2014 (4) TMI 126 - HC - Income Tax

Validity of exercise of power u/s 147 of the Act Reopening of assessment Reason to believe Held that - Section 147 of the Act speaks that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may subject to the provisions of sections 148 to 153 assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section or recompute the loss or the depreciation allowance or any other allowance as the case may be for the assessment year concerned. Relying upon Jorawar Singh Baid Vs. Assistant Commissioner of Income Tax (Cal.) and others 1992 (2) TMI 40 - CALCUTTA High Court The power that can be exercised under section 143(2) to cover the assessment made u/s 143(1) does not exclude the power of the AO to reopen the assessment u/s 147 subject to availability of ingredients of section 147 it cannot be accepted that reassessment u/s 147 is vitiated because the Assessing Officer failed to invoke his power to correct the assessment period completed u/s 143 (1) by issuing a notice u/s 143(2) of the Act. The purpose of section 147 is to ensure that a party cannot get up by making false or untrue statement at the time of original statement and when that falsity comes to notice the assessee cannot turned around and say that since you accepted my lie now your hands are tied and you can do nothing - In order to proceed u/s 147 if the AO has reason to believe that any income chargeable to tax has escaped assessment then he can proceed for reassessment - The only requirement of section 147 is that the AO must have good reason to believe that some income had escaped assessment. The letter dated 14.05.2013 written by the Deputy Commissioner of Income Tax Range-VI Lucknow shows that in the return filed by the petitioner for assessment year 2006-07 the petitioner declared its total income Nil - during the year share capital and secured loan increases - the assessee did not explain the source of increment similarly other current assets also increased - apart from District Valuer Report there were sufficient reasons for the AO to believe that the income chargeable to tax has escaped assessment the ingredients of section 147 is available to reopen the proceeding of assessment for the assessment year 2006-07 thus there is no reason to interfere with the proceeding for assessment year 2006-07 initiated u/s 147(1) of the Act Decided against Assessee.

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act.
2. Validity of the reasons recorded by the Assessing Officer for reopening the assessment.
3. Whether the Deputy Commissioner of Income Tax was justified in rejecting the petitioner's objections to the reopening of the assessment.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 of the Income Tax Act:
The petitioner challenged the reopening of the assessment for the assessment year 2006-07 initiated by the Deputy Commissioner of Income Tax under Section 147 of the Income Tax Act. The petitioner argued that the reopening was not justified as the original return was filed showing "Nil" income and was processed under Section 143(1) without any scrutiny. The court noted that Section 147 allows the Assessing Officer to reassess if there is reason to believe that income chargeable to tax has escaped assessment. The court emphasized that the power under Section 147 is independent and can be exercised even if the assessment was initially processed under Section 143(1).

2. Validity of the Reasons Recorded by the Assessing Officer for Reopening the Assessment:
The Assessing Officer recorded reasons for reopening the assessment, citing unexplained increases in share capital, secured loans, investments in building, and other current assets during the assessment year 2006-07. The petitioner contended that the reasons were based on the District Valuation Officer's (DVO) report, which is not a valid basis for reopening the assessment without rejecting the books of accounts. The court, however, found that the reasons recorded were sufficient and were not solely based on the DVO's report. The court highlighted that the unexplained increases in financial figures provided a prima facie reason to believe that income had escaped assessment.

3. Justification of the Deputy Commissioner of Income Tax in Rejecting the Petitioner's Objections:
The petitioner filed objections against the reopening, arguing that all relevant documents were provided during the original assessment and that the DVO's report could not be used without rejecting the books of accounts. The Deputy Commissioner rejected these objections, maintaining that the petitioner failed to substantiate the declared investments. The court supported this decision, stating that the Assessing Officer had a valid reason to believe that income had escaped assessment based on the unexplained financial increases. The court also noted that the sufficiency of the reasons for reopening the assessment is not for the court to judge at this stage but is within the jurisdiction of the Assessing Officer.

Conclusion:
The court concluded that the reopening of the assessment under Section 147 was justified as the Assessing Officer had valid reasons to believe that income chargeable to tax had escaped assessment. The court dismissed the writ petition, affirming the legality of the reassessment proceedings initiated by the Deputy Commissioner of Income Tax. The court emphasized that the prima facie opinion of the Assessing Officer, based on recorded reasons, was sufficient to proceed with the reassessment.