2018 (3) TMI 226 - HC - Income Tax

Reopening of assessment - reasons to believe - special audit report as basis for reopening - Held that - Petitioner cannot take shelter of the first proviso to Section 147 of the Act. Further the reasons recorded does indicate that the special audit report dated 21 April 2014 is the basis of the reopening notice. Thus in the above facts, it cannot be said that the Assessing Officer did not have reasonable belief that prima facie income chargeable to tax has escaped assessment. The second grievance is of non-application of mind by the Assessing Officer to issue the impugned notice, as it is issued upon the borrowed satisfaction of the special audit. On perusal of the reasons recorded, we find that it does indicate application of mind by the Assessing Officer to the facts in the context of audit report to reach the reasonable belief that the income chargeable to tax has escaped assessment. The special audit report was the tangible material which formed the basis of the Assessing Officer's reasonable belief. Thus there is no merit in the above grievance also. We find that the power of the Assessing Officer to reopen an assessment under Section 147/148 of the Act on the basis of reasonable belief is not fettled or circumscribed, to be formed only on material found during a tax audit or with material found during examining a case of tax evasion. In fact the basis of fresh tangible material is unqualified i.e. the source of the material could be from any place, however, the only pre-condition is that on the basis of the material so found / obtained by the Assessing Officer, he himself must form a reasonable belief that income chargeable to tax has escaped assessment before issuing a notice for reopening. There is sanctity attached to the orders of the assessment passed under Section 143 (3) of the Act. The Assessing Officer is entitled to reopen an assessment only if the jurisdictional requirements as pointed out under Section 147 and 148 of the Act satisfied. Therefore, though the orders of assessment passed under Section 143 (3) of the Act have sanctity attached, it does not grant immunity to an assessee from proceedings for reopening of assessment year of Section 147 / 148 of the Act, provided the jurisdictional requirements therein are satisfied, at the time when the reopening notice is issued. - Decide against assessee.

Issues Involved:
1. Jurisdiction of the Assessing Officer to issue the notice dated 30th March 2017 under Section 148 of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer in issuing the notice.
3. Validity of relying on the special audit report for reopening the assessment.
4. Consideration of objections raised by the Petitioner against the reopening notice.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The primary issue raised by the Petitioner is the jurisdiction of the Assessing Officer to issue the notice dated 30th March 2017 for reopening the assessment for the Assessment Year 2010-11. The Petitioner argued that the notice was issued beyond the period of four years from the end of the Assessment Year 2010-11, and there was no failure on the part of the Petitioner to fully and truly disclose material facts necessary for assessment. The Court noted that the assessment for the subject year was completed on 22nd March 2013, and the special audit report dated 21st April 2014 was not available at that time. The Court referred to the Supreme Court's decision in Phool Chand Bajrang Lal & Anr. v. Income Tax Officer & Anr., stating that acquiring fresh information that exposes the falsity of the statements made by the assessee at the time of the original assessment justifies reopening the assessment. Therefore, the Court held that the Assessing Officer had reasonable belief that income chargeable to tax had escaped assessment based on the special audit report, and the first proviso to Section 147 did not protect the Petitioner.

2. Application of Mind by the Assessing Officer:
The Petitioner contended that the Assessing Officer issued the notice based on the borrowed satisfaction of the special audit report, indicating non-application of mind. The Court examined the reasons recorded by the Assessing Officer and found that they demonstrated application of mind to the facts in the context of the audit report. The special audit report served as tangible material forming the basis of the Assessing Officer's reasonable belief. Thus, the Court found no merit in the Petitioner's grievance regarding non-application of mind.

3. Validity of Relying on the Special Audit Report:
The Petitioner argued that the special audit report dated 21st April 2014 was prepared for purposes other than detecting tax evasion and contained disclaimers regarding its use by third parties. The Court held that the power of the Assessing Officer to reopen an assessment is not limited to material found during a tax audit or tax evasion examination. The source of the material could be from any place, provided the Assessing Officer forms a reasonable belief that income chargeable to tax has escaped assessment. The Court also noted that the remit of the special audit included examining expenditures above ?25 lakhs and related party transactions, which were relevant to the reopening notice. Therefore, the Court found no merit in the objection to the reliance on the special audit report.

4. Consideration of Objections Raised by the Petitioner:
The Petitioner claimed that the objections to the reasons for reopening were not appropriately considered by the Assessing Officer. The Court reviewed the order disposing of the objections and found that it dealt with each objection in detail, considering the Petitioner's arguments. The Court emphasized that the order disposing of objections does not preclude the Petitioner from challenging the merits during reassessment proceedings. Thus, the Court concluded that the objections were duly considered, and the grievance lacked merit.

Conclusion:
The Court found no merit in the Petitioner's arguments and dismissed the Petition. The Court also declined the Petitioner's request for a stay of the order, stating that the issues raised were neither novel nor debatable, and the Petitioner should subject itself to reassessment proceedings.

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