2014 (2) TMI 949 - HC - Income Tax

Legality of Notice u/s 147/148 of the Act Notice u/s 143(2) of the Act Reopening of assessment - Held that - The assessee was asked details about the same fictitious entities in respect of which amounts were reflected in the returns and documents disclosed at the time of the assessment - there was no tangible material apart from what existed at the finalization of the original assessment, undermining the exercise of reassessment notice - The information received from the bank which forms the information on which the Assessing Officer forms his belief under Section 147, does not and cannot relate to the year 1990-91 - The decision in Phool Chand Bajrang Lal And Another Versus Income-Tax Officer And Another 1993 (7) TMI 1 - SUPREME Court relied upon - there is no material or information on record that relates to income in 1990-91 that may justify the reopening of assessment for the year 1990-91 there is no reason to believe that income has escaped assessment for the year 1990-91 thus, the reassessment notice served to the assessee in respect of the year 1990-91 by the Revenue is liable to be quashed. Claim of depreciation of re-valued assets Held that - The decision in Apollo Tyres Ltd. v. CIT 2002 (5) TMI 5 - SUPREME Court followed - the Assessing Officer cannot open the accounts which have been drawn in accordance with the Companies Act, 1956, certified by the chartered accountant, accepted by the general body of the company, and placed before the Registrar to which he has not taken any objection Thus, the notice under Section 147/148 and all further proceedings set aside - Decided in favour of Assessee.

Summary

Issues:
Challenge to legality of notice under Section 147/148 of the Income Tax Act, 1961 for reopening assessments of M/s Ralson (India) Ltd. for the assessment year 1990-91.

Detailed Analysis:

1. Validity of Notice under Section 147/148:
The writ petitions contested the legality of the notice issued under Section 147/148 of the Income Tax Act, 1961, seeking to reopen assessments for the assessment year 1990-91. The appellant argued that the notice was time-barred as it was issued after the expiration of 4 years from the end of the assessment year. Additionally, it was contended that there were no valid reasons to believe that income had escaped assessment. The Court examined the reasons recorded by the Assessing Officer for reopening the assessment, which pertained to multiple years, including 1990-91. The Court emphasized that the belief of income escaping assessment must be based on specific and relevant information. It was noted that the reasons provided did not directly relate to the assessment year 1990-91, rendering the reassessment notice for that year unsustainable.

2. Requirement of Tangible Material for Reassessment:
The judgment highlighted the necessity of tangible material for the reassessment of income. It was emphasized that the power to reopen an assessment cannot be based on a mere change of opinion but must be supported by the unearthing of substantial and previously unavailable material. The Court referred to precedents to establish that the Assessing Officer must have a rational basis, supported by tangible evidence, to issue a notice for reassessment. In this case, the information provided by the Assessing Officer did not directly link to the assessment year 1990-91, thereby failing to meet the criteria for a valid reassessment.

3. Depreciation on Revalued Assets:
The judgment addressed the issue of claiming depreciation on revalued assets, citing the Supreme Court's ruling in Apollo Tyres Ltd. v. CIT. It was established that the Assessing Officer cannot question accounts drawn in compliance with the Companies Act, 1956, certified by a chartered accountant, accepted by the company's general body, and submitted to the Registrar without objection. Therefore, the ground for reopening the assessment based on the depreciation claim on revalued assets was deemed unsustainable.

In conclusion, the High Court quashed the impugned notice under Section 147/148 and all further proceedings, allowing the writ petitions in favor of the appellant. The judgment underscored the importance of valid reasons and tangible material for reassessment, ensuring compliance with legal provisions and precedents in income tax matters.