2014 (4) TMI 750 - HC - Income Tax

Validity of power u/s 147/148 of the Act Reopening of assessment Reason to believe Held that - The reasons to believe nowhere reveal as to what tangible material which the AO came to obtain to justify the reassessment notice - the reassessment notice was based on the assumption that a much larger income had accrued to the assessee whereas only a fraction of its was offered in the P & L account - a somewhat similar ground has been made out i.e. that of expenses incurred abroad have not been revealed - This was an aspect which was known to the AO at the time of the original assessment Relying upon CIT V. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - the explanations by the assessee appear to have been taken into account - A virtual assertion of the same reasons in different words does not clothe the reassessment notice with any more sanctity, nor does it take away the vice of lack of jurisdiction - an assessment cannot be reopened merely to verify the genuineness of the expenses as that would amount to an impermissible fishing or rowing enquiry without any tangible material to show escapement of income the notice is no justified and is beyond the authority of law Decided in favour of Assessee.

Summary

Issues:
1. Challenge to notice issued for reopening assessment under sections 147 and 148 of the Income Tax Act for the assessment year 2006-07.

Detailed Analysis:

1. The petitioner, an income tax assessee, challenged a notice issued by the revenue seeking to reopen the assessment for the assessment year 2006-07 under sections 147 and 148 of the Income Tax Act. The notice was based on the belief that certain expenses incurred abroad were not disclosed, leading to the reassessment proceedings to verify and frame a re-assessment. The petitioner had previously approached the Court for a similar reassessment notice, where the Court quashed the notice but allowed for fresh reasons to be recorded for reopening the assessment.

2. The Supreme Court's ruling in CIT V. Kelvinator of India Ltd. emphasized that the power to re-open assessments post-1-4-1989 is wider but must be based on tangible reasons to believe, not a mere change of opinion. In the present case, the reassessment notice lacked tangible material to justify the reopening, as it was based on assumptions similar to the previous notice that was quashed. The Court held that reopening an assessment solely to verify expenses without concrete evidence would be impermissible.

3. The Court found that the reasons to believe, as stated in the reassessment notice, did not provide any new material justifying the reassessment. The notice's grounds were similar to the previous quashed notice, indicating a lack of fresh or tangible reasons for the reassessment. Reopening an assessment without substantial evidence of income escapement would amount to an arbitrary exercise of power, contrary to the provisions of the Income Tax Act.

4. The Court concluded that the impugned reassessment notice was not justified and exceeded the authority of law. It was quashed, and the writ petition filed by the petitioner was allowed, emphasizing the importance of tangible reasons and evidence to support the reopening of assessments under the Income Tax Act. The judgment highlighted the need for assessments to be based on specific preconditions rather than mere changes of opinion to prevent arbitrary exercise of power by Assessing Officers.