2015 (3) TMI 1030 - HC - Income Tax

Reopening of assessment - notice under Section 148 challenged - Held that - The reason to believe recorded by the Assessing officer is not based on any material that had come to the knowledge of the Assessing Officer. There is a mere suspicion in the mind of the assessing officer and the notice under section 147/148 has been issued for the purpose of verification and for clearing the cloud of suspicion. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said amount of ₹ 2,00,000/- had escaped assessment. It is apparent the Assessing Officer suspects that the income has escaped assessment. However, mere suspicion is not enough. The reasons to believe must be such, which upon a plain reading, should demonstrate that such a reasonable belief could be formed on some basis/ foundation and had in fact been formed by the Assessing Officer that income has escaped assessment. No such reasonable belief can be inferred from the purported reasons to believe recorded. The words reason to believe indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The reason to believe recorded in the case do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the said amount had escaped assessment. The purported belief that income has escaped assessment is not based on any direct or circumstantial evidence and is in the realm of mere suspicion. The requirement of law is reason to believe and not reason to suspect . In the present case, since the purported reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rational basis, the action of reopening of the Assessment is thus clearly contrary to law and is unsustainable. - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the reasons recorded for reopening the assessment.
3. Adequacy of the material and information for forming a belief of escapement of income.
4. Compliance with legal requirements for reopening an assessment under Section 143(3) of the Act.

Issue-wise Detailed Analysis:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 18.03.2014 issued under Section 148 for reopening the assessment on the grounds of escapement of income. The petitioner argued that the notice was issued without proper basis and was arbitrary. The court examined whether the notice complied with the legal requirements and whether the issuance was justified based on the facts presented.

2. Validity of the reasons recorded for reopening the assessment:
The reasons for reopening the assessment were based on information received from ADIT (Inv.), Ghaziabad, regarding the seizure of Rs. 5,00,000 from the petitioner's director. The court scrutinized whether these reasons constituted a "reason to believe" that income had escaped assessment. It was noted that the reasons must be based on material that is germane and relevant, not mere suspicion. The court found that the reasons recorded did not demonstrate a reasonable belief but rather indicated suspicion, which is insufficient for reopening an assessment.

3. Adequacy of the material and information for forming a belief of escapement of income:
The court evaluated whether the information provided was adequate to form a belief of income escapement. The petitioner had provided documentary evidence, including bank statements and cash book extracts, to explain the source of the cash. The court noted that the Assessing Officer's belief must be based on reasonable grounds and not on mere suspicion. The court concluded that the reasons recorded by the Assessing Officer did not show any material basis for forming a reasonable belief that income had escaped assessment.

4. Compliance with legal requirements for reopening an assessment under Section 143(3) of the Act:
The court referred to the Full Bench decision in Commissioner Of Income Tax-Vi, New Delhi Vs. Usha International Limited, which outlined the conditions for reopening an assessment under Section 143(3). These conditions include forming a prima facie opinion based on material, recording the opinion in writing, and ensuring the reasons are not based on mere suspicion. The court found that the Assessing Officer failed to meet these conditions, as the reasons recorded did not establish a nexus between the information and the belief of income escapement.

Conclusion:
The court held that the notice under Section 148 and the subsequent proceedings were based on mere suspicion without any rational basis. The "reason to believe" must be based on reasonable grounds, which was not evident in this case. Consequently, the impugned order dated 23.06.2014 was set aside, and the proceedings initiated pursuant to the notice dated 18.03.2014 were quashed.

← Previous Next →