2018 (10) TMI 811 - HC - Income Tax

Reopening of assessment - validity of reasons to believe - Held that - If the Assessing Officer has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is however, to be noted that the conditions stipulated in the Act must be fulfilled if the case falls within the ambit of Section 147. Considering the fact that there are some materials on record and the informations with the Department of Income Tax, the reopening of the assessment in the writ petitions with reference to Sections 147 to 153 of the Act, is in accordance with law and there is no infirmity, as such. Thus, the writ petitioner is bound to respond to AO for the purpose of arriving a conclusion and for taking a decision. In the event of passing an order of assessment or reassessment, then the writ petitioner is entitled to prefer an appeal contemplated under the provisions of the Act. Contrarily, based on the preliminary informations gathered by the Assessing Officer, the notice issued for the purpose of reopening of the assessment would not provide a cause of action for filing of the present writ petitions and this Court has no hesitation in holding that the writ petitions are not only premature, even on merits the writ petitioner has failed to establish any acceptable reason to grant the relief, as such, sought for. This being the principles to be followed, the writ petitioner has miserably failed to establish any legally acceptable ground for the purpose of interfering with the actions initiated by the respondents by invoking the provisions of the Income Tax Act, 1961.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the procedural requirements under Sections 147 and 148 of the Act.
3. The period of limitation for issuing the notice.
4. The requirement of recording and communicating reasons for reopening the assessment.
5. The impact of the charge sheet filed by the CBI on the reopening of the assessment.
6. The concept of "common economic interest" and its applicability.
7. The availability and exhaustion of alternative remedies under the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The court examined whether the notice issued to the petitioner under Section 148 of the Income Tax Act was valid. The petitioner argued that the notice was issued without proper reasons, making it invalid. The court held that the notice was issued within the statutory period of six years, and the reasons for reopening were provided upon request, thus satisfying the legal requirements.

2. Compliance with Procedural Requirements:
The petitioner contended that the notice did not comply with the procedural requirements under Sections 147 and 148, specifically the need to record and communicate reasons for reopening the assessment. The court emphasized that the reasons must be recorded by the Assessing Officer before issuing the notice but need not be communicated along with the notice. The reasons were provided to the petitioner upon request, thus fulfilling the procedural requirements.

3. Period of Limitation:
The petitioner argued that the notice was barred by the period of limitation as the reasons for reopening were communicated after the expiry of six years. The court clarified that the notice was issued within the six-year period, and the communication of reasons after this period does not invalidate the notice. The period of limitation is reckoned from the date of issuance of the notice, not the date of communication of reasons.

4. Requirement of Recording and Communicating Reasons:
The court discussed the statutory requirement under Section 148(2) that the Assessing Officer must record reasons before issuing the notice. It held that while the reasons must be recorded, they need not be communicated along with the notice. The petitioner is entitled to request the reasons, which must be provided within a reasonable time. In this case, the reasons were communicated upon the petitioner's request, thus complying with the statutory requirements.

5. Impact of the CBI Charge Sheet:
The petitioner argued that the notice was based on the CBI charge sheet, from which he had been discharged. The court noted that the CBI charge sheet provided new information that justified the reopening of the assessment. The discharge from the CBI case does not preclude the Income Tax Department from reopening the assessment based on the information provided in the charge sheet.

6. Concept of "Common Economic Interest":
The petitioner challenged the applicability of the concept of "common economic interest" used by the respondents. The court clarified that the term was used to denote the business and familial connections between the petitioner and his brother, which warranted further investigation. The concept was not applied as a legal principle but as a factual basis for reopening the assessment.

7. Availability and Exhaustion of Alternative Remedies:
The respondents argued that the petitioner should have exhausted the alternative remedies available under the Income Tax Act before approaching the court. The court held that the petitioner must exhaust the statutory remedies provided under the Act, such as filing an appeal against the assessment order. The writ petition was considered premature as it challenged the notice at the initiation stage.

Conclusion:
The court dismissed the writ petitions, holding that the notice issued under Section 148 was valid and complied with the procedural requirements. The petitioner was directed to respond to the notice and participate in the reassessment proceedings. The court emphasized the importance of exhausting alternative remedies and the limited scope of judicial review at the notice stage.

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