2018 (3) TMI 674 - HC - Income Tax

Reopening of assessment - non independent application of mind by assessee - out sourcing of reasons to believe - Held that - The very reasons recorded by AO for issuing of the impugned notice the only words added to the above letter in the recorded reasons are In this case information received from the Office of the DIT (Investigation) Unit4, Mumbai on 23rd March, 2017 vide letter dated 22nd March, 2017 . This, of course, besides the introductory para and the concluding para where he records that he has reasons to believe that income chargeable to tax has escaped assessment. Thus, prima facie, there has been no independent application of mind on the part of the Assessing Officer to the tangible material received from the Deputy Director of Investigation. The information received has to be examined in the context of the facts on record before coming to a view that income chargeable to tax has escaped assessment on account of failure to disclose fully and truly all relevant facts. In the absence of the above, it amounts to out sourcing of reasons to believe. Assessing Officer has issued the impugned notice without himself coming to a reasonable belief that income chargeable to tax has escaped assessment. - interim stay granted.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening Assessment Year 2010-11.

Analysis:
The petition challenges a notice issued by the Principal Commissioner of Income Tax under Section 148 of the Income Tax Act, seeking to reopen the Assessment for the year 2010-11. The petitioner argues that there was no failure to disclose all material facts during the regular assessment proceedings. The reasons for reopening the assessment do not allege any failure to disclose necessary particulars. The petitioner further contends that the Assessing Officer did not independently apply his mind to form a reasonable belief that income has escaped assessment. The reasons for reopening relied on information received from the Deputy Director of Investigation, which the petitioner argues was not properly examined by the Assessing Officer. This lack of independent application of mind suggests an outsourcing of reasons to believe, indicating a lack of jurisdiction in issuing the notice.

The tangible material forming the basis of the notice was a letter received from the Deputy Director of Investigation, outlining concerns regarding certain financial transactions involving debentures and unsecured loans. The petitioner argues that this information was not properly considered by the Assessing Officer before issuing the notice. The letter highlighted discrepancies in the financials of a company, suggesting potential tax evasion through unexplained transactions. The petitioner asserts that without a thorough examination of this information in the context of the existing records, the notice lacks a valid basis for reopening the assessment. The court found that the Assessing Officer did not demonstrate a reasonable belief that income had escaped assessment, leading to an interim stay on the notice pending final disposal of the petition.

In conclusion, the court granted an interim stay on the impugned notice dated 29th March 2017, as it appeared that the Assessing Officer issued the notice without forming a reasonable belief that income chargeable to tax had escaped assessment. The lack of independent application of mind to the material received from the Deputy Director of Investigation raised concerns about the validity and jurisdiction of the notice. The court emphasized the importance of proper assessment procedures and the need for Assessing Officers to demonstrate a valid basis for reopening assessments under Section 148 of the Income Tax Act.