2018 (5) TMI 1176 - HC - Income Tax

Reopening of assessment - additional ground raised - validity of reasons recorded by the Assessing Officer - Held that - Information from the Value Added Tax Department of Mumbai was placed for his consideration. This information contained list of allegedly bogus purchases made by various beneficiaries from Hawala dealers. Assessee was one of them. As per this information, he had made purchases worth ₹ 3.21 crores (rounded off) from such Hawala dealers during the financial year 2010-11. According to the Assessing Officer, this information needed deep verification . AO recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed that income chargeable to tax has escaped assessment, would not cure this fundamental defect. Revenue however urged us to read the reasons as a whole and come to the conclusion that the Assessing Officer had independently formed a belief on the basis of information available on record that income in case of the assessee had escaped assessment. Accepting such a request would in plain terms require us to ignore an important sentence from the reasons recorded viz. it needs deep verification . - Decided against revenue.

Summary

Issues:
1. Validity of admitting additional ground challenging the reopening of assessment.
2. Validity of quashing the reassessment order.

Analysis:
1. The judgment involves Tax Appeals arising from a common background, focusing on the validity of admitting additional grounds challenging the reopening of assessment and the quashing of the reassessment order. The Revenue appealed against the Income Tax Appellate Tribunal's decision, questioning the Tribunal's authority to admit additional grounds challenging the reopening of assessment and its decision to quash the reassessment order.

2. The Respondent assessee, an individual and proprietor of a trading firm, had their assessment for the year 2009-10 reopened by the Assessing Officer based on information from the VAT Department regarding alleged bogus purchases from Hawala dealers. The Assessing Officer believed that income chargeable to tax had escaped assessment due to the omission of material facts by the assessee. The Tribunal held the notice invalid, prompting the Revenue's appeal.

3. The Revenue argued that the Assessing Officer had sufficient material to form a belief that income had escaped assessment, emphasizing the alleged purchases from Hawala dealers. The Tribunal's decision was challenged, citing the necessity of the Assessing Officer forming a belief even in cases of non-scrutiny assessments, as established in legal precedents.

4. The judgment highlighted the principles that notice of reopening should be based on recorded reasons without engaging in fishing inquiries. The Assessing Officer's reasons, based on information from the VAT Department, indicated the need for deep verification, raising doubts about the validity of the notice. The Court emphasized that the Assessing Officer's belief must be formed independently based on available information, without the need for further verification.

5. Despite the possible revenue loss, the Court upheld the Tribunal's decision to dismiss both Tax Appeals, emphasizing the importance of adhering to legal principles and ensuring the validity of reasons for reopening assessments. The judgment serves as a reminder of the necessity for Assessing Officers to comply with established legal standards to prevent arbitrary reassessments.