2017 (9) TMI 588 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - Revenue has no answer to the submission that the entire exercise undertaken by the ITO (Inv.) was without jurisdiction. Which is why in the counter affidavit filed in the present writ petition, the stand taken by the Revenue is that it is not the only reason for re-opening the assessment. The fact remains that it could not form tangible material for re-opening the assessment. The fact remains that the power under Section 131 (1A) can be exercised only by officers named therein and they are all officers in the Department superior to the ITO. If the ITO had to exercise the powers under that provision, he had to be duly authorized to do so. He clearly was not and, therefore, the reports submitted by him could not have formed the valid basis for re-opening the assessment. The third material referred to in the reasons for reopening the assessment, is the investigation undertaken by the DGIT (Vigilance) into the conduct of the erstwhile AO of the Petitioner. A perusal of the letter dated 2nd November 2011 written by the Director (Vigilance) to the DGIT (Vigilance) does not throw any light on any material relevant to AY 2009- 10. In fact, the concluding paragraph of the said letter a request is made for reopening of the assessment for the AY 2007-08 by invoking Section 263 of the Act. This explains why that route was resorted to for AY 2007-08. This Court is therefore satisfied that the jurisdictional requirement for reopening of the assessment for AY 2009-10 has not been fulfilled in the present case. Consequently, the notice dated 29th March 2016 issued by the AO under Section 148 of the Act as well as the consequent order dated 4th July 2016 of the AO rejecting the Petitioner s objections, are hereby quashed.

Summary

Issues:
Challenge to notice under Section 148 for reopening assessment for AY 2009-10; rejection of objections to reopening assessment.

Analysis:
The petitioner, a consultancy firm, challenged a notice issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year (AY) 2009-10. The reasons for reopening included allegations of collecting money from the principal and distributing bribes, unsupported contractor charges, and non-business use of funds. The AO believed income of ?2,41,79,349 had escaped assessment. The petitioner objected to the reopening, arguing lack of jurisdiction in the investigation process. The AO defended the reopening citing independent evaluation and approval by the Principal CIT. The High Court emphasized that only the reasons recorded by the AO should be considered in assessing the validity of reopening an assessment, not subsequent developments. The court highlighted the need for tangible material relevant to the specific AY in question to justify reopening.

The Revenue relied on an assessment order for AY 2008-09 to support the reopening for AY 2009-10, but the court stressed the importance of relevant material for each AY. The court referenced legal precedents emphasizing that information from one AY cannot automatically justify reopening for another AY. The court found that the TEP related to only two financial years and did not provide sufficient grounds for reopening the assessment for AY 2009-10. The court noted the AO's failure to reference relevant past orders in the reasons for reopening, indicating a lack of proper application of mind. Additionally, the court highlighted the lack of jurisdiction in the investigation process, as the ITO did not have the authority to exercise certain powers, rendering the reports invalid for reopening the assessment.

Ultimately, the court concluded that the jurisdictional requirement for reopening the assessment for AY 2009-10 was not fulfilled, leading to the quashing of the notice and rejection of objections. The writ petition was allowed with no costs awarded.