2016 (10) TMI 1364 - HC - Income Tax

Reopening of assessment u/s 147 - Whether reasons as recorded do not indicate any reason to believe that income chargeable to tax has escaped assessment? - HELD THAT - The reasons as recorded merely indicate that there was client code modification which lead to a non genuine loss. The reasons do not indicate how the aforesaid facts led to the AO having reason to believe that income chargeable to tax has escaped assessment. Therefore prima facie there is absence of link between information obtained and escapement of income chargeable to tax. Thus the reasons as recorded do not prima facie indicate the reasons to believe that income chargeable to tax has escaped assessment. The contention on behalf of the Revenue that this would be done at the time of assessment does not satisfy the jurisdictional requirement of AO having reason to believe that the income chargeable to tax has escaped assessment at the time of issuing the impugned notice.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2011-12.

Analysis:
The petition challenges a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2011-12. The reasons provided in the notice suggest that the assessee allegedly evaded tax through Client Code Modification (CCM) in share transactions, resulting in fictitious losses of Rs.17,70,845. The main contention of the petitioner is that the reasons recorded in the notice fail to establish a valid reason to believe that income chargeable to tax has escaped assessment. The petitioner argues that there is a lack of connection between the information obtained and the alleged escapement of income. It is contended that the reasons do not show how the facts related to client code modification led to the Assessing Officer forming a belief that taxable income had escaped assessment.

The petitioner asserts that the absence of a clear link between the information and the alleged escapement of income renders the notice invalid. The petitioner argues that the jurisdictional requirement for the Assessing Officer to have a valid reason to believe that income chargeable to tax has escaped assessment at the time of issuing the notice has not been met. The Revenue's argument that this issue can be addressed during assessment is deemed insufficient to fulfill the legal requirement for issuing the notice. Consequently, the petitioner seeks interim relief based on the lack of prima facie evidence in the notice to support the belief that taxable income has escaped assessment.

The court is inclined to grant interim relief based on the petitioner's argument that the reasons provided in the notice do not establish a valid reason to believe that income chargeable to tax has escaped assessment. The court finds merit in the petitioner's contention that there is a lack of nexus between the information regarding client code modification and the alleged escapement of income. The court emphasizes the importance of the Assessing Officer having a valid reason to believe that taxable income has escaped assessment at the time of issuing the notice. As a result, the petition is granted interim relief, pending further proceedings to be heard along with another related writ petition.