2019 (1) TMI 862 - HC - Income Tax

Reopening of assessment - eligibility of reasons to believe - correct facts not recorded in the reason - Held that - The reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the Assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the Revenue. Even in cases where the return of income has been accepted by processing under Section 143(1) reopening of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed u/s 143(1) does not give the AO a carte blanc to issue a reopening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the reopening notice. In the present case, the AO has proceeded on fundamentally wrong facts to come to the reasonable belief conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by the Petitioner, the AO in its order disposing off the objection does not deal with factual position asserted by the Petitioner. Thus, it would safe to conclude that the Revenue does not dispute the facts stated by the Petitioner - impugned notice is without jurisdiction - Decided in favour of assessee.

Summary

Issues:
Challenge to reopening notice under the Income Tax Act, 1961 for Assessment Year 2011-12.

Analysis:
The petition challenged a notice issued by the Assessing Officer under Section 148 of the Income Tax Act, seeking to reopen the Assessment for the year 2011-12. The petitioner held shares in a company that was voluntarily wound up, and the assets were distributed among shareholders. The petitioner received a flat as part of this distribution. The petitioner filed its return of income for the year, disclosing the interest received in the flat. The impugned notice was based on the belief that income had escaped assessment due to the petitioner not disclosing the consideration received for the flat. The petitioner objected, stating that the flat was not sold, and the full value of consideration received was disclosed in the return. The Assessing Officer rejected the objection, citing lack of scrutiny assessment as the reason for sustaining the notice.

The court emphasized that for a reopening notice to be valid, the Assessing Officer must have a reason to believe that income has escaped assessment. This condition applies regardless of whether the return was processed under Section 143(1) or scrutinized under Section 143(3) of the Act. The reasons for belief must be based on correct facts. If the facts are disputed by the assessee and not addressed in the order, an adverse inference may be drawn against the Revenue. In this case, the court found that the Assessing Officer proceeded on incorrect facts, and the objections raised by the petitioner were not adequately addressed. As the impugned notice lacked jurisdiction, it was quashed and set aside, allowing the petition.