2012 (10) TMI 157 - HC - Income Tax

India Japan DTAA - Reopening of assessment - books of accounts did not reflect any specific amount of Japanese yen said to have been received in the previous year - Held that - A letter received from a governmental agency can constitute valid material on the basis of which the Assessing Officer can assume jurisdiction to reopen the assessment. The only caveat is that the material or information coming to the possession of the AO should not be a mere suspicion, gossip or rumour - As decided in Sheo nath Singh vs. Appellate Assistant Commissioner of Income Tax (Central) Calcutta, and Ors. 1971 (8) TMI 6 - SUPREME COURT reason to believe should be a honest belief which a reasonable person based upon reasonable grounds would have come to and that the assessing authority may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour If these tests are applied to the present case, it is difficult to appreciate the petitioner s objection that the information received from DAO-45, New Delhi, acting under Article 26 of the Indo-Japanese treaty for the Avoidance of Double Taxation, cannot constitute valid material on the basis of which the AO can form even a tentative or prima facie belief that income to the extent of Rs.11, 28,644/- had escaped assessment - The contention of the assessee that the Japanese authorities have no power to examine the books of accounts of the petitioner and, therefore, to the extent that the information supplied by the DAO-45, New Delhi says that the amount of Rs.11,28,644/- has not been declared by the petitioner, it cannot be taken note of by the AO has no force. As the columnar chart set out in the reasons recorded stated as gross income paid amount major unit of currency . Even assuming that the expression gross income has been loosely employed, the very fact that this information was received from a governmental agency under Article 26 of the DTAA constitutes the live link or nexus between the material and the formation of the belief that income to that extent has escaped assessment - writ dismissed - against assessee.

Issues Involved:

1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Sufficiency and relevance of the material for forming the belief of income escapement.
3. Adherence to the procedural requirements for reopening the assessment.
4. Jurisdictional challenge to the reassessment proceedings.

Detailed Analysis:

1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961:

The petitioner, a private limited company, filed its return of income for the assessment year 2006-07, which was processed under Section 143(1) without any adjustments. On 28th March 2011, the Assessing Officer recorded reasons under Section 148(2) for reopening the assessment, citing information received from DAO-45, New Delhi, indicating that the petitioner received amounts in Yen from Mitsui & Co. Ltd. in the assessment year 2006-07. The belief was formed that an income of JPY 2665344 (Rs. 1128644) chargeable to tax had escaped assessment. Consequently, a notice to reopen the assessment was issued on 29th March 2011.

2. Sufficiency and relevance of the material for forming the belief of income escapement:

The petitioner objected to the reassessment by arguing that the information received from DAO-45, New Delhi, did not constitute sufficient material to form a belief of income escapement. The petitioner cited Supreme Court rulings, emphasizing that there must be a "live link" between the material before the Assessing Officer and the belief of income escapement. The petitioner contended that the Assessing Officer's belief was based on borrowed satisfaction from DAO-45, which is impermissible under Section 147. The court, however, held that the information received from a governmental agency under Article 26 of the DTAA between India and Japan constitutes valid material for forming a tentative belief regarding income escapement.

3. Adherence to the procedural requirements for reopening the assessment:

The petitioner argued that the reasons recorded by the Assessing Officer were not self-sufficient and were supplemented by extraneous material, which is against the rulings of the Supreme Court. The court, however, noted that at the stage of recording reasons under Section 148(2), the Assessing Officer is not required to hold an inquiry with the participation of the assessee. The court found that the information received from DAO-45, New Delhi, was sufficient to form a prima facie belief of income escapement, thereby validating the procedural adherence.

4. Jurisdictional challenge to the reassessment proceedings:

The petitioner moved the court under Article 226/227 of the Constitution of India, seeking to quash the notice issued under Section 148 and all subsequent proceedings. The court, after considering the facts and rival contentions, held that the notice issued under Section 148 was within jurisdiction. The court emphasized that the information received from DAO-45, New Delhi, under the Indo-Japanese DTAA, provided a live link or nexus between the material and the formation of the belief that income had escaped assessment. The court dismissed the writ petition, vacated all interim orders, and awarded no costs.

In conclusion, the court upheld the validity of the reopening of assessment under Section 148, based on the information received from a governmental agency, and found that the procedural requirements were duly followed, thereby dismissing the petitioner's jurisdictional challenge.

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