2015 (10) TMI 1767 - HC - Income Tax

Reopening of assessment - notice under section 148 issued beyond a period of four years from the end of the relevant assessment year - petitioner has withdrawn ₹ 2,54,00,000/- from the bank accounts maintained by it in cash and has not explained the utilisation thereof - Held that - The sole basis for reopening the assessment is that the petitioner assessee has withdrawn an amount of ₹ 2,54,00,000/- in cash and has not explained the utilisation. Thus, cash withdrawals from bank accounts maintained by the assessee have been termed as escapement of income by the Assessing Officer. One fails to comprehend as to how the cash withdrawals from accounts maintained by the assessee can be said to amount to escapement of income within the meaning of section 147 of the Act, as stated by the Assessing Officer, when it is not the case of the Assessing Officer that the amount deposited by the assessee in its bank accounts is undisclosed income. - Decided in favour of assessee.

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Compliance with the requirement of "reason to believe" for income escapement.
3. Justification for cash withdrawals and their utilization.
4. Jurisdiction of the Assessing Officer under Section 147 beyond four years from the end of the relevant assessment year.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 of the Income Tax Act, 1961:
The petitioner challenged the reopening of the assessment for the assessment year 2007-08, which was initiated by the Assessing Officer (AO) through a notice dated 24.3.2014 under Section 148 of the Income Tax Act. The petitioner argued that the reasons recorded for reopening did not meet the requirements of Section 147, as no income had escaped assessment. The court examined the reasons recorded by the AO and found that they were based on information received from the Deputy Director of Income Tax (Investigation) regarding suspicious transactions. However, the court concluded that mere cash withdrawals from bank accounts could not be termed as escapement of income, thus making the reopening of the assessment legally unsustainable.

2. Compliance with the Requirement of "Reason to Believe" for Income Escapement:
The court emphasized the statutory requirement under Section 147 that the AO should have "reason to believe" that income chargeable to tax had escaped assessment. The reasons recorded by the AO indicated that the petitioner had made cash withdrawals of Rs. 2,54,00,000/- but did not explain the utilization. The court referred to precedents, including the Delhi High Court's decision in Krown Agro Foods (P.) Ltd. v. Assistant Commissioner of Income Tax, which held that "reason to believe" must be based on reasonable grounds and not mere suspicion. The court found that the AO's reasons were based on suspicion rather than any concrete evidence, thus failing to meet the requirement of "reason to believe."

3. Justification for Cash Withdrawals and Their Utilization:
The AO's primary ground for reopening the assessment was the petitioner's failure to justify cash withdrawals of Rs. 2,54,00,000/- and their utilization. The court noted that the AO did not allege that the amount deposited in the petitioner's bank accounts was undisclosed income. The court held that mere cash withdrawals could not be equated with escapement of income. The court further stated that if there were suspicious transactions, the respondent could investigate further, but such withdrawals alone could not justify reopening the assessment.

4. Jurisdiction of the Assessing Officer under Section 147 Beyond Four Years from the End of the Relevant Assessment Year:
The notice under Section 148 was issued beyond four years from the end of the relevant assessment year. The court highlighted that for the AO to assume jurisdiction under Section 147 after four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found no such failure on the part of the petitioner and concluded that the AO's assumption of jurisdiction was without authority of law.

Conclusion:
The court allowed the petition, quashing and setting aside the impugned notice dated 24.3.2014 issued under Section 148 of the Act. The court ruled that the reopening of the assessment was not justified as the AO did not have a valid "reason to believe" that income had escaped assessment. The court reiterated that mere suspicion or cash withdrawals without proper justification could not form the basis for reopening an assessment. The rule was made absolute with no order as to costs.

← Previous Next →