2023 (9) TMI 1042 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - non independent application of mind by AO - HELD THAT - Notice under Section 148 of the Act has been issued without ascertaining the income that has escaped assessment and AO has merely stated, I have reason to believe that income of Rs. 7,00,000/- chargeable to tax in assessee s case has escaped assessment, which shows that proceedings have been initiated in a casual manner so as to conduct roving inquiries. The AO in his letter dated 15th September 2014 and 14th August 2014 respectively rejecting the objections raised by Petitioners, has given fresh reasons not included in the reasons as recorded under Section 148(2) of the Act, which Courts have time and again held cannot be done. These reasons cannot be improved upon and/or supplemented much less substituted by affidavit and/or oral submissions. Just because some information has been received from the Investigation Wing, do not entitle Respondents 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. We hereby quash and set aside the impugned notices issued under Section 148 - Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case are the validity of notices issued under Section 148 of the Income Tax Act, 1961, and whether there are sufficient reasons to believe that income has escaped assessment.

Summary:

Issue 1: Validity of notices under Section 148 of the Income Tax Act:
The petitioners challenged the notices dated 21st March 2014 and 24th March 2014 issued under Section 148 of the Income Tax Act, 1961, on the basis that there was no reason to believe that any income had escaped assessment. The petitioners had filed returns of income for Assessment Year 2007-2008, but no intimation under Section 143(c) of the Act was served on them. The notices were issued based on information that cash had been deposited in the bank accounts of the petitioners and transferred to another account. The court found that the notices were inconsistent with the Act as they were issued without satisfying the requirements of Section 147. The reasons for re-opening the assessment were found to be inadequate and the notices were quashed.

Issue 2: Sufficiency of reasons to believe income has escaped assessment:
The court noted that the reasons for re-opening the assessment should be based on the satisfaction of the Assessing Officer that income chargeable to tax has escaped assessment. In this case, the court found that there were no concrete reasons to believe that income had escaped assessment, only reasons to suspect. The court emphasized that the initiation of proceedings under Section 147 should be based on the AO's own satisfaction and not on the dictates of another person. The court held that the notices were issued in a casual manner without proper application of mind, and the objections raised by the petitioners were summarily rejected without valid reasons. Therefore, the court quashed the notices and set aside the consequential orders rejecting the objections.

In conclusion, the High Court of Bombay quashed the notices dated 21st March 2014 and 24th March 2014 issued under Section 148 of the Income Tax Act, 1961, as they were found to be inconsistent with the Act and lacked sufficient reasons to believe that income had escaped assessment. The court emphasized the importance of the AO's own satisfaction in re-opening assessments and held that the notices were issued without proper application of mind.