2022 (6) TMI 349 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe OR reasons to suspect - HELD THAT - As noted above that reasons were recorded by the assessing officer based on suspect . Since assessee has not fulfilled the conditions for assessment year 2005-06 and for assessment year 2006-07, therefore assessing officer suspects that assessee would not fulfil the conditions for claiming deduction under section 80IB for assessment year 2007-08 also. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words reason to believe did not mean a change of opinion. The Hon ble Supreme Court in ITO vs Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147.Hon ble Court first held that the section provides that there must exist reasons to believe and not reasons to suspect . The Courts have analysed and explained in several cases as to what could be the valid reason to believe escapement of income, which would enable the Assessing Officer to successfully reopen the assessment. It has been held that the words reason to believe are stronger than the words reason to suspect or reason to doubt . It requires more than merely satisfaction of the Assessing Officer. The belief entertained by the Assessing Officer must not be arbitrary or irrational. The expression reason to believe does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely pretence. Again, the belief must be of an honest and reasonable person based upon reasonable grounds. The Assessing Officer may act upon direct or circumstantial evidence, but his belief must not be based on mere suspicion, gossip or rumours. The Assessing Officer would be acting without jurisdiction, if the reasons for his belief are not material or relevant. There should be nexus between the information coming into possession of the assessing officer and his belief on the basis of such information that income of the Assessee chargeable to tax has escaped assessment. We note that reasons recorded by assessing officer does not stand the test as laid by judicial precedent as discussed above, which is necessary to assume jurisdiction u/s 147 therefore, we find that the reasons recorded by the assessing officer to justify reopening the assessment u/s 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee fails. Since the assessing officer failed to do so as discussed, the assumption of jurisdiction by him to reopen itself is corum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by him.

Summary

Issues Involved:
1. Validity of re-opening of assessment under section 147 of the Income Tax Act.
2. Admissibility of additional grounds challenging the validity of reassessment.

Analysis:

Issue 1: Validity of re-opening of assessment under section 147 of the Income Tax Act:
The appeal challenged the order of the Commissioner of Income Tax (Appeals) regarding the eligibility of the appellant for deduction under section 80IB of the Income Tax Act for Assessment Year 2007-08. The assessing officer re-opened the assessment based on the grounds that the appellant had not fulfilled the basic conditions for claiming the deduction in previous assessment years. The Tribunal analyzed the reasons recorded by the assessing officer and found several defects:
- The reasons were based on possibility and guesswork, lacking concrete information for the assessment year under consideration.
- The reasons were not recorded on a standalone basis, as they referred to previous assessment years.
- There was a clear non-application of mind by the assessing officer in justifying why the appellant was not entitled to the deduction.
- The assessing officer failed to provide tangible material for re-opening the assessment for the relevant year.
Based on these deficiencies, the Tribunal concluded that the reasons recorded were not in accordance with the provisions of section 147 of the Act. The Tribunal emphasized that the belief for re-opening must be based on valid reasons, not mere suspicion or guesswork. Citing judicial precedents, the Tribunal held that the reasons did not meet the required standard, rendering the assumption of jurisdiction to reassess the appellant invalid. Consequently, the Tribunal quashed the reassessment order.

Issue 2: Admissibility of additional grounds challenging the validity of reassessment:
The appellant raised additional grounds challenging the validity of reassessment during the appellate proceedings. The Tribunal considered whether these grounds, being legal issues going to the root of the matter, should be admitted. The Revenue opposed the admission, arguing that the appellant had not raised this issue earlier. The Tribunal, after hearing both parties, admitted the additional grounds based on the principle that all facts were already on record and no further inquiry was necessary. Citing a Supreme Court ruling, the Tribunal allowed the additional grounds, emphasizing that they raised crucial legal issues already supported by existing facts on record.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the reassessment and rendering all other issues on merits of the additions in the impugned assessment proceedings academic and infructuous. The order was announced on 6th June 2022 during the physical court hearing.