2023 (7) TMI 867 - HC - Income Tax

Reopening of assessment u/s 147 - reason to suspect v/s reason to believe - Allegation that companies were paper companies which acted as conduits to facilitate loan transactions of the kind that SGCPL claimed to have entered into - HELD THAT - SGCPL had indicated to the AO that the return already filed should be treated as a return filed in response to the notice issued u/s 148 of the Act. Furthermore, the AO did, in a sense, pay ostensible obeisance to the provisions of Section 147 of the Act (as obtaining at the relevant point in time) by recording that SGCPL had failed to disclose, truly and fully, all material facts. That said, the AO grievously erred in referring to sub-clause (i) of clause (c) appended to Explanation 2 to Section 147 of the Act, which had been removed from the statute with effect from 01.04.1989. Section 292B of the Act can have no application in the instant case, as a perusal of the reasons placed on record seems to indicate that the AO did attempt to tie in the said provision with his assertion that the respondent/assessee had failed to disclose, truly and fully, all material facts concerning the AY in issue. A mistake, which can be corrected u/s 292B of the Act, should be such that if excised it does not change the tenor and scope of the documents/proceedings referred to therein i.e., the return of income, assessment, notice, summons or other proceedings, taken, furnished or made or issued or taken or purported to have been furnished or made or issued or taken against the assessee under the provisions of the Act. The reasons disclosed and placed on record do not allude to the material that was available to the AO which persuaded him to form a belief that income in the concerned AY, pertaining to SGCPL, which was otherwise chargeable to tax, had escaped assessment. The reasons did not advert to the material that was available to him and which persuaded him to form a belief that income chargeable to tax had escaped assessment. That this was a jurisdictional prerequisite is a well-established principle, as reason to suspect is qualitatively different from reason to believe. The statutory prerequisite condition was not met by the AO before entering the realm of reassessment/assessment proceedings. S ee Chuggamal Rajpal v S.P. Chaliha and Ors. 1971 (1) TMI 9 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:

1. Admission and adjudication of additional ground concerning jurisdictional defect by the Tribunal.
2. Validity of reasons recorded by the Assessing Officer (AO) for triggering proceedings under Section 147/148 of the Income Tax Act, 1961.

Summary:

Issue 1: Admission and adjudication of additional ground concerning jurisdictional defect by the Tribunal

The Tribunal admitted the additional ground raised by SGCPL concerning the jurisdiction of the AO to invoke Section 148, read with Section 147 of the Income Tax Act. The Tribunal justified this by noting that it was a pure question of law based on material already on record, requiring no new facts to be investigated. The Tribunal referenced the Supreme Court decision in National Thermal Power Co. Ltd. v CIT and the Gujarat High Court judgment in P.V. Doshi v CIT to support its decision.

Issue 2: Validity of reasons recorded by the AO for triggering proceedings under Section 147/148 of the Income Tax Act, 1961

The Tribunal found that the AO failed to apply his mind, evident from the erroneous reference to a provision removed from the statute over two decades ago. The reasons recorded by the AO did not indicate the specific document or material that led to the belief that SGCPL's income had escaped assessment. The reasons also lacked details on what prompted the AO to infer that TTPL and POCL were dubious companies. The Tribunal concluded that the AO acted in a "mechanical manner," relying on information from the investigation wing without independent application of mind.

Analysis and Reasons:

The Tribunal's decision was upheld, emphasizing that the reasons for reopening are crucial for the AO to commence reassessment proceedings. The AO grievously erred by referring to a deleted provision and failed to provide specific material or evidence that justified the belief that income had escaped assessment. Section 292B of the Act could not rectify this fundamental error.

Conclusion:

The questions of law were answered in favor of the respondent/assessee (SGCPL) and against the appellant/revenue. The appeal was disposed of with no order as to costs.