2010 (4) TMI 102 - HC - Income Tax

Reassessment u/s 147 notice u/s 148 proprietor has admitted that on oath that the transactions through bank account No. 003097 of Corporation Bank were only paper transactions in which the party was intending to take bills paid in cash and issue cheques/ drafts showing the said amounts as sale of shares. It was further informed that the assessee was neither a share broker nor a member of any stock exchange and that he was doing the work of giving entries. Further information was given that the entry of ₹ 20,70,000/- in account No. 003097 dated 28.02.98 and 01.03.1998 was nothing but entry taken by paying cash held that - Supreme Court in Rajesh Jhaveri (2008 -TMI - 6563 - SUPREME Court) made it absolutely clear that before an Assessing Officer issues a notice under Section 148, thereby re-opening the assessment under Section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri (2008 -TMI - 6563 - SUPREME Court) did not say that it was not necessary for the Assessing Officer to form a belief and that the mere fact that there was some material on record was sufficient. - From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well settled decided in favor of assessee

Summary

Issues: Validity of proceedings under Section 147 of the Income Tax Act, 1961.

Analysis:
1. The case involved an appeal by the revenue challenging the order passed by the Income Tax Appellate Tribunal regarding the assessment year 1998-1999. The main issue was the validity of the proceedings initiated under Section 147 of the Income Tax Act.

2. The Assessing Officer issued a notice under Section 148 based on information received during an investigation, alleging that the assessee had claimed a bogus long-term capital gain. The Tribunal quashed the reassessment proceedings, citing a previous decision where similar proceedings were quashed by the High Court.

3. The Assessing Officer made an addition to the income of the assessee during the reassessment, which was upheld by the Commissioner of Income Tax (Appeals). The Tribunal, however, quashed the reassessment proceedings based on the jurisdiction of the Assessing Officer under Section 147/148.

4. The Tribunal relied on a previous decision involving similar facts and held that the Assessing Officer did not have sufficient grounds to initiate the reassessment proceedings, leading to the quashing of the entire process.

5. The revenue contended that the Tribunal erred in following the previous decision, arguing that there were clear reasons available to the Assessing Officer to form a belief that income had escaped assessment. The revenue cited a Supreme Court decision to support their argument.

6. The respondent's counsel relied on the previous decision and other cases to argue that the Assessing Officer did not independently form a belief but acted on directions received from superiors. The counsel emphasized the requirement for the Assessing Officer to have a genuine belief based on material before initiating proceedings under Section 147/148.

7. After hearing both parties, the Court agreed with the respondent, emphasizing the necessity for the Assessing Officer to have a genuine belief supported by material before issuing a notice under Section 148. The Court found that the reasons provided by the Assessing Officer were not sufficient to demonstrate an independent belief of income escapement.

8. The Court highlighted that the reasons recorded by the Assessing Officer were merely information and directions, lacking an independent application of mind to form a belief. Therefore, the Tribunal's decision to quash the reassessment proceedings was upheld, dismissing the appeal.

In conclusion, the High Court upheld the Tribunal's decision to quash the reassessment proceedings, emphasizing the necessity for the Assessing Officer to have a genuine belief supported by material before initiating proceedings under Section 147/148 of the Income Tax Act.