2023 (9) TMI 1041 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons for the belief that income has escaped assessment - reopening notice beyond four years - HELD THAT - In the case at hand, the AO does not say that any income chargeable to tax has escaped assessment. All that the AO desires is examination of certain details pertaining to the amount paid by Petitioner to Crown . That cannot be stated to be founded on the belief that any income which is chargeable to tax has escaped assessment and hence such verification is necessary. Just because some information has been received from the Investigation Wing, does not entitle Respondent to re-open assessment. The reasons must be founded on the satisfaction of AO that income chargeable to tax has escaped assessment. Once that is not to be found, then, the impugned notice cannot be sustained. What we find is that there are no reasons to believe but, only reasons to suspect. Hence, re-opening of assessment is not satisfactory. notice set aside - Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in the judgment are the validity of a notice issued under Section 148 of the Income Tax Act, 1961 based on the reasons to believe that income has escaped assessment, and the application of the proviso to Section 147 regarding the re-opening of assessments after the expiry of four years.

Issue 1: Validity of Notice under Section 148:
The petitioner, an individual, challenged a notice dated 25th March 2014 issued under Section 148 of the Income Tax Act, 1961, on the grounds that there was no valid reason to believe that any income had escaped assessment. The notice was based on information that cash had been deposited in the petitioner's bank account and transferred to another entity, prompting the need to examine the case for Assessment Year 2007-2008.

The petitioner had previously filed a return of income for the relevant year, which was accepted after scrutiny by the Assessing Officer. However, just before the six-year limitation period was set to expire, the petitioner received the notice under Section 148, triggering objections and requests for the recorded "reasons to believe."

The reason to believe cited the deposit and transfer of cash as the basis for re-opening the assessment, indicating that the petitioner's involvement with the other entity necessitated further investigation. The petitioner's objections to the re-opening were summarily rejected, leading to the legal challenge.

Issue 2: Application of Proviso to Section 147:
In analyzing the validity of the notice under Section 148, the court considered the application of the proviso to Section 147, which restricts the re-opening of assessments after four years unless there has been a failure to disclose material facts required for assessment. The court noted that in this case, there was no indication of any failure on the petitioner's part to disclose the cash deposit in the bank account.

Furthermore, the court highlighted that the reasons to believe did not establish that any income chargeable to tax had actually escaped assessment. Instead, the Assessing Officer sought to examine details related to the cash deposit, which was deemed insufficient to meet the threshold required for re-opening assessments under the Act.

Citing a previous judgment, the court emphasized that mere suspicions or the desire for further verification are not adequate grounds for re-opening assessments. As the reasons provided did not demonstrate a belief that taxable income had escaped assessment, the court ruled in favor of the petitioner and quashed the impugned notice dated 25th March 2014.

In conclusion, the High Court of Bombay held that the notice issued under Section 148 of the Income Tax Act, 1961 was not based on valid reasons to believe that income had escaped assessment. The court quashed the notice and set aside the order on objections, emphasizing the importance of meeting the statutory requirements for re-opening assessments under the Act.