2013 (1) TMI 517 - HC - Income Tax

Reopening of assessment - non offering to tax an unapportioned claim recovery representing the amount received from foreign countries - whether there is reason to believe on the part of the AO that income had escaped assessment? - Held that - All that is relevant at this stage is whether there is reason to believe on the part of the Assessing Officer that income had escaped assessment which is affirmative. It would not be appropriate for this Court to preempt an enquiry whatsoever by the AO, once a tangible basis has been disclosed for reopening the assessment Similarly, in respect of the revision of pay scales, the AO has sought to reopen the assessment on the ground that the liability had not crystallized before the balance-sheet date. Here again, it is apparent that there has been no application of mind to the relevant facts by the Assessing Officer during the course of the assessment proceedings. As regards the first ground, on the basis of which the assessment is sought to be reopened, it has been sought to be urged that under Section 44 read with Rule 5(a), it would not be open to the Assessing Officer to make an income addition. Moreover, it has been urged that in the past, the same practice had been accepted by the Revenue. These are matters which on merits will be considered by the Assessing Officer and it would be inappropriate for this Court to express any opinion on the merits of issue. Moreover, once the Court has come to the conclusion that even a single ground on the basis of which the assessment is sought to be reopened is valid and within jurisdiction, the notice for reopening of the assessment would have to be upheld. Consequently,though submissions have been urged on the merits of each of the grounds, keeping all rights and contentions of the parties open to be urged before the AO, once the assessment is reopened in exercise of the power conferred by Section 147. The AO has acted within jurisdiction in reopening the assessment - no case for interference under Article 226 of the Constitution is made out - against assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the reasons provided for reopening the assessment.
3. Jurisdiction of the Assessing Officer under Section 44 and Rule 5(a).
4. Consideration of complete disclosure by the assessee.
5. Tangibility of material for reopening the assessment.
6. Merits of the grounds for reopening the assessment.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148:
The petitioner challenged the legality of the notice dated 24 March 2011 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year (A.Y.) 2006-07. The reopening occurred within four years of the end of the relevant assessment year.

2. Validity of the Reasons Provided for Reopening the Assessment:
The reasons for reopening the assessment included:
- Unapportioned claim recovery of Rs. 27.24 crores not offered to tax.
- Change in accounting policy resulting in a reduction of income by Rs. 20 crores.
- Liability of Rs. 657 lakhs for revision of pay scales not crystallized before the balance-sheet date.
- ISO Certification/Audit fees of Rs. 16.29 lakhs treated as revenue expenses instead of capital expenses.
- Prior period expenses of Rs. 1.73 crores not related to the relevant previous year.

3. Jurisdiction of the Assessing Officer Under Section 44 and Rule 5(a):
The petitioner argued that under Section 44 read with Rule 5(a), the Assessing Officer lacked jurisdiction to make an income addition. The petitioner's counsel contended that the grounds for reopening the assessment indicated an intention to make an income addition contrary to statutory provisions.

4. Consideration of Complete Disclosure by the Assessee:
The petitioner claimed complete disclosure of material facts during the original assessment. The reliance on the Notes forming part of the accounts in Schedule 17 indicated no failure to disclose material facts. The petitioner argued that there was no fresh or tangible material to justify reopening the assessment.

5. Tangibility of Material for Reopening the Assessment:
The court emphasized that the assessment could not be reopened merely on a change of opinion. The Assessing Officer must have tangible material indicating income escapement. The court referred to the Supreme Court's judgment in Commissioner of Income Tax vs. Kelvinator of India Ltd., which stated that the power to reopen must be based on tangible material and not a mere change of opinion.

6. Merits of the Grounds for Reopening the Assessment:
The court noted that the original assessment order was silent on the five points raised for reopening. The Assessing Officer did not apply his mind to these points during the original assessment. The court highlighted that tangible material existed for reopening the assessment, such as the change in accounting policy and the revision of pay scales. The court did not express an opinion on the merits of the grounds but allowed the Assessing Officer to consider them upon reopening the assessment.

Conclusion:
The court upheld the notice for reopening the assessment within four years, stating that the Assessing Officer acted within jurisdiction. The court dismissed the petition, emphasizing that the test at this stage was whether there was a reason to believe that income had escaped assessment and whether there was tangible material for such belief. The court left the merits of the grounds for reopening to be considered by the Assessing Officer during the reassessment process. No interference under Article 226 of the Constitution was warranted, and the petition was dismissed without costs.

← Previous Next →