2018 (7) TMI 1816 - HC - Income Tax

Reopening of assessment - reason to believe - deductions/exemptions under sections 54EC and 54F - Held that - Neither in the notices dated March 31 2017 nor in the reasons furnished in September/October 2017 did the Assessing Officer record the presence of the jurisdictional conditions for reopening the subject assessments. Even thereafter when she rejected the petitioners objections under her letters dated November 17 2017 the Assessing Officer did not do so. Assessing Officer never opined that issue of the subject notices was warranted on the ground that the petitioners did not disclose fully and truly all material facts necessary for their assessment or that the income that escaped assessment during that year amounted to or was likely to amount to one lakh rupees or more. The absence of these jurisdictional conditions in her reasons for seeking to reopen the assessments beyond four years is fatal to the very issuance of the impugned notices. The reasons communicated by the Assessing Officer to the petitioners must be the same reasons furnished to the competent authority for seeking approval under section 151 of the Act of 1961 as the Assessing Officer cannot modify add to or delete from such reasons to suit her own purposes at different points of time. Further when the reasons recorded by the Assessing Officer are the only material that can be looked into by the competent authority for granting approval under section 151 of the Act of 1961 the absence of such jurisdictional conditions therein would invariably vitiate the approval if any by the competent authority as he could not have recorded the requisite satisfaction under section 151 of the Act of 1961 when the fundamental jurisdictional conditions justifying the reopening of the assessments beyond the normal four-year period did not even find mention in the reasons recorded by the Assessing Officer. On the above analysis this court finds that reopening of the petitioners assessments for the assessment year 2010-11 by way of the notices dated March 31 2017 issued under section 148 of the Act of 1961 and the rejection of their objections thereto by the letters dated November 17 2017 cannot be sustained on grounds more than one. The attempt on the part of the Revenue to do so is an abuse of power as the facts demonstrate that the very basis for such reopening was the subject matter of the appeals before the Appellate Tribunal and thereafter before this court - Decided in favour of assessee

Issues Involved:
1. Validity of reopening assessments under Section 148 of the Income-tax Act, 1961.
2. Determination of the date of transfer of shares for claiming deductions under Sections 54EC and 54F of the Income-tax Act, 1961.
3. Jurisdiction of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961.
4. Compliance with procedural requirements for reopening assessments beyond four years.

Detailed Analysis:

1. Validity of Reopening Assessments under Section 148 of the Income-tax Act, 1961:
The court examined whether the reopening of assessments for the assessment year 2010-11 under Section 148 was justified. The Assessing Officer issued notices on March 31, 2017, claiming new evidence (investment agreement dated August 12, 2009) indicated that income chargeable to tax had escaped assessment. However, the court found that the reasons provided for reopening did not mention essential jurisdictional conditions, such as the failure of the assessee to disclose fully and truly all material facts necessary for assessment or that the escaped income amounted to one lakh rupees or more. The absence of these conditions was deemed fatal to the validity of the notices.

2. Determination of the Date of Transfer of Shares for Claiming Deductions under Sections 54EC and 54F of the Income-tax Act, 1961:
The petitioners declared the date of transfer of shares as November 24, 2009, based on the submission of Form 7B to the purchaser-company. The Commissioner initially challenged this, suggesting the date of receipt of monies (September 10, 2009) should be considered. The Appellate Tribunal, however, upheld the date of transfer as November 24, 2009, and this view was confirmed by the High Court. The Revenue's attempt to consider the date of the investment agreement (August 12, 2009) as the date of transfer was rejected by both the Tribunal and the High Court.

3. Jurisdiction of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961:
The Commissioner exercised revisionary power under Section 263, questioning the deductions claimed by the petitioners. The Appellate Tribunal found the original assessments to be correct and set aside the Commissioner's orders. This decision was upheld by the High Court, which dismissed the Revenue's appeals. The court noted that the Commissioner’s jurisdiction under Section 263 was improperly assumed, as the original assessments were not erroneous or prejudicial to the interests of the Revenue.

4. Compliance with Procedural Requirements for Reopening Assessments Beyond Four Years:
The court scrutinized whether the procedural requirements for reopening assessments beyond four years were met. It was found that the Assessing Officer failed to record the necessary jurisdictional conditions in the notices and reasons provided. The court emphasized that the reasons must explicitly state the failure of the assessee to disclose material facts and the quantum of escaped income to justify reopening beyond four years. The failure to meet these procedural requirements rendered the reopening of assessments invalid.

Conclusion:
The court concluded that the reopening of assessments for the assessment year 2010-11 was invalid due to the absence of necessary jurisdictional conditions and procedural compliance. The original assessment orders, upheld by the Appellate Tribunal and the High Court, were binding on the Revenue. The writ petitions were allowed, and the notices issued under Section 148 and the rejection of objections thereto were declared illegal.

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