2009 (11) TMI 406 - HC - Income Tax

Reassessment- The question raised in the appeal filed by the Revenue is whether the Tribunal was justified in confirming the order of the Commissioner of Income-tax (Appeals) cancelling the reassessment completed under section 147 of the Income-tax Act, 1961 in the case of the respondent for the year 1996-97. Held that- the assessee had claimed credit based on the TDS certificate on rent, but without disclosing the income under the head Income from House Property . Thus the reason recorded by the Assessing Officer were sufficient to justify his belief that income had escaped assessment, the order of the Tribunal and the Commissioner (Appeals) were reversed and the matter was remanded back to the first appellate authority for considering the matter on merit.

Summary

Issues:
1. Validity of the reassessment completed under section 147 of the Income-tax Act, 1961.
2. Justification of confirming the order of the Commissioner of Income-tax (Appeals) canceling the reassessment.
3. Assessment of taxable income for the year 1996-97.
4. Grounds for reopening the assessment.
5. Disallowance of sundry creditors.
6. Interpretation of the Supreme Court decision in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.

Issue 1: Validity of the reassessment under section 147:
The appeal raised by the Revenue questioned the Tribunal's confirmation of the Commissioner of Income-tax (Appeals)'s decision to cancel the reassessment under section 147 of the Income-tax Act for the year 1996-97. The Assessing Officer had issued a notice under section 148 to reopen the assessment, believing that taxable income had escaped assessment. The reasons for reopening included the non-inclusion of rental income and doubts regarding sundry creditors.

Issue 2: Justification of confirming the order of the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) vacated the revised assessment, stating that the grounds for reopening were non-existent as no income from house property was assessed despite the claim of TDS without disclosing income under this head. Additionally, the liability towards sundry creditors was disputed. The Tribunal upheld the Commissioner's decision, leading to the appeal by the Revenue.

Issue 3: Assessment of taxable income for 1996-97:
The original return filed by the assessee showed nil income, but the revised assessment calculated a substantial tax and interest amount. The dispute arose from the non-inclusion of rental income and the disallowance of sundry creditors.

Issue 4: Grounds for reopening the assessment:
The reasons for reopening the assessment were based on the belief that income chargeable to tax had escaped assessment due to discrepancies in the claimed TDS credit for rent and the inclusion of non-existent liabilities under sundry creditors. The Commissioner of Income-tax (Appeals) found these grounds to be insufficient for reassessment.

Issue 5: Disallowance of sundry creditors:
The reassessment included a significant disallowance of sundry creditors, leading to a substantial tax and interest calculation despite the original return showing nil income. The Commissioner of Income-tax (Appeals) found the grounds for reassessment related to sundry creditors to be unsubstantiated.

Issue 6: Interpretation of Supreme Court decision in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.:
The senior counsel relied on a Supreme Court decision to argue that the Assessing Officer's belief that income had escaped assessment was sufficient for reopening, even if the specific grounds did not directly lead to additional assessment. The Tribunal's decision was challenged based on this interpretation, leading to the appeal being allowed, reversing the Tribunal's order, and remanding the matter for further consideration.

In conclusion, the judgment addressed the validity of reassessment under section 147, the justification for canceling the reassessment, the assessment of taxable income, the grounds for reopening the assessment, the disallowance of sundry creditors, and the interpretation of a Supreme Court decision. The court found the reasons for reopening the assessment to be valid, emphasizing the Assessing Officer's belief that income had escaped assessment, and allowed the appeal by reversing the Tribunal's decision and remanding the matter for further consideration on the merits.