2017 (4) TMI 620 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - From perusal of the notice, it is apparent that the reason to believe that the income chargeable to tax has escaped assessment, is not mere suspicion but is based on good faith. The Assessing Officer has given complete details of the documents which were not taken into consideration earlier. The documents referred in the notice are also sufficient to show the direct nexus between the information in possession and conclusion withdrawn by the Assessing Officer. The Assessing Officer though was not having fresh material for the purpose of formation to believe that the income of any particular assessment year has escaped assessment, but with all bonafides he noticed that certain documents escaped consideration and that resulted into escape of income chargeable to tax. Learned Single Bench in detail has considered the entire law relating to pre-conditions for reassessment under Section 147/148 of the Act of 1961, but in our considered opinion has not looked into the notices under Section 148 of the Act of 1961 so minutely. Paras 3, 4, 5, 6, 7, 8 and 9 of the notice in specific terms indicate the material to arrive at a conclusion to have bonafide belief that a huge part of income which may be chargeable to tax was escaped. Looking to the document aforesaid we are of considered opinion that the Assessing Officer had adequate reason to believe to issue notice under Section 148 of the Act of 1961. Learned Single Bench failed to appreciate the notice concerned in light of the scope and spirit of the pre- conditions for issuing a notice under Section 148 of the Act of 1961. The appeals, thus, deserves acceptance, hence, are allowed n favour of revenue

Summary

Issues:
Validity of notices issued under Section 147/148 of the Income Tax Act, 1961 based on the expression 'reason to believe'.

Analysis:
The judgment in question involved examining the correctness of a previous judgment that quashed notices issued under Section 147/148 of the Income Tax Act, 1961. The learned Single Bench held that the Assessing Officer had no valid reason to believe that any income chargeable to tax had escaped assessment, as the initiation of proceedings seemed to be for verification and clearing doubts rather than based on substantial reasons. However, the High Court, in agreement with the interpretation of 'reason to believe,' conducted a thorough analysis of the case. It was noted that a search and survey conducted by the Income Tax Department led to the issuance of notices under Section 153-A and 153 of the Act to various assesses. Subsequently, the Assessing Officer, based on material seized during the search, initiated proceedings under Section 147 of the Act by issuing notices under Section 148.

The petitioners challenged these notices, arguing that the Assessing Officer lacked cogent reasons and initiated reassessment proceedings based on mere suspicion and verification. The respondents raised preliminary objections, emphasizing the necessity of a valid reason to believe that income had escaped assessment, supported by objective and relevant material. The High Court observed that the Assessing Officer had provided detailed information in the notices, indicating a direct nexus between the information possessed and the belief formed. Although fresh material was not available, the Assessing Officer's belief was deemed to be in good faith and not arbitrary.

The High Court criticized the Single Bench for not scrutinizing the notices under Section 148 minutely. By analyzing specific paragraphs of the notice, the Court concluded that the Assessing Officer had sufficient reason to believe that a significant amount of income had escaped assessment, meeting the pre-conditions for issuing a notice under Section 148. Consequently, the High Court allowed the appeals, set aside the impugned judgment, and dismissed the writ petitions filed by the respondents.

This detailed analysis highlights the importance of a valid 'reason to believe' in initiating reassessment proceedings under the Income Tax Act, emphasizing the need for objective and relevant material to support such belief. The judgment serves as a precedent for ensuring that Assessing Officers adhere to the legal requirements before issuing notices for reassessment, thereby upholding the integrity of the tax assessment process.