2011 (4) TMI 1017 - HC - Income Tax

Reopening of assessment - Jurisdiction - Satyam scam - The petitioners have an effective remedy under the Act to appear before the assessing authority in the reassessment proceedings, raise all grounds available to them in law including that he lacks jurisdiction to reopen the assessment and, in case an adverse order is passed, to prefer appeals to the Commissioner of Income-tax (Appeals). As the remedy, under article 226 of the Constitution, is discretionary the High Court has always the discre- tion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere - writ petitions fail and are, accordingly, dismissed

Summary

Issues Involved:
1. Jurisdiction of the Assessing Authority to Reopen Assessment
2. Validity of Notices Issued Under Sections 148 and 142(2A) of the Income-tax Act
3. Adequacy and Relevance of Reasons for Reopening Assessment
4. Application of Legal Principles Governing Reassessment Proceedings
5. Discretionary Exercise of Jurisdiction Under Article 226 of the Constitution

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Authority to Reopen Assessment:
The court examined whether the assessing authority had the jurisdiction to reopen assessments under section 147 of the Income-tax Act. The court noted that the power to reopen assessments post-April 1, 1989, is much wider, and the Assessing Officer (AO) can reopen assessments if there is "tangible material" indicating that income has escaped assessment. The court emphasized that the belief must be that of an honest and reasonable person based on reasonable grounds, and the AO must act on direct or circumstantial evidence, not on mere suspicion or rumor.

2. Validity of Notices Issued Under Sections 148 and 142(2A) of the Income-tax Act:
The court discussed the validity of notices issued under sections 148 and 142(2A). It was argued that the notices were based on the confessions of Sri B. Ramalinga Raju and lacked specific information. The court held that the AO must record reasons before issuing a notice under section 148, and these reasons must be based on specific, reliable, and relevant information. The court also noted that the limitation for issuing a notice under section 148 is six years, and this period is to be reckoned from the end of the relevant assessment year until the date on which the notice is issued.

3. Adequacy and Relevance of Reasons for Reopening Assessment:
The court analyzed whether the reasons provided by the AO for reopening the assessments were adequate and relevant. It was argued that the reasons were general and vague, and there was no direct nexus between the petitioner and the alleged fraud committed by Sri B. Ramalinga Raju. The court held that the reasons must have a live link with the formation of the belief that income has escaped assessment, and the AO's belief must not be arbitrary or irrational. The court also emphasized that the AO's reasons must be based on material facts and not on mere suspicion.

4. Application of Legal Principles Governing Reassessment Proceedings:
The court outlined the principles governing the exercise of jurisdiction to reopen assessments and the scope of sections 147 to 149 of the Act. These principles include the requirement for the AO to have "reason to believe" that income has escaped assessment, the duty of the assessee to disclose fully and truly all material facts necessary for assessment, and the AO's power to reassess rather than review. The court also noted that the AO's belief must be based on prima facie grounds and that the sufficiency or correctness of the material is not to be considered at the initiation stage.

5. Discretionary Exercise of Jurisdiction Under Article 226 of the Constitution:
The court discussed the discretionary nature of its jurisdiction under Article 226 of the Constitution. It noted that a writ is not issued as a matter of course and that the court would not interfere unless substantial injustice has ensued or is likely to ensue. The court observed that the petitioners have an effective remedy under the Act to appear before the AO in reassessment proceedings and to prefer appeals to the Commissioner of Income-tax (Appeals) if an adverse order is passed. The court declined to exercise its discretion to adjudicate the writ petitions on their merits, emphasizing that the petitioners can raise all contentions before the assessing authority and the appellate authority.

Conclusion:
The court dismissed the writ petitions, noting that the petitioners have effective remedies under the Income-tax Act, including appeals to the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The court emphasized that both the assessing authority and the appellate authority should be guided by the principles outlined in the judgment. The writ petitions were dismissed without costs.