2017 (7) TMI 963 - HC - Income Tax

Reopening of assessment - disallowance of loss - Held that - From the materials on record, it can be seen that the Assessing Officer from the outset was not convinced about disallowing the sum claimed by the assessee by way of loss. He elaborated his reasons in his letter dated 06.05.2008 written to the Commissioner. Relevant portion of the letter we have reproduced in this order, perusal of which, leaves little doubt that the Assessing Officer firmly believed that the assessee s stand on such claim of loss was correct and that the internal audit objection was invalid. If this be the position, settled law would prevent the Revenue from reopening the assessment on this ground. It is well settled that Section 147 of the Act refers to the reason of the Assessing Officer to believe that income chargeable to tax has escaped assessment. The satisfaction of the Assessing Officer is of paramount consideration and cannot be substituted by any other agency or authority even if it happens to be a higher authority. The Income Tax Act contains revision in terms of Section 263 of the Act if an order of assessment is found to be erroneous or prejudicial to the interest of the Revenue. Reopening of an assessment, however, has vastly different repercussions and entirely different parameters would apply. This was not a case where the Assessing Officer formed a belief that income chargeable to tax had escaped assessment. May be in the present case, the directives did not come from the audit party but some internal audit mechanism referred to as internal audit party. This, however, would not be of any significance. As long as it can be gathered that the Assessing Officer was compelled to issue notice of reopening against his own belief that no income chargeable to tax had escaped assessment, the notice must fail. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment based on market loss booking.

Analysis:
1. The petitioner, a banking company, challenged a notice issued by the Assessing Officer under Section 148 of the Income Tax Act for reopening the assessment for the assessment year 2005-06.

2. The Assessing Officer's reasons for reopening the assessment were based on the petitioner booking a market loss of ?114.53 crores by transferring government securities between categories without any third-party transaction, leading to underassessment of income.

3. The petitioner objected to the notice, arguing that detailed disclosures were made during scrutiny assessment, the category change was as per RBI guidelines, and similar transactions were accepted in previous years.

4. The main contention was whether the notice was issued under the influence of the audit party, as the Assessing Officer's belief that no income had escaped assessment was evident from his actions and communications.

5. The court examined the sequence of events, including objections raised by the internal audit party, clarifications provided by the petitioner, and the Assessing Officer's detailed response to the audit objections, supporting the petitioner's claim of loss as per RBI guidelines.

6. The court emphasized that the Assessing Officer's belief that no income escaped assessment was crucial, and reopening an assessment under external influence, even an audit party, was not valid, as per established legal principles.

7. Citing relevant case law, the court held that the Assessing Officer's own belief about income escapement is paramount, and reopening an assessment against that belief is impermissible, leading to setting aside the notice and allowing the petition.

8. The court concluded that the notice dated 24.03.2010 was set aside, and the petition was allowed, emphasizing the importance of the Assessing Officer's independent belief in determining the validity of reopening assessments.