2017 (1) TMI 854 - HC - Income Tax

Reopening of assessment - Held that - This Court in Hindustan Lever Ltd vs. R.B. Wadkar, Assistant Commissioner of Income Tax and Others 2004 (2) TMI 41 - BOMBAY High Court has held that re-opening notice has to be justified on the basis of the reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. These reasons recorded cannot be supplemented by further reasons or by filing an affidavit and/or making oral submission. The reasons are a manifestation of the mind of the Assessing Officer and must be self explanatory and should not keep the assessee guessing. It cannot be justified on the basis of inferences or interpretation. The reasons as recorded prima facie do not seem to indicate reasonable belief that income chargeable to tax has escaped assessment. In view of above, prima facie the impugned notice is without jurisdiction. Accordingly, pending hearing and disposal of this petition there shall be stay of the impugned notice dated 31st March, 2016.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for the Assessment Year 2009-10.
Validity of reasons recorded in the notice.
Application of Explanation 2(a) to Section 147 of the Act in cases where no return has been filed.
Interpretation of reasons recorded for invoking Explanation 2(a) of Section 147.
Justification of re-opening notice based on recorded reasons.

Analysis:

1. The petition challenges a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen assessment for the Assessment Year 2009-10. The reasons recorded in the notice suggest that income chargeable to tax has escaped assessment based on accounts submitted during assessment proceedings for the preceding year. The Assessing Officer forms a prima facie view that income amounting to ?12.63 crores has escaped assessment for the relevant year.

2. The petitioner objects to the reasons recorded in the notice, arguing that they do not indicate a reasonable belief that income has escaped assessment. The petitioner contends that it does not have a Permanent Establishment in India, thus no income would be chargeable to tax in India. Additionally, the reasons recorded are criticized for not applying the mind to the materials before the Assessing Officer, leading to a lack of justification for the alleged income escaping assessment.

3. The Respondent relies on Explanation 2(a) to Section 147 of the Act, which deems income to have escaped assessment in cases where no return has been filed. However, for this provision to apply, there must be a prima facie satisfaction by the Assessing Officer that the income is chargeable to tax under the Act. The reasons recorded in the present case do not demonstrate this satisfaction, rendering the invocation of Explanation 2(a) questionable.

4. Citing the decision in Hindustan Lever Ltd vs. R.B. Wadkar, the Court emphasizes that the justification for a re-opening notice lies solely in the reasons recorded at the time of issuing the notice. These reasons should be self-explanatory and not subject to supplementation by further reasons or submissions. The reasons in the present case do not appear to establish a reasonable belief that income has escaped assessment, leading to the conclusion that the notice is prima facie without jurisdiction.

5. Consequently, the Court stays the impugned notice dated 31st March, 2016, pending further hearing and disposal of the petition. The judgment underscores the importance of the Assessing Officer's satisfaction and the necessity for clear and justifiable reasons when issuing notices for reopening assessments under the Income Tax Act, 1961.