2015 (10) TMI 2749 - AT - Income Tax

Reopening of assessment - eligible reason to believe - Held that - There is no reference of any material found during the course of survey relating to the said assessment year. Before the action under section 147 of the Act can be taken for reopening the assessment, the Assessing Officer must have reason to believe that the income chargeable to tax had escaped assessment. After perusing the reason recorded, we do not find ourselves in agreement with the Assessing Officer or the learned Commissioner of Income-tax (Appeals) that the Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment in respect of the assessment year 2003-04. Section 147 of the Act defines the power and jurisdiction of the Assessing Officer for making an assessment while section 148 of the Act provides for initiation of reopening by issue of notice. It is a trite law by now that section 147 of the Act empowers the Assessing Officer to assess or reassess the income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped the assessment. The powers given to the Assessing Officer under this section are very wide but are also attached with certain overriding conditions. The Assessing Officer can assume jurisdiction under the said provision if he has sufficient material before him. It is also settled law that the Assessing Officer cannot form belief on the basis of his whim and fancy and the existence of material must be real. Further, there must be nexus between the material and escapement of income. Also in the present case one of the basis for reopening is the statement of Shri Kapil Kumar recorded at the time of survey. The statement made at the time of survey does not have evidentiary value, therefore, cannot be the basis for reopening. Reliance is placed on the judgment of the hon ble Supreme Court in the case of CIT v. S. Khader Khan Son 2013 (6) TMI 305 - SUPREME COURT and also Paul Mathews and Sons v. CIT 2003 (2) TMI 25 - KERALA HIGH COURT . On this basis also the reopening initiated by the Assessing Officer is held to be bad in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening under section 147/148 of the Income-tax Act, 1961.
2. Merits of the case regarding alleged suppression of receipts.

Issue-Wise Detailed Analysis:

1. Validity of Reopening under Section 147/148 of the Income-tax Act, 1961:
The primary issue revolves around the validity of the reopening of the assessment under section 147 of the Income-tax Act, 1961, initiated by the issuance of a notice under section 148. The assessee argued that the reopening was based on a survey conducted on March 25, 2010, which pertained to the assessment year 2010-11, and not the assessment year 2003-04. The reasons recorded by the Assessing Officer (AO) for reopening were based on discrepancies found during the survey, including a kacha register maintained by the receptionist showing suppressed receipts. However, these findings were related to the year 2010-11, and no specific material was found for the assessment year 2003-04.

The tribunal noted that for reopening under section 147, the AO must have "reason to believe" that income chargeable to tax had escaped assessment. The tribunal referenced several judgments, including those of the Bombay High Court in *Ramkrishna Ramnath v. ITO* and *India Finance and Construction Co. P. Ltd. v. B. N. Panda, Deputy CIT*, which established that material found for one year cannot be the basis for reopening assessments for other years. Additionally, the tribunal cited the Delhi High Court's judgment in *CIT v. Gupta Abhushan P. Ltd.*, which held that discrepancies found in subsequent years cannot justify reopening assessments for earlier years.

The tribunal concluded that the AO did not have valid reasons to believe that income had escaped assessment for the year 2003-04, as the material relied upon was from a subsequent year. Therefore, the reopening under section 147 and the notice issued under section 148 were deemed invalid and quashed.

2. Merits of the Case Regarding Alleged Suppression of Receipts:
Given that the tribunal quashed the reopening under section 147, it did not find it necessary to adjudicate on the merits of the case regarding the alleged suppression of receipts. However, it is pertinent to note that the AO had estimated suppressed receipts based on the findings of the survey and applied a ratio of 50% to the declared receipts, leading to an assessment of additional income. The tribunal's decision to quash the reopening rendered the assessment on merits moot.

Conclusion:
The tribunal allowed both appeals of the assessee, quashing the reassessment proceedings initiated under section 147/148 of the Income-tax Act, 1961, due to the lack of valid reasons for reopening the assessment for the year 2003-04 based on material from a subsequent year. The tribunal did not address the merits of the alleged suppression of receipts due to the invalidity of the reopening.