2016 (5) TMI 115 - HC - Income Tax

Reopening of assessment - Held that - It is well settled that the reasons recorded for reopening the assessment have to speak for themselves. They have to spell out that (i) there was a failure of the Assessee to disclose fully and truly all the material facts necessary for the assessment and (ii) the reasons must provide a live link to the formation of the belief that income had escaped assessment. These reasons cannot be supplied subsequent to the recording of such reasons either in the form of an order rejecting the objections or an affidavit filed by the Revenue. Reasons given subsequently do not satisfy the jurisdictional requirements of Section 147 (1) of the Act inasmuch as they do not indicate that there was a failure by the Assessee to disclose fully and truly all the material facts necessary for the assessment. The reasons also do not provide a live link to the formation of the belief that income had escaped assessment.Consequently, for the aforementioned reasons, the Court is satisfied that in the present case the essential requirements of Section 147 of the Act have not been satisfied by the Revenue. - Decided in favour of assessee

Issues Involved:
1. Validity of the notices issued under Section 148 of the Income Tax Act, 1961.
2. Adequacy and clarity of the reasons recorded for reopening the assessments.
3. Jurisdictional requirements under Section 147(1) of the Income Tax Act.
4. Application of mind by the Additional Commissioner of Income Tax in granting approval.
5. Procedural compliance in recording reasons for reopening assessments.

Detailed Analysis:

1. Validity of the Notices Issued under Section 148:
The writ petitions challenge the notices issued on 28th March 2014 under Section 148 of the Income Tax Act for Assessment Years (AYs) 2007-2008 to 2012-2013. The primary contention is that the notices were beyond the permissible period of four years for certain AYs and were not duly served for others. The court directed that no further steps be taken pursuant to these notices and treated one of the petitions as the lead matter for all related cases.

2. Adequacy and Clarity of the Reasons Recorded for Reopening the Assessments:
The main ground of challenge is the ambiguity and incoherence in the reasons recorded for reopening the assessments. The reasons are described as "lacking clarity" and "incapable of being understood." The court noted that the reasons recorded were grammatically incorrect, incomplete, and did not indicate the basis for reopening the assessments. The court emphasized that the reasons should provide a clear link to the formation of the belief that income had escaped assessment, as required under Section 147(1) of the Act.

3. Jurisdictional Requirements under Section 147(1):
The court reiterated the legal requirement that the reasons recorded for reopening an assessment should state that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The reasons must provide a "live link" to the formation of the belief that income has escaped assessment. The court cited the case of Madhukar Khosla v. Assistant Commissioner of Income Tax, emphasizing that the reasons must relate to objective facts external to the materials on record.

4. Application of Mind by the Additional Commissioner of Income Tax:
The petitioners contended that the Additional Commissioner of Income Tax had accorded approval to the reasons for reopening without application of mind. The court found that the reasons recorded were incoherent and did not justify the reopening of assessments, indicating a lack of proper application of mind by the approving authority.

5. Procedural Compliance in Recording Reasons for Reopening Assessments:
The court highlighted that the reasons recorded for reopening the assessments must be explicit and self-contained. Any additional reasons provided in subsequent orders or affidavits cannot be considered. The court referred to the decision in Northern Exim (P) Ltd. v. DCIT, which stated that the validity of the assumption of jurisdiction under Section 147 can only be tested by the reasons recorded under Section 148(2) and not by any subsequent explanations.

Conclusion:
The court concluded that the essential requirements of Section 147 of the Income Tax Act were not satisfied. The reasons recorded were incoherent, lacked clarity, and did not provide a live link to the formation of the belief that income had escaped assessment. Consequently, the impugned notices dated 28th March 2014 and the orders dated 24th October 2014 rejecting the objections were quashed. The writ petitions were allowed, and the applications were disposed of with no orders as to costs.

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