2018 (8) TMI 1066 - HC - Income Tax

Reopening of an assessment - reason to belief - The reassessment notice is based on reasons, which the revenue asserts, was recorded on 28 May, 2007. The question is whether the assessee is correct in asserting-as he does in this case, that these reasons were inserted later and did not exist, or were not reflected when the notice was issued. - The losses claimed were in respect of two transactions; sale of shares of M/s Parsec Technology and on account of sale of mutual fund units. - AO observed that transaction was not genuine and was a device to avoid tax, to claim loss that was not warranted. Held that - These circumstances, in the opinion of the court, show that the reasons had been recorded only after 22.08.2007 and not before. The inescapable inference from the records made available is that but the reasons to believe had not been recorded on28.05.2007 i.e. prior to the issue of notice under Section 148 of the Act but were recorded later. Therefore, this court is of the opinion that the official record lends credence- rather proves the petitioner s allegations that no reasons were recorded prior to the issue of the notice on 28.05.2007. The AO should have recorded some reasons to justify such reassessment notice, before it was issued, given that it is a mandatory requirement under section 148(2) of the Act. In these circumstances, this court hereby directs the Chief Commissioner concerned to cause an inquiry to be conducted as to the involvement of the officials or employee in the manipulation of the record in this case, and take strict disciplinary action, according to the concerned rules and regulations. This inquiry should be in regard to the conduct of the concerned AO posted at the time, who issued the notice under Section 147/148 as well as the officers who filed the affidavits in these proceedings. The investigation and consequential action shall be completed within four months. The impugned reassessment notice and all subsequent orders, made pursuant thereto are hereby quashed. - Decided in favor of assessee.

Summary

Issues Involved:
1. Legitimacy of reassessment notice under Section 147/148 of the Income Tax Act, 1961.
2. Validity of the "reasons to believe" recorded by the Assessing Officer (AO).
3. Allegations of ante-dating and manipulation of the official record by the revenue.

Issue-wise Detailed Analysis:

1. Legitimacy of Reassessment Notice:
The assessee challenged the reassessment notice issued on 25th May 2007 for the assessment year 2004-05, arguing that the notice was invalid. The revenue defended the notice, asserting it was issued within the permissible time frame and based on sufficient material indicating that income chargeable to tax had escaped assessment.

2. Validity of "Reasons to Believe":
The AO's "reasons to believe" included observations about the sale of shares in M/s Parsec Technologies Ltd. and mutual fund units, suggesting that the transactions were not genuine and were designed to claim unwarranted losses. The assessee argued that these reasons were not recorded before the issuance of the reassessment notice, as mandated by Section 148(2) of the Act. The court scrutinized the digital records and found discrepancies indicating that the reasons were recorded after the notice was issued, thus violating the procedural requirement.

3. Allegations of Ante-dating and Manipulation:
The assessee provided evidence suggesting that the reasons were anti-dated. The court's examination of the digital records revealed that the reasons were indeed recorded after the issuance of the notice. The court noted that documents and file notings were manipulated to appear as though the reasons were recorded on 28th May 2007. The court found that the revenue's actions constituted a subterfuge to cover up the omission of recording reasons before issuing the notice.

Conclusion:
The court concluded that the reassessment notice and subsequent orders were invalid due to the failure to record reasons before issuing the notice. The court directed the Chief Commissioner to conduct an inquiry into the manipulation of records and take disciplinary action against the involved officials. The writ petition was allowed, and the reassessment notice and subsequent orders were quashed. The court scheduled a follow-up to review the action taken report on the matter.