2016 (4) TMI 639 - HC - Income Tax

Reopening of assessment - Held that - Once a process of reassessment or the like has been initiated upon the issuance of a notice under Section 148(1) of the said Act, the reasons recorded prior to the issuance of the notice are the only reasons that can be looked into and no further reasons may be added thereto by any subsequent officer who may have received the case upon its transfer. As to the reasons indicated, there does not appear to be any occasion for the petitioners to complain at this stage. It is common knowledge that dirty money is circulated in the economy and one of the ways of laundering such money without attracting the provisions of the relevant statute is by parking the same in obscure companies with little business activities by investing in shares therein at a huge premium. It is such aspect of the matter which has, quite appropriately, attracted the attention of income tax authorities qua the petitioning assessee. It is most desirable that the exercise be completed by taking the matter to its logical conclusion.

Summary

Issues:
Challenge to reassessment under Section 148 of the Income Tax Act, 1961 for the assessment year 2008-09 based on reasons recorded by the assessing officer.

Analysis:
The case involves a challenge by the petitioners against a reassessment notice issued under Section 148 of the Income Tax Act, 1961 for the assessment year 2008-09. The notice was issued based on the assessing officer's belief that the income of the petitioner company had escaped assessment. The petitioners demanded the reasons recorded under Section 148(2) to be furnished, especially since the matter fell under the first proviso to Section 147 of the Act. The reasons provided indicated concerns regarding the issuance of shares with a high premium and the potential ploughing back of money as share capital. The petitioners contested these reasons through a written representation, which was considered by the Deputy Commissioner of Income Tax, who subsequently rejected the representation in an order dated February 10, 2016.

The petitioners argued that the reasons recorded by the assessing officer were erroneous and insufficient for reassessment. They also alleged that the Deputy Commissioner did not apply an independent mind while considering their representation. The jurisdiction over the case had been transferred to the Deputy Commissioner under an order dated August 19, 2015. The petitioners contended that fresh reasons should be provided when a case is transferred to a new assessing officer, but this submission was found unsupported by the statute. Section 147 outlines the circumstances for initiating reassessment, with stricter rules when the proviso to Section 147 is applicable, requiring additional material to support the belief of income escaping assessment.

The court emphasized the importance of recording reasons under Section 148(2) before issuing a notice under Section 148(1) for reassessment. Once the reasons are recorded, they become the basis for issuing the notice, and no further reasons can be added by subsequent officers. The court noted that the merits of the reasons should not be delved into at the initial stage of challenging reassessment, as the reassessment process allows for redressal if an adverse order is passed. In this case, the reasons provided by the assessing officer were deemed appropriate given the concerns related to potential money laundering through share investments at high premiums. The court upheld the rejection of the petitioners' representation, emphasizing that it should not prejudice them in any future reassessment or appeals.

In conclusion, the court dismissed the petition with costs to be paid to the department and directed the parties to obtain certified copies of the order. The judgment underscores the procedural and jurisdictional aspects of reassessment under the Income Tax Act, highlighting the significance of recorded reasons and adherence to statutory requirements in challenging reassessment notices.