2019 (4) TMI 1040 - HC - Income Tax

Reopening of assessment - reasons to believe - trigger for the reassessment notice in this case was a survey conducted in the premises of CMR - disproportionately low profits declared - HELD THAT - In the present case, the materials on record and made available to the AO are in the form of a survey report dated 26.03.2015, i.e. after conclusion of the scrutiny assessments for both years, and the relative records were shared with the AO only on 19.03.2018. Given the time constraint after analysing the report of the survey, including the statement recorded during the survey, the AO was of the opinion that the issue of profitability which appears to be gone into, requires re-examination not because of a second opinion or review but because of the survey conducted subsequently. The materials clearly showed that the sales declared were suspect, to say the least. The Court is of the opinion that the relief claimed in these petitions, i.e. quashing of the impugned reassessment notice cannot be granted. The writ petitions are accordingly dismissed.

Summary

Issues:
Challenging reopening of assessment for AYs 2011-12 and 2012-13 based on survey report and reassessment notices. Validity of reassessment based on undisclosed material facts and bogus sales.

Analysis:
The petitioner contested the reopening of assessments for AYs 2011-12 and 2012-13, originally completed under Section 143(3) of the Income Tax Act, 1961. The trigger for reassessment was a survey conducted at the premises of a related company, which revealed suspect sales. The reassessment notices highlighted discrepancies in profits declared and sales made to the related company, indicating possible bogus sales. The AO relied on a survey report from 2015, shared in 2018, to initiate the reassessment process.

The petitioner argued that the reassessment was based on a review of previously scrutinized documents, which had been accepted in prior assessments. They emphasized that the invoices in question had been thoroughly examined in earlier assessments and approved by higher authorities. However, the court noted that the materials prompting the reassessment were discovered post the original assessments and were not fully disclosed during the initial scrutiny.

The court referenced legal precedents to underscore that reassessment can only be initiated if specific, reliable, and previously undisclosed information comes to light, leading to a belief that income has escaped assessment due to incomplete disclosure. The decision highlighted the importance of tangible, fresh evidence justifying reassessment, rather than a mere change of opinion based on existing facts.

Ultimately, the court found that the materials uncovered post the original assessments provided valid grounds for reassessment, as they raised doubts about the legitimacy of the sales transactions. Consequently, the court dismissed the petitions seeking to quash the reassessment notices, affirming the validity of the reassessment process based on newly discovered information.