2015 (11) TMI 1074 - HC - Income Tax

Reopening of assessment - Held that - In so far as the violation of the principles of natural justice is concerned, it is an admitted fact that the recorded reasons were not given to the assessee. Therefore, the submission that the assessee was prevented from making an adequate representation as regards illegality of the proceedings under Section 147 cannot be lightly brushed aside. There has, in fact, been a violation of the principles of natural justice. We are concerned in this case with the assessment of the assessment order 2000-01 and 2001-02, that is to say, financial year 1999-2000 and 2000-01. The financial year 2000-01 ended on 31st March, 2001 whereas the statement of the assessee was recorded on 20th August, 2004. The questions put to the assessee have been quoted above. Not one question was put to him as to what was his income during the relevant period which is the subject matter of consideration in this appeal. The assessee was asked in August, 2004 as to what was his income, he gave an answer to that. But the present income cannot also be presumed to be the past income. The officers of the revenue could have asked necessary questions but they omitted to do so. When they omitted to do so that may be a pointer to show that they did not have any information as regards any understatement of income by the assessee for that period. If such information was available with them, they would have asked that question. Without asking any question without having any material, they could not have proceeded on the basis that the assessee must have earned the amount. Nothing was shown to us to establish that such a course is permitted by the law. It is wellsettled that statutory authorities must act in accordance with law or not at all. The judgment cited by Mr. Bhowmick does not really assist him because in that case definite information as regards payments received by the assessee and definite information as regards surgeries attended by the assessee were available. Therefore, the facts and circumstances of that case are different than the facts and circumstances of the case before us. Thus the entire proceedings were without any basis. - Decided in favour of assessee.

Summary

Issues:
Challenge to validity of reassessment proceedings under Section 147 for assessment years 1998-99 and 1999-00, upheld for assessment years 2000-01 and 2001-02.

Analysis:
The appeal before the Calcutta High Court concerned the validity of reassessment proceedings under Section 147 for different assessment years. The Income Tax Appellate Tribunal had held the reassessment proceedings for the years 1998-99 and 1999-00 as invalid, while sustaining the reassessment for the years 2000-01 and 2001-02. The main contention raised by the assessee was the failure to supply the recorded reasons for initiating the proceedings under Section 147, which were only provided during the appellate stage, leading to a violation of the principles of natural justice.

The assessee's representative argued that the reassessment was based on surmise and conjecture, lacking substantial evidence to support the claim of escaped income. The methodology applied for reassessment was challenged as arbitrary and lacking a factual basis. The assessment order for the year 2001-02 was specifically highlighted to showcase the reliance on assumptions rather than concrete evidence. The reassessment process was deemed illegal due to the absence of supplied recorded reasons and reliance on speculative grounds.

On the other hand, the revenue's advocate contended that the reassessment was based on the statement of the assessee recorded during a survey, where details of professional activities and earnings were provided. The revenue's inability to access the professional diary led them to make a fair estimate for reassessment purposes. Reference was made to a judgment from the Kerala High Court to support the validity of reassessment based on collected information and fair estimation in the absence of maintained accounts.

The High Court, after considering the arguments, found a violation of natural justice due to the failure to provide recorded reasons to the assessee. The reassessment process was criticized for being speculative and lacking concrete evidence to prove income escapement. The court emphasized the revenue's obligation to establish the grounds for reassessment with tangible material, which was found lacking in this case. The court concluded that the reassessment proceedings were baseless and ruled in favor of the assessee, setting aside the judgments and orders under challenge for the assessment years in question.