2023 (8) TMI 634 - AT - Income Tax

Reopening of assessment - confirming notional income on account of client code modification - reason to believe towards escapement of income - HELD THAT - The instances of transactions resulting in loss/profit to the assessee on account of client code modification do not feature in the reasons at all. The reasons recorded appears to be a token exercise for assumption of jurisdiction and without compliance of jurisdictional parameters. AO in the instant case has proceeded on a hypothesis flowing from a generic information rendering the whole exercise to be arbitrary and unsustainable in law. The believe towards escapement in the instant case is only pretense and a mere doubt and suspicion towards probable escapement though worded as reasonable to believe . The Hon ble Supreme Court in Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT has underscored that the word of the statute reason to believe are not reason to suspect . The vague feeling or suspicion of the AO towards possible escapement would not permit to reopen a completed assessment in defiance of statutory requirement of substantial nature. The notice issued under Section 148(1) is thus ultra vires the provision of Section 147 of the Act.Thus considerable force in the plea of the assessee for non maintainability of re-assessment order passed in pursuance of a notice u/s 148 of the Act which is vitiated in law. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in the judgment are the challenge to the assumption of jurisdiction under Section 147 of the Income Tax Act and the confirmation of notional income on account of client code modification.

Challenge to Jurisdiction under Section 147:
The appeal was filed against the order of the Commissioner of Income Tax concerning the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act for AY 2010-11. The assessee challenged the jurisdiction of the Assessing Officer to reopen the completed assessment under Section 143(3) of the Act. The counsel for the assessee argued that the Assessing Officer wrongly assumed jurisdiction without fulfilling the necessary requirements under Section 147/148 of the Act. It was contended that the reasons recorded for reopening the assessment were vague and non-descript, lacking a valid basis for belief in income escapement. The reasons provided by the Assessing Officer did not contain specific transaction details or material to support the claim of income escapement.

Validity of Reassessment Notice:
The reasons recorded by the Assessing Officer for reopening the assessment were examined, revealing a lack of concrete evidence or specific details to justify the belief of income escapement. The reasons were deemed vague and insufficient to meet the statutory requirement of "reasons to believe" under Section 147 of the Act. The court emphasized that the belief of income escapement must be based on credible and relevant material, not mere suspicion or doubts. The notice issued under Section 148(1) was considered ultra vires the provisions of Section 147, leading to the quashing of the reassessment notice and order.

Conclusion:
The court held that the reassessment notice under Section 148 and the subsequent reassessment order were quashed due to the lack of valid reasons to believe in income escapement. The objection on the assumption of jurisdiction under Section 147 succeeded, resulting in the allowance of the assessee's appeal. The court did not find it necessary to address other grounds of the appeal, as the reassessment order was deemed invalid in law.