2015 (4) TMI 445 - HC - Income Tax

Reopening of assessment - assessee resorting to hoarding of potatoes and making huge profits by fluctuating the day to day price of potatoes in the market - Held that - During the course of survey, the Assessee s manual books of accounts, cash balance, stock etc. were physically verified and inventory was prepared. The backup of the books of accounts maintained on computer has been taken and impounded for further verification. The details of the group s bank accounts have been obtained and kept on record. The further contents of this report would reveal that there were some discrepancies and which are very minor in nature. Therefore, the cash physically found was short of ₹ 5020/- for which it is explained that the same pertains to day to day and misc. expenses incurred on the day of survey. Secondly, the physical stock of 672 bags of potato was found. The explanation for the same is recorded. Thus, neither the survey report nor any other material indicates that any income chargeable to tax for the relevant assessment year has escaped assessment. The Assessing Officer, therefore, had nothing before him which would enable him to record his belief that any such escapement has taken place. In the circumstances, the reasons recorded and which pertain to all the assessment years prior and subsequent to the survey can hardly satisfy requirement in law. This is not how the power under section 147 should be exercised.That is to be exercised and in exceptional cases. It should not be exercised as a manner of routine and merely because some survey of this nature had taken place. At any point of time and when there was shortage of potato in the market, that such powers of survey were invoked. If nothing has been found therein which would indicate escapement of income and chargeable to tax, then, the basis for reopening ought not be such survey actions and the report. Something more was required in law for the Assessing Officer to exercise his powers.When there is absolutely no material to institute the proceedings or issue the notice proposing reassessment of income, then, it is the duty of the Court to interfere and quash the proceedings at the threshold. In these circumstances, this Writ Petition is allowed. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening proceedings under section 147 of the Income Tax Act for Assessment Year 2010-2011.
2. Justification of the notice issued under section 148(2) and its conformity with the law.

Analysis:
Issue 1: The Petitioner, a partnership firm registered under the Indian Partnership Act, sought relief through a Writ Petition under Article 226 of the Constitution of India to quash the reopening proceedings initiated under section 147 of the Income Tax Act for Assessment Year 2010-2011. The Petitioner contended that the notice issued under section 148(2) was invalid and illegal. The Petitioner's income tax return for the said assessment year was processed, and the claimed profit was accepted. A survey action was conducted in relation to the assessment year 2011-12, but no discrepancies were found for the year in question. Despite this, a notice under section 148 was issued, leading to the Petitioner challenging the validity of the reopening proceedings.

Issue 2: The Respondent, represented by counsel, argued that there was independent satisfaction that income chargeable to tax had escaped assessment, justifying the notice issued under section 148. However, the Court, after perusing the relevant documents, found that the survey report and other materials did not indicate any income chargeable to tax had escaped assessment for the relevant year. The Court emphasized that the power under section 147 should be exercised in exceptional cases and not as a routine based solely on survey actions. As there was no material to support the initiation of reassessment proceedings, the Court intervened to quash the proceedings at the threshold to prevent undue harassment to the Petitioner. Consequently, the Writ Petition was allowed, and the rule was made absolute in favor of the Petitioner, with no costs imposed.

In conclusion, the High Court of Bombay held that the reopening proceedings for Assessment Year 2010-2011 under section 147 were invalid and lacked the necessary basis or satisfaction required by law. The Court emphasized the importance of exercising the power to reopen assessments judiciously and not as a routine practice, especially when there is insufficient evidence to support such actions.