2015 (8) TMI 1480 - HC - Income Tax

Reopening of assessment u/s 148 - whether the reason given in the assessment order for the assessment year 2001-2002 could constitute to be a valid reason for reopening, even when the said order itself has been set aside on 20.03.2005 by the Tribunal, which was seven months prior to the issuance of the notice u/s 148? - HELD THAT - No reasonable person can form an opinion to reopen an already concluded assessment on the basis of an assessment order of a subsequent year, which has already been set aside by the Tribunal and attained finality. In the present case, as the assessment order for the year 2001-02 had itself been set-aside by the Tribunal much prior to the issuance of notice under Section 148, which was issued on the basis of the assessment order for the year 2001-02, in our considered opinion, there existed no reason for issuance of the notice under Section 148. The reopening of assessment for the assessment years 1999-2000 and 2000-2001 in the case of assessee, cannot be justified in law. Question No.1 is thus answered in favour of the assessee and against the Revenue. Rejection of books of accounts - calculation of agricultural income as had been done in the case of N.G. Pai, by the same AO for the same assessment year, which was calculated at the yield of 14 Quintal per acre and the price of arecanut at ₹ 10,000/- per quintal, in which case the income of the assessee would be over ₹ 25 lacs, which is much higher than claimed by him - HELD THAT - The Tribunal has, without giving any cogent reason, set aside the order of the Appellate Commissioner and restored the order of the AO, even though the Tribunal has noticed that the agricultural income for a closer assessment year 2001-02 was ₹ 20,41,000/- which has been affirmed by it, yet the same has not been taken to be a material basis for arriving at an income of the assessee for the assessment year in question i.e., 2003-04, where the assessee had disclosed his agricultural income of ₹ 21,93,569/- which was merely ₹ 1.5 lacs more than the income accepted two years earlier in 2001-02. In view of the aforesaid, we are of the opinion that the Tribunal was not right in reversing the finding of the Appellate Commissioner, and restoring the estimation of income by the AO. In the facts and circumstances of the case, the second substantial question of law as framed in these appeals is also answered in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 148 of the Income Tax Act for the assessment years 1999-2000 and 2000-2001.
2. Tribunal's reversal of CIT(A)'s findings and restoration of the Assessing Officer's estimation of agricultural income for the assessment years 1999-2000, 2000-2001, and 2003-2004.

Issue-Wise Detailed Analysis:

1. Validity of Reopening of Assessment (Assessment Years 1999-2000 and 2000-2001):

The assessee declared agricultural income for the assessment years 1999-2000 and 2000-2001, which was initially accepted under Section 143(1) of the Income Tax Act. Notices for reopening the assessments were issued on 21.10.2005 under Section 148, based on reasons derived from the assessment order for the year 2001-2002. However, the Tribunal had already set aside the assessment order for 2001-2002 on 02.03.2005, rendering it invalid as a basis for reopening the assessments.

The court emphasized that the reasons for reopening must be valid and existent at the time of issuing the notice. Since the assessment order for 2001-2002 was set aside, it could not serve as a legitimate reason for reopening the assessments for 1999-2000 and 2000-2001. The court cited various precedents, including Raymond Woollen Mills Ltd. v. ITO and ITO v. Lakhmani Mewal Das, affirming that there must be a live link between the material and the belief of income escapement. The court concluded that the reopening notices were issued without valid reasons, thus answering the first question in favor of the assessee and against the Revenue.

2. Tribunal's Reversal of CIT(A)'s Findings (Assessment Years 1999-2000, 2000-2001, and 2003-2004):

For the assessment year 2003-2004, the assessee declared an agricultural income of Rs. 21,93,569/-. The Assessing Officer, after rejecting the assessee's books of account, estimated the income at Rs. 17,08,550/-, adding the difference to the income from other sources. The CIT(A) accepted the assessee's books and deleted the addition, but the Tribunal reversed this decision, restoring the Assessing Officer's estimation.

The court noted inconsistencies in the Assessing Officer's method, highlighting that the estimation should have been consistent. The court referenced the case of N.G. Pai, where the same Assessing Officer estimated agricultural income at Rs. 93,200/- per acre for the same assessment year 2003-2004. If this method were applied to the assessee, the income would exceed Rs. 25 lacs, supporting the assessee's declared income. The court found the Tribunal's decision to restore the Assessing Officer's estimation without cogent reasons to be unjustified, answering the second question in favor of the assessee and against the Revenue.

Conclusion:

Both questions of law were answered in favor of the assessee. The court allowed the appeals, concluding that the reopening of assessments for 1999-2000 and 2000-2001 was invalid, and the Tribunal's reversal of CIT(A)'s findings for 2003-2004 was unjustified. The appeals were allowed with no order as to costs.