2007 (1) TMI 206 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the Assessing Officer assuming jurisdiction u/s 147/148 of the Income-tax Act, 1961.

Summary:

Issue 1: Validity of the Assessing Officer assuming jurisdiction u/s 147/148 of the Income-tax Act, 1961:

The first ground in both these appeals by the assessee relates to the challenge to the validity of the Assessing Officer assuming jurisdiction under section 147/148 of the Income-tax Act, 1961.

The assessee, an AOP consisting of non-resident foreign companies, filed returns for the assessment years 1999-2000 and 2000-01 declaring nil income, adopting the Completed Contract Method of Accounting under Accounting Standard AS-7. The Assessing Officer issued notices u/s 148 for both assessment years, citing reasons that contract receipts amounting to Rs. 212 crores had escaped tax.

The CIT(A) upheld the validity of the reassessment proceedings, relying on the Assessing Officer's findings for assessment year 1998-99 and Explanation 2(b) to section 147, which deems escapement of income if the Assessing Officer notices understatement of income or excessive claims in the return.

The Tribunal, however, found that the reasons recorded by the Assessing Officer did not reference the returns of income filed by the assessee, nor did they establish a bona fide belief of income escapement. The Tribunal noted that the Assessing Officer's belief was based on vague, irrelevant, and non-specific information, and there was no nexus between the belief and the information in possession. The Tribunal also held that the revenue cannot substitute reasons recorded by the Assessing Officer with new reasons to justify reassessment.

Consequently, the Tribunal annulled the reassessment proceedings, concluding that the Assessing Officer did not assume valid jurisdiction under section 147/148 of the Act. The appeals of the assessee were allowed, and the other issues raised did not require adjudication.

In the result, both the appeals by the assessee are allowed.