2021 (12) TMI 1096 - HC - Income Tax

Validity of reopening of assessment u/s 147 - reassessment argued on non application of mind while granting the sanction under Section 151 of the Act and facts as recorded in the reasons are not correct - HELD THAT - We are of the view that even in cases where the return of income has been accepted by processing u/s 143(1) of the Act 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 under Section 143(1) of the Act does not give the AO a carte blanche to issue a reopening notice. 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 Assessing Officer 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 his order disposing of the objection does not deal with factual position asserted by the Petitioner. Thus it would be safe to conclude that the Revenue does not dispute the facts stated by the Petitioner. On the facts as found there could be no reason for the AO to believe that income chargeable to tax has escaped assessment. It is settled law as held by the Division Bench of this court in German Remedies Ltd. vs. Deputy Commissioner of Income Tax 2005 (10) TMI 76 - BOMBAY HIGH COURT that while granting approval it was obligatory on the part of the Principal Commissioner of Income Tax to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return of income filed for the assessment of income of that assessment order. The impugned notice and consequential order justifying reasons recorded are unsustainable The impugned notice and consequential order justifying reasons recorded are unsustainable - Decided in favour of assessee.

Summary

Issues:
Impugning notice under Section 148 of the Income Tax Act, 1961 for A.Y. 2014-15 and order rejecting objections to re-opening.

Analysis:
1. The primary ground raised in the petition was the non-application of mind while granting sanction under Section 151 of the Act and incorrect facts in the reasons for re-opening.
2. The petitioner argued that the Assessing Officer can issue a re-opening notice only when there is a reason to believe that income chargeable to tax has escaped assessment based on correct facts.
3. The reasons for re-opening contained errors such as incorrect filing dates, erroneous shareholding information, and discrepancies between pre and post-amalgamation details.
4. The Division Bench in Ankita A. Choksey vs. Income-Tax Officer emphasized that the Assessing Officer must have a reason to believe that income chargeable to tax has escaped assessment based on correct facts, even if the return was processed under Section 143(1) of the Act.
5. Referring to German Remedies Ltd. vs. Deputy Commissioner of Income Tax, it was highlighted that the Principal Commissioner must verify if there was any failure to disclose relevant facts by the assessee.
6. The judgment concluded that the impugned notice and order were unsustainable due to errors and lack of application of mind. The court quashed and set aside the notice and order, ruling in favor of the petitioner.

Conclusion:
The court found that the notice and order were unsustainable due to errors in facts and lack of proper application of mind. The judgment emphasized the importance of correct facts and the necessity for the Assessing Officer to have a valid reason to believe that income chargeable to tax has escaped assessment. The petition was allowed, and the notice and order were quashed and set aside.