2005 (2) TMI 449 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the reopening of the assessment under Section 147 of the Income Tax Act.
2. Adequacy of the reasons provided by the Assessing Officer (AO) for reopening the assessment.
3. Application of Explanation 2 to Section 147 in the context of reassessment.
4. The principle of "reason to believe" versus "reason to suspect" in the context of reassessment.

Detailed Analysis:

Validity of the Reopening of the Assessment under Section 147 of the Income Tax Act:
The appeal was directed against the order of the CIT(A) cancelling the assessment framed by the AO under Section 143(3) read with Section 147. The CIT(A) cancelled the assessment on the grounds that the AO did not discover any new material for reopening the assessment. The CIT(A) observed that all material information was available at the time of the original assessment, and the mere fact that the figure of disallowance was not appropriate was no ground to reopen the assessment.

Adequacy of the Reasons Provided by the AO for Reopening the Assessment:
The AO issued a notice under Section 148 and reframed the assessment, estimating the hedging loss at 50% of the total claimed loss. The CIT(A) found that the AO did not have any new material and that the reopening was based on the same facts as the original assessment. The CIT(A) relied on the decision of the Supreme Court in Calcutta Discount Co. Ltd. vs. ITO, which held that there was no omission or failure to disclose all material facts.

Application of Explanation 2 to Section 147 in the Context of Reassessment:
The Revenue argued that the reopening was justified under Explanation 2 to Section 147, which allows reopening if income has been under-assessed or assessed at too low a rate, among other reasons. The Departmental Representative cited the Gujarat High Court's decision in Pratul C. Patel vs. M.J. Makwana and the Bombay High Court's decision in IPCA Laboratories Ltd. vs. Gayanand Meena, which upheld the validity of notices issued under Section 147/148 within four years.

The Principle of "Reason to Believe" Versus "Reason to Suspect":
The assessee's counsel argued that the assessment could not be reopened purely on the ground of change of opinion, citing the Full Bench judgment of the Delhi High Court in CIT vs. Kelvinator of India Ltd. The counsel contended that the AO did not have "reasons to believe" that income had escaped assessment and that the reopening was based on the same facts without any fresh material. The counsel also cited the Supreme Court's decision in Phool Chand Bajrang Lal vs. ITO, which held that "reason to believe" should not be construed as "reason to suspect."

The Tribunal found that the AO did not mention the reasons for reopening the assessment and that the reopening was done solely because the earlier estimate was considered low. The Tribunal noted that the reopening of assessment cannot be done for making roving enquiries and that there was no failure on the part of the AO to apply the correct provisions of the Act during the original assessment.

The Tribunal upheld the CIT(A)'s order, stating that there was no reason to believe that income had escaped assessment and that the reopening was done merely to re-estimate the hedging loss, which is not permissible.

Conclusion:
The Tribunal dismissed the appeal, affirming the CIT(A)'s decision to cancel the reassessment. The Tribunal concluded that the reopening of the assessment was not justified as it was based on the same facts without any new material, and there was no valid "reason to believe" that income had escaped assessment.