons for reopening included discrepancies between the impounded documents and the financial statements filed with the return of income. These discrepancies involved cash payments disallowable under Section 40A(3), differences in interest income, miscellaneous receipts, and the cost of production. Additionally, other discrepancies requiring verification were noted, such as negative cash book balances, short deduction of TDS, personal expenses, differences in exchange rate fluctuations, and discrepancies in various account balances.

3. Examination of the sufficiency of tangible material for reopening:
The court emphasized that the reopening of assessments within a period of four years from the end of the relevant Assessment Years grants the Assessing Officer wider powers, provided there is tangible material to form a reason to believe that income had escaped assessment. The court referred to the Supreme Court's judgment in Commissioner of Income Tax v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), which stated that the power to reopen must be based on tangible material and not a mere change of opinion. The court also cited the Division Bench judgment in Dr. Amin's Pathology Laboratory v. P.N. Prasa, Joint Commissioner of Income Tax (2001) 252 ITR 673, which emphasized that the reason to believe must be that of a prudent person.

4. Consideration of whether the reopening constitutes a mere change of opinion:
The court noted that the Assessing Officer had tangible material from the survey operation conducted under Section 133A, which revealed discrepancies in the books of account. The court stated that at this stage, it is impermissible to inquire into the details of the reconciliation offered by the assessee, as the issue is whether there was tangible material for a prudent Assessing Officer to conclude that income had escaped assessment. The court concluded that there was tangible material before the Assessing Officer, and the reopening of assessments was justified. The sufficiency of the material cannot be considered in these proceedings, as established in Raymond Woollen Mills Ltd. v. Income Tax Officer (1999) 236 ITR 34.

Conclusion:
The court found no merit in the petitions and dismissed both petitions, stating that there was tangible material for the Assessing Officer to reopen the assessments for Assessment Years 2005-06 and 2006-07. There shall be no order as to costs.

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