2017 (1) TMI 852 - HC - Income Tax

Reopening of assessment - no business loss could be claimed as the petitioner had not carried out any business activity during the year - Held that - AO had come to a reasonable belief that no business loss could be claimed as the petitioner had not carried out any business activity during the year. This is also supported by notes to the account filed along with the Return of Income which indicates that the petitioner did not carry on any business activity during the year. This fact would form the basis for reasonable belief that income chargeable to tax has escaped assessment. In as much as expenditure which has nothing to do with the business is being claimed as business expenditure. At the stage of issuing a notice all that the Assessing Officer has to reach is a prima facie view that the income chargeable to tax has escaped assessment and there must be reasons for that belief. It is not expected of the Assessing Officer to have a castiron case before exercising jurisdiction to issue reopening notice. All that is required is reasonable belief. It is likely that on a fuller consideration the Assessing Officer may reach a different conclusion. But the likelihood of a different view when material exist of forming a belief will not justify our stopping the Assessing Officer for exercising jurisdiction to assess the petitioner on the reopening notice. No restrain the Assessing Officer from proceeding further with assessment pursuant to the impugned notice dated 5th October 2015. - Decided against assessee

Summary

Issues:
Challenge to Notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2010-11.

Analysis:
The petitioner challenged a Notice dated 5th October, 2015, seeking to reopen the assessment for Assessment Year 2010-11 under Section 148 of the Income Tax Act, 1961. The petitioner had filed its Return of Income on 24th March, 2012, declaring a total income of ?2.21 lakhs, which was processed under Section 143(1) of the Act. The impugned notice cited two reasons for reopening the assessment: firstly, that no business activity was carried out during the subject assessment year, hence the claimed business loss of ?14.47 lakhs was incorrect, and secondly, the claimed business loss could not be adjusted against income from house property. The petitioner's objection to these reasons was rejected by the Assessing Officer, leading to the filing of the petition on the grounds of absence of reasonable belief that income chargeable to tax had escaped assessment.

The High Court found that the Return of Income for the subject assessment year was not previously examined as it was processed under Section 143(1) of the Act. The reasons provided for reopening the assessment were considered to be two independent bases for a reasonable belief that income chargeable to tax had escaped assessment. The first reason was that no business activity was conducted during the year, and the second reason was the ineligibility of setting off business loss against other income heads. The Court emphasized that even if one reason was satisfied, interference was unwarranted.

Regarding the first issue, the Court noted that the Assessing Officer had a reasonable belief that no business loss could be claimed due to the absence of business activity during the year. This belief was supported by the notes to the account filed with the Return of Income, indicating the lack of business activity. The Court clarified that at the notice issuance stage, the Assessing Officer only needed a prima facie view that income had escaped assessment, not a conclusive case. The petitioner could present all contentions on merits, including the entitlement to a business loss, before the Assessing Officer. Consequently, the Court dismissed the petition, stating it was not appropriate to restrain the Assessing Officer from further assessment based on the impugned notice dated 5th October, 2015.