2012 (8) TMI 312 - HC - Income Tax

Reopen the assessment u/s 147 - Held that - Examining the contention of the Petitioner that the impugned notice is without jurisdiction as the self same facts were not only before the Assessing Officer but he had also viewed the very issues on which the assessment is sought to be reopened. Issue in respect of provisions claimed as deduction for arriving at taxable profit was not only dislcosed in the notes to account filed with the return of Income but also in response to specific queries raised during the assessment proceeding. It was reiterated at the hearing that on the aforesaid account of provision, the tax had already been paid in the earlier years and the amounts were merely written back in this year to the extent they were in excess of the provisions required. Issue of failure to deduct TDS on advertisement and sales promotion was also subject to scrutiny by the AO during the assessment proceedings and also the clause 17(f) of the tax audit report brings out the fact that where tax has not been deducted, then the entire amount of payment has been offered for disallowance u/s 40(a)(ia. Issue on declared short term capital gains in respect of income earned out of investments had to be taxed as business Income is not disputed as that the treatment given was consistent with the earlier year practice and accepted by the Respondent - no reason to believe that income has escaped assessment - notice issued for reassessment is quashed - in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice dated 24.03.2011 issued under Section 148 read with Section 147 of the Income Tax Act, 1961.
2. Validity of the order dated 07.12.2011 rejecting the Petitioner's objections to the reopening of the assessment for the assessment year 2006-2007.

Detailed Analysis:

1. Validity of the Notice under Section 148:
The petition challenges the notice dated 24.03.2011 issued under Section 148 of the Income Tax Act, 1961, which seeks to reopen the assessment for the assessment year 2006-2007. The Petitioner argues that the notice is without jurisdiction as the Assessing Officer did not have any independent reason to believe that the income for the assessment year 2006-2007 had escaped assessment. The reasons for the notice were identical to the audit objections raised on 29.12.2009, indicating a lack of independent application of mind by the Assessing Officer. The court observed that the reasons for reopening the assessment were based solely on the audit objections and existing material on record, without any tangible new material. This lack of independent application of mind by the Assessing Officer rendered the notice invalid. The court emphasized that the belief that income has escaped assessment must be the reasonable belief of the Assessing Officer and not based on the opinion of another authority.

2. Validity of the Order Rejecting Objections:
The Petitioner also challenged the order dated 07.12.2011, which rejected their objections to the reopening of the assessment. The Petitioner contended that all facts related to the reasons for reopening were already examined during the original assessment proceedings, making the reopening a mere change of opinion, which is not permissible. The court noted that the Assessing Officer's order did not address the specific objections raised by the Petitioner and was a non-speaking order. The court reiterated that even within four years from the end of the relevant assessment year, the power to reopen an assessment should not be used to review the assessment order already passed. There must be tangible material indicating escapement of income, and a mere change of opinion is not sufficient to assume jurisdiction for reopening.

The court further examined specific issues raised in the reopening notice:
- Provisions claimed as deductions: The court found that these were disclosed in the notes to accounts and were subject to specific queries during the original assessment proceedings.
- Failure to deduct TDS on advertisement and sales promotion expenses: The court noted that this was also scrutinized during the original assessment, with details provided by the Petitioner.
- Short term capital gains: The court observed that the treatment of short-term capital gains was consistent with earlier years and accepted by the Respondent, with no reasonable basis for believing there was any escapement of income.

Conclusion:
The court concluded that the impugned notice dated 24.03.2011 and the order dated 07.12.2011 were without jurisdiction. The notice was quashed and set aside, and the Petition was allowed with no order as to costs.