2013 (7) TMI 476 - HC - Income Tax

Reopening of assessment u/s 148 - the assessment for the year 2005-06 is sought to be reopened by a notice dated 25.09.2009 issued u/s 148 the material on which the AO has formed the belief as regards escapement of income is the on the date of reopening of the assessment for the year under consideration was set aside by the Commissioner (Appeals) and as such had no existence in the eyes of law - the belief cannot be said to be a bona fide belief nor can the material on which the belief is based be said to have a live link for the formation of requisite belief - reopening of assessment without formation of the requisite belief as regards escapement of income is without jurisdiction and as such the notice u/s 148 as well as any proceedings taken pursuant thereto cannot be sustained be sustained notice set aside petition allowed infavour of assessee.

Summary

Issues:
Challenge to notice for reopening assessment under section 148 of the Income Tax Act, 1961 for assessment year 2005-06.

Analysis:
1. The petitioner, a Limited Company, filed its original return of income for assessment year 2005-06. The respondent issued a notice for reopening the assessment based on discrepancies in the claim for Key-man insurance premium. The petitioner challenged this notice, arguing that the assessment order for the subsequent year, which formed the basis for reopening, had been set aside by the Commissioner (Appeals). The petitioner contended that there was no live nexus between the reasons and the reopening, rendering the proceedings without jurisdiction.

2. The petitioner's counsel highlighted that the Assessing Officer had called for details regarding the Key-man insurance premium during the original assessment proceedings. Although the claim was not discussed in the assessment order, the petitioner had provided the necessary information. The respondent's basis for reopening relied on the assessment order for the following year, where only a portion of the claim was allowed initially. However, the Commissioner (Appeals) had later directed the full claim to be allowed, rendering the original assessment order irrelevant for reopening purposes.

3. The respondent argued that since the Key-man insurance premium claim was not discussed in the original assessment order for 2005-06, there was no change of opinion, and the Assessing Officer had not applied his mind to the issue. The respondent contended that even though the assessment order for the subsequent year had been set aside, it could still serve as a basis for forming an opinion for reopening the assessment for the year in question. The respondent maintained that as the claim was not discussed in the original assessment, it was not a case of a mere change of opinion.

4. The Court examined the reasons recorded for reopening the assessment, which were based on the assessment order for the subsequent year. The Court emphasized that the belief of income escapement must be formed by the Assessing Officer and should have a rational connection to the available material. In this case, the material forming the belief had ceased to exist in the eyes of the law due to the Commissioner (Appeals) decision. Consequently, the Court held that the reopening without a bona fide belief of income escapement lacked jurisdiction and could not be sustained.

5. The Court concluded that as the belief of income escapement was unjustified due to the non-existence of the material forming the basis for reopening, there was no need to delve into other contentions raised by the parties. Therefore, the petition was allowed, and the impugned notice for reopening the assessment, along with all proceedings taken thereafter, was quashed and set aside.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the legal principles applied by the Court, and the ultimate decision reached by the Court regarding the challenge to the notice for reopening the assessment.