2014 (3) TMI 943 - HC - Income Tax

Validity of Notice u/s 148 of the Act - Reassessment of proceedings - Whether the reasons supplied by the AO to the assessee were tangible materials to proceed with the re-assessment proceedings or re-assessment proceedings have been initiated only on mere change of opinion Held that - One of the purposes of Section 147, appears to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say you accepted my lie, now your hands are tied and you can do nothing . It would be travesty of justice to allow the assessee that latitude. The decision in Krishna Pvt. Ltd. Etc. V. Income-tax Officer and others 1996 (7) TMI 2 - SUPREME Court followed if it is found that either on account of an omission of failure of the assessee to fail the return or on account of his omission or failure to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year the Income Tax Officer is entitled to re-open the assessment in accordance with the procedure prescribed by the Act - he can issue the notice u/s 148 proposing to re-open the assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to file the return or on account of the omission of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. In Assistant Commissioner of Income-tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. 2007 (5) TMI 197 - SUPREME Court it has been held that if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment - both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147 - So long as the ingredients of section 147 are fulfilled, the AO is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued - Issuance of notice u/s 148 for the Assessment Year 2009-10 cannot be said to be without jurisdiction - at this stage, the notice issued u/s 148 cannot be interfered by the Court in exercise of writ jurisdiction the observations are confined only to issuance of notice u/s 148 and be not treated any expression of opinion on merits of the claim of the assessee Decided against Assessee.

Issues Involved:
1. Legality of re-assessment notices under Section 148 of the Income Tax Act, 1961.
2. Jurisdictional validity of re-assessment notices issued beyond four years.
3. Sufficiency of material for forming a belief that income has escaped assessment.
4. Whether re-assessment proceedings can be initiated on mere change of opinion.
5. Completion of assessment proceedings for the relevant assessment years.
6. Availability of statutory remedies against re-assessment notices.

Issue-wise Detailed Analysis:

1. Legality of Re-assessment Notices under Section 148:
The assessee challenged the re-assessment notices dated 28.2.2013 under Section 148 of the Income Tax Act, 1961, for the Assessment Years 2009-10, 2007-08, and 2011-12. The court examined whether the conditions precedent for initiating re-assessment proceedings under Section 147 were satisfied. The court noted that the Assessing Officer (AO) must have "reason to believe" that any income chargeable to tax has escaped assessment. The reasons recorded by the AO included field inquiries and reports indicating that certain companies providing unsecured loans and share application money were bogus. The court held that these reasons constituted tangible material justifying the initiation of re-assessment proceedings and were not merely a change of opinion.

2. Jurisdictional Validity of Re-assessment Notices Issued Beyond Four Years:
For the Assessment Year 2007-08, the assessee argued that the notice was issued beyond four years from the end of the relevant assessment year, making it beyond jurisdiction. The court referred to the first proviso to Section 147, which allows re-assessment beyond four years only if the income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court found that the assessment for 2007-08 was completed under Section 143(1) and not Section 143(3), thus the first proviso did not apply. Additionally, the court noted that the reasons recorded implicitly indicated that the escaped income exceeded one lakh rupees, satisfying the condition under Section 149(1)(b).

3. Sufficiency of Material for Forming Belief of Escapement of Income:
The court examined whether the AO had sufficient material to form a belief that income had escaped assessment. For the Assessment Year 2009-10, the AO's reasons included discrete inquiries revealing that the companies providing unsecured loans were paper companies. Similar reasons were recorded for the Assessment Years 2007-08 and 2011-12, indicating a pattern of transactions with bogus companies. The court held that these reasons provided a rational connection for the AO's belief, thus satisfying the requirement under Section 147.

4. Whether Re-assessment Proceedings Can Be Initiated on Mere Change of Opinion:
The assessee contended that the re-assessment was based on a mere change of opinion, which is not permissible. The court referred to the Supreme Court's judgment in Commissioner of Income-tax Vs. Kelvinator India Ltd., which held that re-assessment must be based on "tangible material" and not on a mere change of opinion. The court found that the AO had acquired fresh information indicating that the transactions were bogus, which was different from drawing a fresh inference from the same facts. Therefore, the re-assessment was not based on a mere change of opinion.

5. Completion of Assessment Proceedings for Relevant Assessment Years:
For the Assessment Year 2011-12, the assessee argued that the assessment proceedings were not completed, and thus, re-assessment could not be initiated. The court noted that the return was filed electronically, and a refund was issued without any notice under Section 143(2). The court concluded that the assessment was complete, and the AO had jurisdiction to issue the re-assessment notice.

6. Availability of Statutory Remedies Against Re-assessment Notices:
The court emphasized that its observations were confined to the issuance of notices under Section 148 and did not constitute an opinion on the merits of the assessee's claims. The court clarified that the assessee could take all permissible pleas in response to the re-assessment notices and pursue statutory remedies available under the Income Tax Act.

Conclusion:
The court dismissed the writ petitions, holding that the re-assessment notices were not without jurisdiction and were based on sufficient material indicating that income had escaped assessment. The court allowed the assessee to pursue statutory remedies against the re-assessment proceedings.

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