2015 (2) TMI 640 - HC - Income Tax

Reopening of assessment - assessment under section 153A read with section 143(3) of the Act was completed on the strength of seized record/impounded documents, thereby making various additions of Income-tax in the hands of Mukesh Modi, Diksha Jain and Bharat Das Vaishnav - reasons for reopening first respondent has not recorded cogent reasons - Held that - Notices issued to the assessees by the Assessing Officer under section 147/148 of the Act are not satisfying the pre-requisites for the same. There is no whisper in the notice, or iota of proof that while issuing the same the Assessing Officer had reason to believe that any income chargeable to tax has escaped assessment for the assessment year. Thus, the notice has been issued by the Assessing Officer simply for his own verification and to clear his doubts and suspicions to re-examine the material which were already available on record at the time of passing of the earlier assessment orders. The Legislature under section 147 has not clothed the Assessing Officer with such jurisdiction, therefore, the action cannot be upheld in the background of the facts of the instant case. One more redeeming fact which has a direct nexus with the subsequent reassessment proceedings and ramification of the same has culminated into reassessment orders is the impugned order whereby the Assessing Officer has rejected the objections submitted by the assessees pursuant to the notice under section 147/148 of the Act. The order passed by the Assessing Officer in this behalf is not a speaking order which cannot be sustained. In view of the legal infirmity in the notice under section 147/148 of the Act and laconic order of the Assessing Officer while rejecting the objections of the assessees the consequential assessment orders are also liable to be annulled. - Decided in favour of assessee.

Issues Involved:
1. Legality of the initiation of reassessment proceedings under section 147/148 of the Income-tax Act, 1961.
2. Validity of the reasons recorded by the Assessing Officer for reopening the assessment.
3. Compliance with the statutory precondition of "reason to believe" under section 147 of the Act.
4. Allegation of reassessment based on mere change of opinion.
5. Consideration of the third proviso to section 147 of the Act.
6. Allegation of bias and mala fide action by the Assessing Officer.
7. Availability and adequacy of alternative statutory remedies.

Detailed Analysis:

1. Legality of the initiation of reassessment proceedings under section 147/148 of the Income-tax Act, 1961:
The petitioners challenged the reassessment proceedings initiated by the respondent-Revenue under section 147/148 of the Income-tax Act, 1961. They argued that the initiation of reassessment proceedings was de hors the law and did not fulfill the statutory requirements. The court examined whether the Assessing Officer had objectively scrutinized the material to form an opinion that certain income had escaped assessment despite due diligence.

2. Validity of the reasons recorded by the Assessing Officer for reopening the assessment:
The petitioners contended that the reasons recorded by the Assessing Officer were vague, cryptic, and based on mere suspicion rather than concrete evidence. The court scrutinized the reasons provided in the notice under section 148 and found that they were insufficient to satisfy the statutory precondition of "reason to believe" that income had escaped assessment.

3. Compliance with the statutory precondition of "reason to believe" under section 147 of the Act:
The court emphasized that the phrase "reason to believe" requires a rational and intelligible nexus between the reasons and the belief that income had escaped assessment. The court found that the reasons recorded by the Assessing Officer were based on mere suspicion and did not meet the statutory requirement of "reason to believe."

4. Allegation of reassessment based on mere change of opinion:
The petitioners argued that the reassessment proceedings were initiated based on a mere change of opinion by the Assessing Officer. The court agreed with this contention, stating that the reassessment proceedings were founded on a change of opinion and did not satisfy the legislative intent of "reason to believe."

5. Consideration of the third proviso to section 147 of the Act:
The petitioners invoked the third proviso to section 147, arguing that reassessment proceedings were barred by law as the assessments were already sub judice before the Commissioner of Income-tax (Appeals). The court did not delve deeply into this issue, as it found other grounds sufficient to annul the reassessment proceedings.

6. Allegation of bias and mala fide action by the Assessing Officer:
The petitioners alleged that the Assessing Officer acted with undue haste and bias in initiating the reassessment proceedings. The court found no cogent evidence to support the allegation of bias or mala fide action by the Assessing Officer.

7. Availability and adequacy of alternative statutory remedies:
The respondents argued that the petitioners had an alternative statutory remedy of appeal under sections 246 and 246A of the Act, and therefore, the writ petitions were not maintainable. The court held that the availability of an alternative remedy does not bar the invocation of writ jurisdiction under Article 226 of the Constitution, especially when the notice under section 147/148 did not meet the statutory requirements.

Conclusion:
The court allowed the writ petitions, quashing the impugned notices under section 147/148 of the Act and the order rejecting the petitioners' objections. Consequently, the reassessment orders were also annulled. The court emphasized that the reasons recorded by the Assessing Officer did not satisfy the statutory requirement of "reason to believe" and were based on mere suspicion and change of opinion. The court also held that the availability of an alternative remedy did not bar the invocation of writ jurisdiction in this case.

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