2023 (11) TMI 1232 - HC - Income Tax

Validity of reopening of assessment - reasons to believe OR reason to suspect - Information was received from ITO (I CI), 1(1), Mumbai that the assessee has entered in Development Agreement of property project of Pune - According to Petitioner, it is nothing but a fishing inquiry that the Assessing Officer ( AO ) wants to make - ascertaining or verifying incidence of income tax or any other income accruing to the party - HELD THAT - In Darpan Chandliya v. Income Tax Officer 2023 (9) TMI 1041 - BOMBAY HIGH COURT a similar situation arose where also the AO had noted that he is seeking some information to examine the case of assessee. The Court held that, that cannot be stated to be founded on the belief that any income which is chargable to tax has escaped assessment. Just because some information has been received does not entitle Respondent to reopen assessment. The reasons must be founded on the satisfaction of the AO that income chargeable to tax has escaped assessment. Once that is not to be found, then the impugned notice cannot be sustained. The Court said, what is found is that there are no reasons to believe but, only reasons to suspect. Hence, reopening of assessment is not satisfactory. In the circumstances, we are satisfied that there are no reasons to believe but only reasons to suspect escapement of income. Petition allowed in favour of assessee.

Summary

Issues involved:
The judgment involves the impugning of a notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2015-16 on the ground that the reason to believe does not indicate any escapement of income. The key issue is whether the notice for reassessment is valid based on the reasons provided.

Summary:

Issue 1: Validity of the reason to believe for reopening assessment
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2015-16, arguing that it was a fishing inquiry without indicating any escapement of income. The reason for reopening mentioned income from a development agreement dated 9th May 2013, pertaining to Assessment Year 2014-15. The petitioner contended that this could not be a basis for escapement of income for AY 2015-16. The Assessing Officer (AO) justified the reopening by stating that income accruing to the party might be in AY 2015-16, necessitating analysis of the agreement. The court referred to a similar case where it was held that seeking information alone does not establish that income chargeable to tax has escaped assessment. The court found no reasons to believe, only reasons to suspect, leading to the quashing of the notice and related orders.

Decision:
The court allowed the petition, issuing a Writ of Certiorari to quash the notice dated 31st March 2021 and the order dated 31st December 2021, as there were no valid reasons to believe income had escaped assessment.