2015 (3) TMI 615 - HC - Income Tax

Reopening of assessment - source of ₹ 7.6 Crores remained unidentified - ITAT held the reopening invalid - Held that - Tribunal has noticed the fact that during the regular assessment proceedings, detailed enquiries were made by the Assessing Officer leading to the order dated 27 February 2006 about the source of the capital introduced by various members of the respondent assessee. In fact the Assessing Officer has also prepared a note with regard to the same during the regular assessment proceeding. It was only on satisfaction with the explanation that the Assessing Officer passed the assessment order dated 22 February 2006 determining the appellant's income to ₹ 72.65 Lakhs. This would indicate that there is clear change of opinion on the part of the Assessing Officer in issuing the impugned notice. Moreover, the reasons recorded indicate that the material obtained from the Additional DIT, Jaipur was to the effect that the respondent assessee had not explained the source of its capital contribution to the extent of ₹ 6.20 Crores. This, the Tribunal found was factually incorrect as a report of the Additional DIT, Jaipur makes no mention of any explanation offered by the respondent assessee but the entire report is on the statement made by an individual and refers to his conduct. Consequently, the reasons recorded for issuing the impugned notice proceed on factually erroneous basis with the result that the live link necessary to be provided between the tangible material and the conclusion that income has escaped assessment is not found in the present case. In these circumstances, we find that the impugned order of the Tribunal is a well reasoned order and the view taken by the Tribunal is a possible and a reasonable view on the facts as existing before it. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961 based on unidentified source of income.

Analysis:
The case involved an appeal by the revenue challenging the order passed by the Income Tax Appellate Tribunal regarding the reopening of assessment for the Assessment Year 2003-2004 under Section 147 of the Income Tax Act, 1961. The main question of law formulated was whether the Tribunal was justified in holding the reopening invalid when the source of Rs. 7.6 Crores remained unidentified. The respondent, an Association of Persons engaged in liquor business, had declared an income of Rs. 60 Lakhs for the year. The Assessing Officer sought to reopen the assessment based on information regarding a significant payment made to the State Excise Department, where the source of a portion of the amount was unexplained. The Tribunal allowed the appeal, stating that the reasons recorded for reopening did not establish a clear link between the information obtained and the conclusion that income had escaped assessment. The Tribunal found factual errors in the reasons recorded, indicating a lack of jurisdiction for reopening the assessment.

The respondent objected to the reopening, citing a change of opinion and lack of reason to believe that income had escaped assessment. Despite the objections, the Assessing Officer proceeded with the reassessment, determining the income at Rs. 6.92 Crores. The Commissioner of Income Tax (Appeals) upheld the validity of the reopening, leading the respondent to appeal to the Tribunal. The Tribunal found that during the initial assessment, detailed enquiries were made regarding the capital contributions and the deposit with the Excise Department. It concluded that the reassessment was based on a mere change of opinion and lacked jurisdiction. The Tribunal also noted discrepancies in the information received and the failure to link it to the alleged escaped income, ultimately allowing the respondent's appeal.

In the final analysis, the High Court dismissed the revenue's appeal, stating that the Tribunal's order was well-reasoned and based on existing facts. The Court agreed that there was no substantial question of law warranting interference, leading to the dismissal of the appeal without costs. The judgment highlighted the importance of establishing a clear link between information obtained and the conclusion of escaped income in cases of reassessment under Section 147 of the Income Tax Act, 1961.