2017 (8) TMI 935 - HC - Income Tax

Reopening of assessment - Held that - There is no prima facie suggestion as to why would he pay cash of ₹ 1.58 crores when he stands to gain nothing out of the deal. The Assessing Officer has mechanically adopted the observations of CIT(A), taking them out of context and making the basis of formation of his belief that income chargeable to tax in the hands of assessee has escaped assessment. To link the observations of the CIT(A) he has not referred to any other material at his command which would even prima facie suggest that the petitioner had paid such sum. We are conscious that we are at the stage of testing the confirmation of belief by the Assessing Officer and not the certainty of his observations. Nevertheless, when the belief is founded on no material whatsoever the same would be open to interference. If the material at the command of the Assessing Officer was so inadequate as no prudent person would form a belief that income chargeable to tax had escaped assessment, the court certainly even at this stage would interject.

Summary

Issues:
Challenging a notice seeking to reopen assessment for the assessment year 2009-10.

Analysis:
The petitioner, engaged in land brokerage, filed a return for the assessment year 2009-10, which was scrutinized, and the total income was assessed at ?4.65 lakhs. The Assessing Officer sought to reopen the assessment based on a search and seizure action in another case, where a substantial amount was allegedly paid for a land deal. The notice of reopening was issued beyond the four-year period from the end of the relevant assessment year. The Assessing Officer aimed to tax the petitioner for ?1.58 crores paid towards the land deal. The petitioner contended that there was no valid reason to believe that income had escaped assessment. The department argued that tangible material supported the reopening, not disclosed in the original return, making the notice valid.

Further scrutiny of the reasons for reopening revealed that the Assessing Officer linked the petitioner to a land deal where cash transactions were involved. However, the appellate order in the related case did not suggest that the petitioner should be taxed for the differential amount. The Commissioner's observations indicated that the cash amount paid was different from what was initially claimed. The petitioner's role as a broker was emphasized, with no evidence suggesting direct involvement in the cash transactions. The Assessing Officer's belief was based on inadequate material, primarily adopting the CIT(A)'s observations out of context.

The High Court found that the notice of reopening lacked a valid basis, as there was insufficient material to support the belief that income had escaped assessment. The court emphasized that the Assessing Officer's belief must be founded on credible material, which was lacking in this case. As a result, the court set aside the notice dated 31.03.2016, allowing the petitioner's petition.