2019 (12) TMI 377 - HC - Income Tax

Reopening of assessment u/s 147 - basis for issuance of notice under Section 148 merely because the orders for block assessment had been reversed by the Tribunal - HELD THAT - Ruling in Smt. Mira Ananta Naik and others 2008 (8) TMI 800 - BOMBAY HIGH COURT completely supports the contentions raised by and on behalf of the petitioners and on the basis of reasoning reflected therein, in this case as well, the impugned notice dated 18.10.2006 and the impugned order dated 31.01.2007 deserve to be quashed. In this case as well, block assessment orders have been made treating this amount as income vide order dated 27.09.2002. This order was however reversed by the Commissioner (Appeals) on 13.07.2006 and soon thereafter the respondents, proceeded to issue impugned notice dated 18.10.2006, even though, there was really no material to suggest that any income had escaped assessment. Since, in the present case there was full disclosure and in fact, the amount had even become the subject matter of the assessment both under Section 158 BC and Section 143(3) of the I.T. Act, there could have been no reason to believe that the income chargeable to tax had indeed escaped assessment. In Asian Paints Ltd. 2008 (7) TMI 237 - BOMBAY HIGH COURT this Court had held that in a situation where according to the assessing officer he failed to apply his mind to relevant material in making assessment order, he cannot take advantage of his own wrong and reopen assessment by taking recourse to provisions of section 147/148 of the I.T. Act. In the present case, the assessing officer in the course of regular assessment had in fact asked for information in relation to this very amount of ₹ 10.33 Crores. This information was duly furnished by the petitioners. Only thereafter, the assessing officer made orders dated 21.03.2005 under Section 143(3) of the I.T. Act. In these circumstances, it was no longer open for the respondents to issue the impugned notice under Section 147/148 of the I.T. Act.

Summary

Issues Involved:
1. Validity of the notice dated 18.10.2006 issued under Section 148 of the Income Tax Act, 1961 for the assessment year 2002-03.
2. Legitimacy of the order dated 31.01.2007 by the Assistant Commissioner of Income Tax rejecting the petitioners' objections to the reopening of the assessment.

Issue-wise Detailed Analysis:

1. Validity of the Notice Dated 18.10.2006:

The petitioners challenged the notice dated 18.10.2006 issued under Section 148 of the Income Tax Act, 1961, arguing that no income had escaped assessment for the assessment year 2002-03. They contended that the alleged escaped income of ?10.33 Crores was already assessed in a block assessment under Section 158 BC of the I.T. Act, which was later set aside by the Commissioner (Appeals) on 13.07.2006. Furthermore, a regular assessment for the same year was completed with orders dated 21.03.2005 under Section 143(3) of the I.T. Act, where the same income was scrutinized.

The court noted that the issuance of the notice under Section 148 requires "reason to believe" that income has escaped assessment. Given the prior assessments, the court found no basis for such a belief. The amount had already been assessed at two stages: during the block assessment and the regular assessment for the year 2002-03. Hence, the court concluded that the notice dated 18.10.2006 was issued without jurisdiction and was unsustainable.

2. Legitimacy of the Order Dated 31.01.2007:

The order dated 31.01.2007 by the Assistant Commissioner of Income Tax rejected the petitioners' objections to the reopening of the assessment. The petitioners argued that the income of ?10.33 Crores was not their income but a liability, which was disclosed to the respondents and ultimately discharged legally. They highlighted subsequent events, including the dismissal of the department's appeal by the ITAT and the arbitration award in favor of the parties to whom the amount was owed.

The court, referencing the decision in Smt. Mira Ananta Naik and others, held that the issuance of notices under Section 147/148 was an exercise in excess of jurisdiction, particularly when the block assessment order was reversed, and there was no new material suggesting that income had escaped assessment. The court emphasized that the reopening of an assessment requires strict adherence to the provisions of Section 147/148, which was not met in this case.

Conclusion:

The court quashed and set aside the impugned notice dated 18.10.2006 and the impugned order dated 31.01.2007. The court ruled that the reopening of the assessment was unjustified as the income in question had already been assessed, and there was no new material to warrant the reopening. The petition was allowed, and the Rule was made absolute in terms of prayer clauses (a) and (b) of the petition. No order as to costs was made.