2010 (10) TMI 858 - HC - Income Tax

Income escaping assessment proceedings u/s 147 - unaccounted gifts assessee sold one bigha land but no capital gain was shown assessee made huge investment in shares account & assessee was a director in a company and has shown the liability to the company without showing any income - Held that - After amendment of s. 147 w.e.f. 1st April 1989 reassessment can be initiated even if there is disclosure in the return if without considering the particulars of the return processing is done under s. 143(1) or assessment is made under s. 143(3). No doubt mere change of opinion by itself is not a ground for reassessment but if there are reasons to believe that tax has escaped reassessment is permissible. Reasons can be even on the basis of particulars of the return without any new material. Even if proceedings under s. 143(2) are not taken reassessment proceedings can be taken. In the present case the CIT(A) set aside the proceedings by wrongly holding that reassessment could not be initiated on the basis of material already disclosed in the return without going into the correctness of the reasons - prima facie the reasons for reassessment are not irrelevant. In any case the same could have been gone into by the CIT(A) before reassessment was set aside as rightly held by the Tribunal - the view taken by the Tribunal cannot be held to be erroneous. No substantial question of law arises.

Summary

Issues:
1. Validity of initiating reassessment proceedings under section 147 of the IT Act, 1961.
2. Justification for reopening the case of the assessee under section 148 of the Act based on new material.
3. Whether reassessment can be initiated on the basis of material already disclosed in the return without any new material.

Analysis:
1. The appeal was filed against the Tribunal's order initiating reassessment proceedings under section 147 of the IT Act for the assessment year 2000-01. The grounds for reassessment included undisclosed income from gifts, unreported capital gains, substantial investments in shares, and undisclosed liabilities. The Tribunal remanded the matter for fresh decision on merits, considering the reasons provided by the Assessing Officer (AO) for reopening the assessment. The Tribunal found the AO's reasons valid based on new material presented during the reassessment, including financial documents not filed with the original returns. The Tribunal held that the AO had sufficient reason to believe that income had escaped assessment, in line with relevant legal precedents.

2. The Court emphasized the importance of a valid "reason to believe" as a mandatory precondition for invoking section 147 of the Act. The Court cited the need for relevant material supporting the AO's belief that income had escaped assessment. In this case, the AO's decision to reopen the assessment was deemed justified, as it was based on new material and not merely a change of opinion. The Court rejected the argument that initiating a roving enquiry was impermissible, highlighting that reassessment could be initiated even if there was disclosure in the return, without the need for proceedings under section 143(2).

3. The Court dismissed the argument that reassessment could not be based on material already disclosed in the return, stating that reassessment is permissible if there are reasons to believe that tax has escaped. The Court found that the CIT(A) had erred in setting aside the reassessment proceedings without considering the correctness of the reasons provided. The judgments cited by the assessee were deemed inapplicable in this case, as the reasons for reassessment were found to be relevant. Ultimately, the Court dismissed the appeal, upholding the Tribunal's decision and concluding that no substantial question of law arose in this matter.