2016 (8) TMI 959 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - Mere non filing of return of income does not give jurisdiction to the Assessing Officer to re-open the assessment unless the person concerned has total income which is assessable under the Act exceeding maximum amount which is not chargeable to Income Tax. This is provided in Explanation 2 to Section 147 of the Act. This is for the reason that in terms of Section 139(1) of the Act the obligation to file a return of income is only when the total income of a person exceeds the maximum amount not chargeable to tax. So also the obligation to obtain PAN only arises on the income being in excess of the maximum amount not chargeable to tax. Therefore, non filing of return of income and/or not obtaining of PAN does not ipso facto give jurisdiction to reopen an assessment under Section 147/148 of the Act. Prima facie the jurisdiction even in case of non filing of return of income to issue notice of re-opening notice is a reasonable belief of the Assessing Officer that income chargeable to tax has escaped assessment. The condition precedent for issuance of notice under Section 147/148 of the Act is no different in cases where no return of income has been filed. If clause (a) of explanation 2 to Section 147 of the Act is to be applied then it must be established that the income of the person to whom the notice is issued is in excess of the maximum amount not chargeable to tax. This could have been done by collecting information under Section 133B of the Act. In this case the reasons in support do not indicate any reasonable belief that income chargeable to tax has escaped assessment nor does it hold that income of the petitioner is in excess of the maximum amount chargeable to tax. It proceeds on basis that all receipts is income. The re-opening notice has to be tested by the terms recorded for issuing the notice and the order disposing of the objection cannot be the basis for sustaining the impugned notice. No prejudice to the Assessee, as contended by the Revenue, cannot be the basis for acquiring jurisdiction to issue a re-opening notice. - Decided in favour of assessee

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for re-opening assessment for the assessment year 2008-09.

Analysis:
The petitioner challenged a notice seeking to re-open assessment for the assessment year 2008-09 under Section 148 of the Income Tax Act, 1961. The reasons for the notice stated that the petitioner had not filed its return of income or obtained a PAN despite receiving contributions totaling ?6.58 crores during the relevant year. The petitioner argued that as a private trust, contributions received were not income under the Act and were to be distributed to political parties or candidates as per the trust deed. The petitioner contended that the notice was without jurisdiction as it proceeded on the assumption that all contributions were income. The revenue supported the notice, stating that the petitioner's failure to file a return of income justified the re-opening. However, the court noted that mere non-filing of a return does not automatically give jurisdiction to re-open an assessment unless the total income exceeds the maximum amount not chargeable to tax, as per Explanation 2 to Section 147 of the Act.

The court emphasized that the obligation to file a return of income and obtain a PAN arises only when the total income exceeds the non-taxable limit. The jurisdiction to issue a re-opening notice is based on a reasonable belief that taxable income has escaped assessment. In this case, the reasons for the notice did not show a reasonable belief that income had escaped assessment or that the petitioner's income exceeded the taxable limit. The court held that the notice was without jurisdiction as it did not meet the conditions required for re-opening an assessment. The court granted interim stay against the notice, indicating a prima facie view that the notice lacked jurisdiction. The order disposing of objections could not be the basis for sustaining the notice, and the argument of no prejudice to the assessee was insufficient to justify the re-opening. The court highlighted that the notice must be tested based on the recorded terms for issuance, and the lack of a reasonable belief in income escaping assessment rendered the notice invalid.