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2006 (6) TMI 144 - AT - Income TaxReopening of assessment - Income Escaping Assessment before-issuing notice under section 148 of Income-tax Act - void assessment order - Department is in appeal to contend that the CIT(A) was wrong in holding that the Assessing Officer only had reason to suspect and not reason to believe that income chargeable to tax had escaped assessment. Reasons to disbelieve - HELD THAT - We have no reasons to disbelieve the Assessing Officer that the there exists the reasons which were recorded under section 148(2) before issue of the reopening notice. The fact that the paragraph has been given by the Assessing Officer within inverted commas permits the inference that it has been extracted from the record. In these circumstances and despite the fact that the record was not produced before us by the department, we consider it proper to infer that the reasons for reopening the assessment were recorded by the Assessing Officer and they are as given here. Reasons for reopening the assessment were not disclosed to the assessee or formally communicated to her - HELD THAT - Before us as also before the Assessing Officer, the assessee has been harping that she did not receive the notice herself as she was away to Pakistan. In fact, in her letter dated 10-3-1998 to the Assessing Officer, she has stated, in a very guarded language that the notice under section 148, if served, might have been left unattended by her servant and that the existence of the notice came to her knowledge for the first time on10-3-1998 when her statement was recorded under section 131. We do not see how the assessee can say at the same breath that she was not served will the notice under section 148 and also that she was not being given reasons for reopening the assessment. This again is only a passing observation. Assessee was not served with the notice under section 148 - HELD THAT - It is no doubt true that the service of the notice under section 148 is a condition precedent for the validity of the reassessment proceedings. However, in the peculiar facts and circumstances of the present case, we are unable to hold that the reassessment proceedings can be invalidated on that ground. Objection based on section 151(1) - HELD THAT - We are unable to entertain the same. Under this provision, in a case where an assessment has been made under section 143(3) or section 147, no notice under section 148 shall be issued by an Assessing Officer who is below the rank of ACIT or DCIT unless the JCIT is satisfied on the reasons recorded by the Assessing Officer, that it is a fit case for issue of such notice. This section applies only where an assessment has already been made under section 143(3) or section 147 and it is sought to be reopened. In the present case, there was no earlier assessment order under section 143(3) or section 147 which was communicated to the assessee - Obvious as it is, the case of the assessee did not fall under sub-section (2) of section 151 and the satisfaction of the JCIT was not required to be obtained on the reasons recorded by the Assessing Officer before issuing the notice under section 148. We therefore reject the contention raised by the learned counsel for the assessee on this issue. Whether the CIT(A) was right in holding that the Assessing Officer did not have reason to believe that income had escaped assessment, but merely had reason to suspect ? - HELD THAT - It has to be remembered that at the stage of recording reasons and issuing notice under section 148 it is only expected of the Assessing Officer to reach a prima facie conclusion that income chargeable to tax has escaped assessment. At that stage, he is not expected to build a fool-proof or cast-iron case against the assessee before proceeding to issue the notice. He is not expected to make a complete investigation before issuing the notice - there is no force in the submission of the learned counsel for the assessee that the Assessing Officer had not held any enquiry into the veracity of the letter received from the CIB or had not conducted an investigation to check the allegation in the letter before issuing the notice. The view taken by the CIT(A) that the notice under section 148 was prompted by reason to suspect and not reason to believe , cannot be agreed upon - The matter has to go back to the file of the CIT(A) for decision on merits which he has not dealt with, in the view he had taken of the jurisdiction of the Assessing Officer to reopen the case. Appeal of Revenue allowed.
Issues Involved:
1. Validity of the reopening of assessment under section 148 of the Income-tax Act, 1961. 2. Recording and communication of reasons for reopening the assessment. 3. Service of notice under section 148. 4. Approval of the Joint Commissioner of Income-tax under section 151(1). 5. Whether the Assessing Officer had "reason to believe" or merely "reason to suspect" that income had escaped assessment. Detailed Analysis: 1. Validity of the Reopening of Assessment under Section 148: The Department contended that the Commissioner of Income-tax (Appeals) erred in annulling the assessment order on the grounds that it was ab initio null and void despite sufficient reasons to believe that income had escaped assessment. The case was reopened based on information that the assessee had received a gift of Rs. 21 lakhs, which was suspected to be bogus. The Commissioner of Income-tax (Appeals) held that the reasons recorded by the Assessing Officer amounted to "reason to suspect" rather than "reason to believe," which was contrary to the Supreme Court's judgment in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. 2. Recording and Communication of Reasons for Reopening the Assessment: The assessee argued that no reasons were recorded for reopening the assessment as required by section 148(2) and that the reasons, if any, were not supplied to the assessee despite repeated requests. The Tribunal inferred from the material in the order of the income-tax authorities that the reasons were indeed recorded. The Tribunal found that the reasons for reopening the assessment were adequately recorded and communicated to the assessee. 3. Service of Notice under Section 148: The assessee claimed that the notice under section 148 was not served on her, which is fatal to the validity of the reassessment. The Tribunal noted that the assessee had acknowledged the notice in her letter dated March 10, 1998, and had complied with it by stating that the return filed on June 30, 1993, may be taken as the return filed in response to the notice. Therefore, the Tribunal held that the reassessment proceedings could not be invalidated on the ground of non-service of the notice. 4. Approval of the Joint Commissioner of Income-tax under Section 151(1): The assessee contended that the Assessing Officer did not take the approval of the Joint Commissioner of Income-tax before issuing the notice under section 148 as required by section 151(1). The Tribunal held that the satisfaction of the Joint Commissioner of Income-tax was not required in this case because the notice was issued by an Assessing Officer who was at least of the rank of Assistant Commissioner of Income-tax or Deputy Commissioner of Income-tax. 5. Whether the Assessing Officer had "Reason to Believe" or Merely "Reason to Suspect": The Tribunal held that the information received from the Central Information Bureau (CIB) was sufficient to constitute "reason to believe" that income chargeable to tax had escaped assessment. The Tribunal emphasized that at the stage of issuing the notice under section 148, the Assessing Officer is only required to form a prima facie belief and is not expected to make a cast-iron case for the Department. The Tribunal disagreed with the Commissioner of Income-tax (Appeals) and concluded that the Assessing Officer had "reason to believe" rather than merely "reason to suspect." Conclusion: The Tribunal allowed the Department's appeal, holding that the reopening of the assessment was valid and based on "reason to believe" that income had escaped assessment. The case was remanded to the Commissioner of Income-tax (Appeals) for a decision on the merits, as the Commissioner had not addressed the merits of the case in the initial appeal.
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