2018 (2) TMI 1471 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - AO in the reasons recorded proceeded on the erroneous footing that the assessee had not filed return at all. The first premise for issuing the notice was thus factually incorrect. It is now not disputed by the Revenue that the assessee did file return of income for the year under consideration which was duly acknowledged by the Department. The entire reasoning thus proceeded on the wrong premise that the assessee had never filed the return. This itself would be sufficient to annul the notice of reopening the assessment. The assessee had from the outset been contending that the assessee s accounts are duly audited and such audited accounts are presented alongwith the return. This has been so asserted in the objections before the Assessing Officer as well as in the petition before us. Both times the response of AO in the order disposing of the objections and the affidavit-in-reply filed in this petition is that the assessee s cash deposits can only be verified through assessment proceedings. AO does not even contended that the said cash deposits were not duly reflected in the return filed but that he wishes to verify the validity of such deposits and the assessee s claim of exemption being a Trust. Re-assessment even in a case where the return was not scrutinized before acceptance originally cannot be resorted to unless AO had a reason to believe that the income chargeable to tax has escaped assessment. For mere verification or for a fishing inquiry reopening of the assessment is not permissible. - Decided in favour of assessee.

Summary

Issues:
1. Challenge to the Notice dated 31st March 2017 issued by the Assessing Officer to reopen the petitioner's assessment for Assessment Year 2010-2011.

Analysis:
The petitioner, a registered Public Charitable Trust, challenged a Notice issued by the Assessing Officer to reopen the assessment for the year 2010-2011. The Assessing Officer's reasons for reopening the assessment were based on the trust's cash deposit of ?33,97,775 in a bank account during that year, alleging that the trust failed to disclose its true income for tax purposes. The petitioner objected to the notice, stating that they had filed a return for that year, which was acknowledged by the Department. The Assessing Officer, while disposing of the objections, maintained that the cash deposit issue would be examined during reassessment proceedings. The High Court noted that the Assessing Officer incorrectly proceeded on the premise that the petitioner had not filed a return at all, which was factually incorrect as the return was duly filed and acknowledged. The court emphasized that reopening an assessment requires a reason to believe that taxable income has escaped assessment, not for mere verification purposes.

The Revenue contended that the trust did not disclose the cash deposit in the return. However, the court found that the trust's accounts were audited and presented with the return, as stated in the objections and the petition. The Assessing Officer did not dispute the reflection of cash deposits in the return but aimed to verify their validity through assessment proceedings. The court reiterated that reassessment cannot be initiated for mere verification or fishing inquiries, emphasizing the necessity of a reason to believe that taxable income has escaped assessment. Consequently, the High Court set aside the impugned notice, allowing the petition in favor of the petitioner.