2014 (2) TMI 851 - HC - Income Tax

Notice of reassessment u/s 147/148 of the Act Held that - The Court refrains from making an enquiry, at a time when the AO has, in the first instance, failed to spell out clearly in the section 148 notice itself that such report was not on record - In other words the reasons to believe do not state that even in one sentence that the investigation report of 13.3.2006 was not with the AO when he completed the assessment - Relying upon CIT vs. Kelvinator (India) Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA The circumstances of the case is based upon stale information which was available at the time of the original assessment and in fact appears to have been used by the AO at the relevant time i.e. during the completion of proceedings under section 143(3) thus, the attempt to reopen the proceedings under section 147/148 is really the result of a change of opinion and thus beyond the pale of the AD s jurisdiction - Decided in favour of Assessee.

Summary

Issues:
Challenging reassessment notice under section 147/148 for assessment year 2005-06 based on undisclosed income through bogus accommodation entries.

Analysis:
The petitioner, an investment and security business company, challenges a notice proposing reassessment under section 147/148 of the Income Tax Act for the assessment year 2005-06. The notice alleges that the petitioner is among the beneficiaries of bogus accommodation entries and has not fully disclosed all material facts necessary for assessment. The notice claims that the petitioner introduced unaccounted income through such entries, leading to an alleged escapement of Rs. 11,00,000/- chargeable to tax. The petitioner argues that the reasons for reassessment are based on stale material as the investigation report was circulated before the original assessment was completed. The petitioner contends that all relevant details were provided during the original assessment proceedings, making the reopening of assessment illegal.

The revenue argues that the reassessment notice is valid as the petitioner failed to disclose all material facts, resulting in income escapement. The revenue asserts that the original assessment was based on disclosed material, and the reassessment was initiated due to the petitioner's incomplete disclosure. An additional affidavit filed by the Commissioner of Income Tax confirms that the investigation report was not on record during the original assessment. The revenue relies on the precedent set by the Supreme Court in CIT vs. Kelvinator (India) Ltd. to support the legality of the reassessment proceedings.

The court notes that the reassessment notice explicitly states that the reasons are based on the investigation report of 13.3.2006. The court finds that the revenue did not clarify in the counter affidavit that the report was not available during the original assessment. The court emphasizes that the reasons for reassessment do not mention the absence of the report during the original assessment. Based on the principle of construing public orders objectively, the court concludes that the attempt to reopen the assessment is a change of opinion beyond the assessing officer's jurisdiction. Therefore, the court quashes the reassessment notice and subsequent proceedings, deeming them beyond the authority of law.

In conclusion, the court allows the writ petition, ruling in favor of the petitioner and quashing the reassessment notice and all related proceedings due to the use of stale information and lack of clarity regarding the availability of the investigation report during the original assessment.