2015 (12) TMI 906 - HC - Income Tax

Reopening of assessment - disclosure of the purchase of the property was not made in his return of income - contention of assessee is that the reopening of the assessment for the year in question was made merely for the purpose of further investigation - Held that - In the present case, there is no allegation of the assessee not having made full and final disclosure in his return of income for the relevant assessment year. Much emphasis has been laid on the fact that disclosure of the purchase of the property was not made in his return of income for the relevant assessment year. On being asked, Sri E.I.Sanmathi, learned counsel for the respondent-Revenue, could not place before the Court any provision of law which required the assessee, in the assessment year 2004-05, to disclose about the fact of having made the actual investment in his return of income. In the absence of any legal obligation on the assessee to disclose about the purchase of property in his return of income, it cannot be said that the assessee had concealed any income, even though when there is no dispute about the fact that he had disclosed his agricultural as well as non-agricultural income during the assessment year in question, and there is no finding as to income from which other source had been concealed by the assessee. Learned counsel for the respondent-Revenue has also submitted, that since there was investigation required with regard to the investment made by the assessee for purchase of property for the assessment year in question, and time for issuance of notice under Section 143(2) of the Act had expired, issuance of notice under Section 148 of the Act was necessitated. In our view, the same cannot be a ground for initiating proceedings under Section 148 of the Act. It was for the Assessing Officer to take proper steps earlier by issuing notice under Section 143(2), and if the law does not now permit issuance of any such notice, then invoking some other provision, which would not be applicable, is not the correct mode. - Decided in favour of assessee.

Issues Involved:
1. Validity of the reassessment under Section 147 of the Income Tax Act, 1961.
2. Whether the Tribunal was right in considering the reasons recorded by the Assessing Officer for issuing the notice under Section 148.
3. Whether the Tribunal was correct in not considering the actual reasons recorded by the Assessing Officer under Section 255(6).

Detailed Analysis:

1. Validity of the Reassessment under Section 147 of the Income Tax Act, 1961:

The appeal challenges the reopening of the assessment for the year 2004-05 under Section 147/148 of the Act. The original return was filed on 21.03.2005, processed under Section 143(1), and concluded without a regular assessment order. A notice under Section 148 was issued on 28.09.2006 based on a survey conducted at another individual's premises, revealing the assessee's property purchase for Rs. 10 lacs on 25.07.2003. The assessee claimed the investment was from HUF funds. The Assessing Officer, however, made additions under Section 69. The Commissioner of Income-Tax (Appeals) upheld the reopening but partly allowed the appeal on merits. The Tribunal also upheld the reopening and made certain additions, dismissing the assessee's cross-objections. The High Court found that the reopening was invalid as it was based on further investigation rather than a "reason to believe" that income had escaped assessment, as required by Section 147.

2. Whether the Tribunal was Right in Considering the Reasons Recorded by the Assessing Officer for Issuing the Notice under Section 148:

The High Court examined the reasons recorded by the Assessing Officer on 15.09.2006, which indicated that further investigation was needed to verify the source of investment for the property purchase. The Court noted that the Assessing Officer did not provide reasons for not accepting the assessee's explanation that the investment was from HUF funds. The Court emphasized that Section 147/148 is not meant for reopening an assessment for investigation purposes, as it would lead to "fishing and rowing enquiries." The Court cited the Supreme Court's decision in Chhugamal Rajpal vs. S.P. Chaliha, which held that the Assessing Officer must have prima facie grounds for issuing a notice under Section 148, not just a vague feeling that transactions might be bogus.

3. Whether the Tribunal was Correct in Not Considering the Actual Reasons Recorded by the Assessing Officer under Section 255(6):

The High Court reiterated that the reasons for reopening must have a rational connection with the belief that income had escaped assessment. In this case, there was no nexus between the material before the Assessing Officer and the belief that income had escaped assessment. The Court found the belief entertained by the Assessing Officer to be arbitrary and irrational. The Court also noted that there was no legal obligation for the assessee to disclose the property purchase in the return of income for the relevant year. The Court concluded that the issuance of notice under Section 148 was not justified, answering the first two questions of law in favor of the assessee and against the revenue. The third question was deemed academic and not addressed.

Conclusion:

The High Court allowed the appeal, holding that the reopening of the assessment under Section 147/148 was invalid, as it was based on further investigation rather than a "reason to believe" that income had escaped assessment. The Court emphasized the need for specific and cogent reasons for reopening an assessment, aligning with the principles laid down by the Supreme Court.

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