2018 (2) TMI 186 - HC - Income Tax

Reopening of assessment - reasons to believe - submission made on behalf of the Revenue that there was a mistake in the reasons recorded - Held that - A reopening notice under Section 148 of the Act seeks to reopen settled issues between the State and the Assessee with regard to the income tax dues of the Assessee. The basis of jurisdiction to reopen an Assessment is reason to believe of the Assessing Officer that income chargeable to tax has escaped Assessment. This should be evident in the reasons recorded by him. These reasons which forms the basis must be strictly read. It is not open to either improve upon or change the reasons recorded. The reasons for reopening notice under Section 148 of the Act for reopening notice as recorded at the time of issuing the reopening notice under Section 148 of the Act must be clear and have to be read strictly. Therefore, the submission made on behalf of the Revenue that these was a mistake in the reasons recorded and an attempt to substitute the reasons being made orally by the Revenue, cannot be accepted. Moreover, we find that the reasons as recorded do not indicate any reasons to believe that income chargeable to tax has escaped assessment. It is more in the nature of seeking to find out after reopening the Assessment whether there are reasons to believe that income chargeable to tax has escaped Assessment or not - Decided in favour of assessee

Summary

Issues:
Three Appeals under Section 260A of the Income Tax Act, 1961 challenging a common order dated 31st October, 2014 passed by the Income Tax Appellate Tribunal.

Analysis:

Issue 1: Reopening of Assessment
The three Respondents, being Foreign Institutional Investors, earned capital gains during Assessment Year 2006-07 and claimed non-taxability under Section 90 of the Act read with the Indo Denmark Double Taxation Avoidance Agreement (DTAA). The Assessing Officer sought to reopen the assessments under Section 148 of the Act, citing reasons related to the tax residency status of the Respondents in Denmark. The Respondents objected, providing tax residency certificates, but the Assessing Officer proceeded to assess them for tax on capital gains, leading to appeals.

Issue 2: CIT(A) Orders
The Commissioner of Income Tax (Appeals) dismissed the appeals filed by the Respondents, upholding the reopening notices and the subsequent reassessment under Section 143(3) read with Section 147 of the Act. This decision further fueled the dispute as the Respondents continued to challenge the reassessment.

Issue 3: Tribunal's Decision
The Tribunal, in a common order, allowed the appeals by holding that the reasons for reopening did not establish any income escaping assessment. It emphasized that the reasons were based on presumption and lacked tangible material to support the belief that the Respondents were taxable entities in Denmark. The Tribunal considered the tax residency certificates as evidence of the Respondents' status, thereby ruling in favor of the Respondents.

Issue 4: Judicial Review
The High Court reiterated the principle that the reasons recorded for reopening assessments must be clear and unambiguous, without room for ambiguity or vagueness. It emphasized that the reasons cannot be altered or supplemented post-issuance. The Court referred to previous judgments to support the strict interpretation of reasons for reopening assessments, highlighting that no inferences beyond the recorded reasons should be entertained.

Conclusion:
The High Court dismissed all three Appeals, upholding the Tribunal's decision. It emphasized that the reasons for reopening assessments lacked substance and did not establish a valid belief of income escaping assessment. The Court rejected attempts to alter the reasons post-issuance, emphasizing the importance of strict adherence to recorded reasons. Consequently, the Court found no substantial question of law arising from the case and upheld the Tribunal's order, leading to the dismissal of all three Appeals.