2017 (4) TMI 727 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - Careful reading of Section 147 of the Act would show that it empowers an Assessing Officer to reopen the assessment, if, he has reason to believe, that any income chargeable to tax has escaped assessment for the relevant year, and also bring to tax , any other income, which may attract assessment, though, it is brought to his notice, subsequently, albeit, in the course of the reassessment proceedings. Explanation 3, to my mind, supports this approach, which emerges upon a plain reading of the said provision, along with the main part of Section 147 of the Act. The emphasis in this behalf is on the expression and also bring to tax appearing in the main part of Section 147 in relation to the right of the Revenue to assess taxable income discovered during reassessment proceedings. In my view, Explanation 3, clearly, expounds that the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment and such other issue, that comes to his notice subsequently, albeit, in the course of proceedings held under Section 147 of the Act. In other words, if, notice for reopening of the assessment was issued on one aspect, and in the course of reassessment proceedings another aspect was discovered, the reassessment order would be valid, only if, the aspect, which led to the reopening of assessment, continues to form part of the reassessed income. In this case, that the impugned order is assailed on the ground that the concerned authority lacked jurisdiction in the matter. The fact that this charge is established is evident, upon a bare perusal of the record of the case. The foregoing discussion qua the merits of the case would show that the impugned order was passed by concerned authority, even though, the necessary jurisdictional facts were absent and without dealing with the objections filed by the assessee qua the notice issued to it for reopening the assessment. Accordingly, the objection advanced by the Revenue, in this behalf, would have to be rejected. Resultantly, in view of the discussion above, the impugned order is set aside. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the objections filed by the petitioner/assessee to the notice issued for reopening the assessment were disposed of as required by law.
2. Whether the reassessment order was valid given that it was based on a different ground than the one mentioned in the notice issued under Section 148 of the Income Tax Act.
3. Whether the petitioner/assessee should be relegated to an alternative remedy.

Issue-wise Detailed Analysis:

1. Disposal of Objections:
The petitioner/assessee contended that the objections to the notice issued under Section 148 of the Income Tax Act were not disposed of before passing the reassessment order. This contention was supported by the Supreme Court's judgment in GKN Driveshafts (India) Limited V. ITO - 259 ITR 19 (SC), which mandates that objections must be disposed of by passing a speaking order before proceeding with the assessment. The court found that the respondents/Revenue conceded that the objections had not been disposed of, thus violating the legal mandate. Consequently, the reassessment order could not be sustained on this ground alone.

2. Validity of Reassessment Order:
The petitioner/assessee argued that the reassessment order was invalid as it was based on a different ground than the one mentioned in the notice issued under Section 148. Initially, the notice was issued due to a reduction in investments in mutual funds, which was not offered to tax. However, the reassessment order taxed the forfeited share application money under Section 28(iv) of the Act. The court emphasized that Section 147 allows the Assessing Officer to reassess income that has escaped assessment and also any other income discovered during the reassessment proceedings. However, this can only be done if the original ground for reopening the assessment is also assessed. This view was supported by judgments from the Bombay High Court, Gujarat High Court, and Delhi High Court. The court concluded that the reassessment order was invalid as it did not assess the income related to the original ground for reopening the assessment.

3. Alternative Remedy:
The respondents/Revenue argued that the writ petition should not be entertained as an alternative remedy was available under Section 246A of the Act. However, the court noted that it is well-settled that the availability of an alternative remedy does not bar the court from entertaining a writ petition, especially when the challenge is based on the absence of jurisdiction or breach of natural justice principles. Since the impugned order was passed without jurisdiction and without disposing of the objections, the court decided to entertain the writ petition.

Conclusion:
The court set aside the impugned reassessment order on the grounds that the objections were not disposed of as required by law and the reassessment was based on a different ground than the one mentioned in the notice issued under Section 148. The writ petition was disposed of, leaving the parties to bear their own costs.