2014 (5) TMI 1003 - HC - Income Tax

Reassessment - Validity of notice u/s 148 of the Act Held that - Relying upon Associated Stone Industries V/s. Commissioner of Income Tax, Jaipur 1997 (2) TMI 6 - SUPREME Court - the information obtained by the Income Tax Officer need not be one outside the record; it may be one obtained from the assessment records already available - the facts which were revealed to the AO who carried out the assessment for A.Y. 2010 2011 was the information as is contemplated by Section 147 of the Act leading the officer to form a belief that the income had escaped the assessment for the A.Y. 2006 2007 and 2008 2009. Whether the information received to the AO is relating to A.Y. 2006-2007 and 2008-2009 Held that - On perusal of the reasons given by the respondents for reopening the assessment for A.Y. 2006 2007 and 2008 2009, it cannot be said that there was no information with the AO relating to the said assessment years - the information is received to the officer during the course of the assessment proceedings for A.Y. 2010 2011 the information does not seem to be restricted only to A.Y. 2010 2011 - Material on record shows that petitioner company has debited the order procurement charges in the AY 2010 2011 and the deduction of the amount was claimed u/s 37(1) of the Act as business expenditure - The information received to the AO from the statement of Anil Asarkar is sufficient to draw a prima facie inference that Anil Asarkar (H.U.F.) might not have worked for the petitioner company and further that it was receiving the cheques from the petitioner company and giving them the cash back from the financial year 2006 2007 - the information which was received to the AO was sufficient for him to reasonably believe that the income had escaped assessment for the respective assessment years. The reasons recorded by the AO nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year - the reasons are required to be read as they were recorded by the AO - No substitution or deletion is permissible - No additions can be made to those reasons - No inference can be allowed to be drawn based on reasons not recorded - the reasons were recorded before issuance of the impugned notices - no malafides seen in the delay caused in communicating the reasons - the facts revealed to the AO during the assessment proceedings for A.Y. 2010 2011 is an information contemplated by Section 147 of the Act - the information so revealed pertains to the assessment years to which the impugned notices relate - the information has direct nexus and/or live link with the tax liability for A.Y. year 2006 2007 and A.Y. 2008 2009 - the material in the hands of A.O. is prima facie sufficient for him to form a belief that income had escaped assessment of the assessment years to which the impugned notices relate and therefore, reassessment is needed - the issuance of notices is not an outcome of change in opinion of the successor AO but is based on tangible material received to him during the assessment proceedings of the subsequent year - The other two objections raised by the petitioner, first about the competence to issue the notice and the other that the action is beyond the period of limitation are kept open to be agitated before the appropriate authority there was no fault with the notices Decided against Assessee.

Issues Involved:
1. Validity of notices under Section 148 of the Income Tax Act, 1961.
2. Recording of reasons before issuance of notices.
3. Delay in providing reasons for reopening assessments.
4. Sufficiency and nature of information leading to reassessment.
5. Allegation of mere change of opinion by the Assessing Officer.
6. Direct nexus or live link between the information and the assessment years in question.
7. Tangibility of material for reopening assessments.
8. Competence of the officer issuing the notices.
9. Limitation period for initiating reassessment.

Detailed Analysis:

1. Validity of Notices under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of notices for reassessment issued for the assessment years (A.Y.) 2006-2007 and 2008-2009. The court found that the notices were valid as the reasons for reopening the assessment were recorded on the ITD system prior to the issuance of the notices, fulfilling the requirements of Section 148(2) of the Act.

2. Recording of Reasons Before Issuance of Notices:
The petitioner argued that no reasons were recorded before the issuance of the notices, which is a fatal defect. The court rejected this argument, noting that the reasons were recorded on the ITD system on the same day the notices were issued, even though they were provided to the petitioner after four months.

3. Delay in Providing Reasons for Reopening Assessments:
The petitioner contended that the delay of four months in providing the reasons raised doubts about their validity. The court held that the delay did not assume much significance as the reasons were recorded before the issuance of the notices and the delay was adequately explained by the respondents.

4. Sufficiency and Nature of Information Leading to Reassessment:
The petitioner argued that the information obtained during the assessment proceedings for A.Y. 2010-2011 could not be considered as "information" under Section 147 for reopening assessments for earlier years. The court held that the information obtained from the assessment records of subsequent years could be used for reopening assessments of previous years if it brought to light material circumstances unknown at the time of the original assessment.

5. Allegation of Mere Change of Opinion by the Assessing Officer:
The petitioner claimed that the reassessment was based on a mere change of opinion by the Assessing Officer. The court found that the reassessment was based on tangible material received during the assessment proceedings for A.Y. 2010-2011, which indicated that certain agents had not provided any services to the petitioner company, leading to the belief that income had escaped assessment for the earlier years.

6. Direct Nexus or Live Link Between the Information and the Assessment Years in Question:
The court held that the information obtained during the assessment proceedings for A.Y. 2010-2011 had a direct nexus and live link with the assessment years 2006-2007 and 2008-2009. The information revealed that certain agents had not provided any services to the petitioner company, which was relevant for the earlier years as well.

7. Tangibility of Material for Reopening Assessments:
The court found that the material in the hands of the Assessing Officer was prima facie sufficient to form a belief that income had escaped assessment for the years in question. The statements of certain agents denying having provided services to the petitioner company and the information obtained from WCL and SECL about the mode of order procurement were considered tangible material.

8. Competence of the Officer Issuing the Notices:
The petitioner raised an objection about the competence of the officer issuing the notices. The court kept this issue open to be agitated before the appropriate authority, as it was not addressed in detail in the judgment.

9. Limitation Period for Initiating Reassessment:
The petitioner argued that the reassessment was initiated beyond the period of limitation. The court also kept this issue open to be agitated before the appropriate authority, as it was not addressed in detail in the judgment.

Conclusion:
The court dismissed the petitions, finding that the respondents had not committed any illegality in initiating the action for reopening the assessments for A.Y. 2006-2007 and 2008-2009. The reasons for reopening the assessments were recorded before the issuance of the notices, and the information obtained during the assessment proceedings for A.Y. 2010-2011 was sufficient to form a belief that income had escaped assessment for the earlier years. The court held that the reassessment was not based on a mere change of opinion but on tangible material received during the assessment proceedings. The objections regarding the competence of the officer and the limitation period were kept open for further consideration by the appropriate authority.

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