2013 (6) TMI 575 - HC - Income Tax

Reopening of assessment - if the provisions of Sections 61 to 63 are attracted as has been claimed by the assessee, and the income of Rs.32.83 Crores which has been claimed by the assessee to be exempt is treated as exempt, in that event an alternate basis for taxing the income in the hands of the AOP of the contributories is sought to be set up - Held that - There is no ambiguity whatsoever in the reasons which have been communicated to the assessee in the order dated 18 May 2012, but in the affidavit in reply, it has been stated that the income of Rs.32.83 Crores arising from the investment of contributions of the contributors to the Venture Capital Fund which has been claimed as exempt in the hands of the Petitioner should be assessed as income in the hands of the AOP of the contributors of the Petitioner on a protective basis . Again it has been stated that the issue of taxing the AOP of the contributors of the Petitioner has arisen from the submission of the Petitioner before the appellate authorities where the Petitioner has contended that the transactions amount to a revocable transfer and that the income which would arise should be taxed in the hands of the individual contributors. The reopening of an assessment under Section 148 on the basis of a submission which is raised before the appellate authority by the assessee is clearly impermissible because what Section 147 requires is a formation of a reason to believe by the AO. In the present case, there is clearly a want of compliance with the jurisdictional condition. AO has not formed a reason to believe that income has escaped assessment since the reopening is based purely on a contingency that may arise upon a particular outcome before the appellate tribunal. To accept the contention of the Revenue in the present case would be to allow a reopening of an assessment under Section 148 on the ground that the AO is of the opinion that a contingency may arise in future resulting an escapement of income. That would be wholly impermissible and would amount to a rewriting of the statutory provision. Thus setting aside the notice of reopening. In favour of assessee.

Issues Involved:
1. Legality of the notice dated 18 May 2012 for reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Jurisdictional conditions for reopening an assessment.
3. Concept and validity of protective assessment.
4. Whether the Petitioner has the locus to challenge the notice under Section 148.

Detailed Analysis:

1. Legality of the Notice Dated 18 May 2012 for Reopening the Assessment Under Section 148:
The Petitioner challenged the legality of the notice issued on 18 May 2012, which sought to reopen the assessment for the Assessment Year 2008-09. The core argument was that the reopening was contingent on a potential escapement of income if the provisions of Sections 61 to 63 were attracted, as claimed by the Petitioner. The Court found that the reopening was based on a hypothesis that the provisions of Sections 61 to 63 might be applicable, which was still pending determination before the Tribunal. The Court held that reopening under Section 148 on such a contingency was impermissible, as the jurisdictional requirement is that there must be a reason to believe that income has escaped assessment.

2. Jurisdictional Conditions for Reopening an Assessment:
The Court emphasized that the jurisdictional requirement for reopening an assessment under Section 148 is the formation of a reason to believe by the Assessing Officer that income has escaped assessment. This belief must be present and not based on future contingencies. The Court highlighted that the reasons provided by the Assessing Officer indicated that the reopening was based on a potential future event, i.e., the Tribunal's decision on whether the provisions of Sections 61 to 63 were applicable. The Court concluded that this did not fulfill the jurisdictional requirement, as the formation of a reason to believe must be based on present facts and not on hypothetical future events.

3. Concept and Validity of Protective Assessment:
The Revenue argued that the reopening was justified as a protective assessment to safeguard against potential loss if the Tribunal ruled in favor of the Petitioner. The Court acknowledged that while protective assessments are recognized in income tax law, they must still comply with statutory requirements. The Court clarified that a protective assessment is permissible only when there is doubt about who is liable to be assessed. However, in this case, the reopening was based on a future contingency, which is not permissible under Section 148. The Court held that the statutory provision requires a present reason to believe that income has escaped assessment, and a protective assessment cannot be used to circumvent this requirement.

4. Whether the Petitioner Has the Locus to Challenge the Notice Under Section 148:
The Revenue contended that the notice was issued to the "AOP of the contributors" and not to the Petitioner, questioning the Petitioner's locus to challenge the notice. The Court rejected this argument, stating that the Petitioner was directly and vitally affected by the notice. The Court noted that the Petitioner had a substantial interest in the issues raised and the legality of the notice, thereby affirming the Petitioner's locus to institute the proceedings.

Conclusion:
The Court quashed and set aside the notice of reopening dated 18 May 2012 issued under Section 148 of the Income Tax Act, 1961. The Court ruled that the jurisdictional requirement for reopening the assessment was not fulfilled, as the reopening was based on a future contingency rather than a present reason to believe that income had escaped assessment. The Court also clarified that while protective assessments are recognized, they must comply with statutory requirements and cannot be based on hypothetical future events. The Petitioner's locus to challenge the notice was affirmed, as the Petitioner was directly affected by the notice.

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