2016 (7) TMI 970 - HC - Income Tax

Validity of reopening an assessment - reasons to believe - undisclosed investment - Held that - Assessing Officer in the reasons recorded has referred to is the notice issued to assessee for production of details regarding investment of ₹ 25 lacs made in Reliance Mutual Funds; that the assessee did not attend or submit the details regarding the transaction. He was therefore, of the opinion that investment remained unexplained and needed to be verified. Such points are required to be examined in detail after obtaining evidence from the assessee and it was for this purpose that the Assessing Officer resorted to reopening of the assessment. The petitioner was granted just about 12 hours of time to respond to the notice for production of material and upon the petitioner failing to do so, the Assessing Officer presumed that such investment required further investigation. Further as pointed out by the assessee, such investment was very much part of the books of audited accounts of the assessee. If the Assessing Officer had perused such accounts, his anxiety that such investment may not have been reflected in the books would have been taken care of. Even when the petitioner pointed out this fact to the Assessing Officer in the letter of objection, the Assessing Officer did not advert to this issue while disposing of such objections. Surely, having once issued the notice for reopening, it was not impermissible for the Assessing Officer to drop the same if through objections the assessee pointed out that the reasons for which the notice was issued are completely erroneous. Even in such a case, the Assessing Officer were to stick to his original position, the entire formula provided in case of GKN Driveshafts (India) Ltd. v. Incometax officer and others (2002 (11) TMI 7 - SUPREME Court ) would fail. The contention that there was sufficient other materials suggesting money laundering or other financial irregularities, has not come in the reasons recorded and such ground therefore, cannot be examined to support the notice for reopening. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the notice for reopening the assessment under Section 147 of the Income Tax Act.
2. Whether the Assessing Officer independently applied his mind or borrowed satisfaction from the investigation wing.
3. Adequacy and timing of the notice issued to the petitioner.
4. Whether the reasons recorded by the Assessing Officer were sufficient to justify reopening the assessment.

Detailed Analysis:

1. Validity of the notice for reopening the assessment under Section 147 of the Income Tax Act:
The petitioner challenged the notice dated 31.3.2015 issued by the Assessing Officer to reopen the assessment for the year 2008-2009. The petitioner argued that the notice was issued without proper scrutiny and based on borrowed satisfaction from the investigation wing. The court emphasized that the validity of the notice must be judged based on the reasons recorded by the Assessing Officer, and the action cannot be supported by materials outside of these reasons. The court referred to the principles established in previous judgments, including the necessity for the Assessing Officer to have "reason to believe" that income chargeable to tax had escaped assessment.

2. Whether the Assessing Officer independently applied his mind or borrowed satisfaction from the investigation wing:
The petitioner contended that the Assessing Officer did not independently apply his mind and merely borrowed satisfaction from the investigation wing. The court noted that the reasons recorded by the Assessing Officer primarily referenced the investigation wing's findings and the petitioner's failure to respond to a notice for production of details regarding a ?25 lakh investment in Reliance Mutual Funds. The court found that the Assessing Officer's reasons were vague and did not demonstrate an independent application of mind.

3. Adequacy and timing of the notice issued to the petitioner:
The petitioner argued that the notice for production of evidence was served late in the evening on 30.3.2015, giving them insufficient time to respond by the next day. The court observed that the petitioner was given just about 12 hours to respond, and upon failing to do so, the Assessing Officer presumed that the investment required further investigation. The court found this presumption to be unreasonable, especially since the investment was reflected in the audited accounts filed with the return.

4. Whether the reasons recorded by the Assessing Officer were sufficient to justify reopening the assessment:
The court examined whether the reasons recorded by the Assessing Officer provided sufficient grounds to believe that income had escaped assessment. The court noted that the reasons were primarily based on the petitioner's non-compliance with the notice for production of details and did not consider the fact that the investment was already reflected in the audited accounts. The court concluded that the reasons recorded were not sufficient to justify reopening the assessment.

Conclusion:
The court set aside the impugned notice dated 31.3.2015, finding that the Assessing Officer did not have adequate reasons to believe that income chargeable to tax had escaped assessment. The petition was disposed of, emphasizing the need for the Assessing Officer to independently apply his mind and consider all relevant materials before issuing a notice for reopening an assessment.