2005 (2) TMI 35 - HC - Income Tax

Whether, Tribunal is right in holding that the action of the Assessing Officer in reopening the assessment under section 147 of the Income-tax Act, 1961 is invalid and also in deletion of additions made on account of unproved loans and cash credits? - A bare perusal of the aforesaid notice dated October 10, 1991, clearly indicates that the officer was wanting to know the details with regard to the source of funds with regard to purchase of the said flat for a sum of Rs. 2,50,000. Obviously in the above, there is no question of the Assessing Officer having any basis to reasonably entertain the belief that any part of the income of the assessee had escaped assessment and that such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts. revenue s appeal dismissed

Summary

Issues:
Validity of reopening under section 147 of the Income-tax Act, 1961 and deletion of additions made on account of unproved loans and cash credits.

Analysis:
The High Court of BOMBAY dealt with an appeal challenging the order of the Income-tax Appellate Tribunal regarding the reopening of assessment under section 147 of the Income-tax Act, 1961. The court considered the substantial question of law raised by the Revenue regarding the validity of the reopening and the deletion of additions made on account of unproved loans and cash credits. The relevant assessment year was 1988-1989, where the respondent-assessee's return was filed on March 25, 1991, and subsequently, a notice was sent for reopening the assessment under section 148. The Assessing Officer sought details regarding the purchase of a flat for Rs. 2,50,000 without proper documentation. The respondent-assessee contended that the notice did not provide a valid reason for reopening the assessment under section 147.

The respondent-assessee argued that the Assessing Officer should have verified the details before resorting to section 148 for reopening the assessment. The Income-tax Appellate Tribunal concluded that the notice under section 147 was invalid as it did not establish a reasonable belief that income had escaped assessment due to the assessee's failure to disclose material facts. The Tribunal emphasized that the Assessing Officer should have issued a notice under section 143(2) within a specified timeframe instead of resorting to section 148. The Tribunal also noted that the purpose of reopening was to verify the investment made in purchasing the flat, which was duly reflected in the books of account.

The respondent-assessee cited the Supreme Court's interpretation of section 147, emphasizing the necessity of fulfilling specific conditions before reopening an assessment. The High Court referred to a previous judgment highlighting that assessment cannot be reopened without allegations of material facts suppression leading to income escapement. After considering the arguments, the court found that the Assessing Officer lacked a valid basis to believe that any part of the assessee's income had escaped assessment due to non-disclosure of material facts. Consequently, the court dismissed the appeal, ruling in favor of the respondent-assessee, with no order as to costs.