2017 (4) TMI 768 - HC - Income Tax

Reopening of assessment - Held that - In the order rejecting the objections, the Assessing Officer has relied upon Clause (b) under Explanation 2 to Section 147. Clause (b) under Explanation 2 to Section 147 deals with cases where a return of income has been furnished by the assessee but no assessment has been made and the Assessing Officer notices that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. Admittedly, the cases of none of these petitioners fall under the category of claiming excessive loss or deduction or allowance or relief in the return. The cases of the assessees are attempted by the Assessing Officers to be brought within the category of understatement of income , so as to invoke Clause (b) under Explanation 2. But to come to the conclusion that there was understatement of income, it is not sufficient for the Assessing Officers to just arrive at the percentage of gross receipts that were declared as income, without even referring to other assessees whose admitted income was at a better percentage of the gross receipts than the petitioners. Therefore, the invocation of the jurisdiction under Section 147 on the basis of suspicions and presumptions cannot be sustained. - Decided in favour of assessee.

Summary

Issues: Reopening of assessment under Section 147 of the Income Tax Act, 1961 based on low percentage of income admitted by petitioners compared to gross receipts.

The judgment by the Andhra Pradesh High Court addressed the issue of the reopening of assessments under Section 147 of the Income Tax Act, 1961. The petitioners, engaged in retail vending of liquors, were aggrieved by the Assessing Officers' decision to reopen their assessments. The notices issued under Section 148 stated that income chargeable to tax had escaped assessment based on the low percentage of income admitted by the petitioners compared to their gross receipts. The petitioners raised objections, contending that the cases did not fall under Section 147(1) as they were based on presumptions and surmises without factual basis.

The Assessing Officers rejected the objections, citing precedents and provisions of the Income Tax Act. They justified the reopening by comparing the admitted income of the petitioners to others in the same line of business. However, the court found that the reasons for reopening were inadequate as they lacked concrete facts or named comparables. The Assessing Officers erred in presuming income suppression solely based on low income percentages without specific comparisons.

The court emphasized that for the Assessing Officer to reopen assessments under Section 147, concrete facts must exist to form the basis for such action. Mere suspicion of income suppression or comparison with others in the same line of business is insufficient. The judgment highlighted the importance of mentioning comparables and concrete facts before initiating proceedings under Section 147. The court also noted that invoking Clause (b) under Explanation 2 to Section 147, related to understatement of income, required more than just percentage analysis without reference to better-performing assessees.

Ultimately, the court allowed the writ petitions, stating that the jurisdiction under Section 147 cannot be based on suspicions and presumptions alone. The judgment concluded by closing any pending miscellaneous petitions in the case, with no costs imposed on either party.