2018 (12) TMI 1343 - HC - Income Tax

Reopening of assessment - eligibility of reason to believe - genuineness of the gift questioned - Held that - The reopening of an assessment can only be done if there is reason to believe that income chargeable to tax has escaped assessment. The reason recorded in support of the reopening notice must disclose the basis of the reasons to believe that income chargeable to tax has escaped assessment. The reasons must provide a link between the material available and the formation of reasonable belief that income chargeable to tax has escaped assessment. The reason to believe must be based on some material available with the Assessing Officer and no reasonable belief can be formed without some material to support the same. The impugned order of the Tribunal has correctly held that the reopening of the assessment cannot be for the purpose of fishing inquiry. The reopening of the assessment has to be based on same material which is available with the Assessing Officer which would give rise to reason to believe that the income chargeable to tax has escaped assessment. The reasons as recorded in support of the impugned notice to doubt the genuineness of the gift is not based on any material. At the highest, it is only a suspicion subject to enquiry. In fact, this is a case of fishing enquiry. Thus, there is no material available with the Assessing Officer to have the reason to believe that income chargeable to tax has escaped assessment. The view taken by the impugned order of the Tribunal cannot be found fault with. - Decided in favour of assessee

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 for Assessment Year 2004-05 based on questions of law regarding the Tribunal's decision on the necessity of further enquiry by the Assessing Officer and the rationality of reopening the assessment based on a gift received by the assessee.

Analysis:
1. The respondent, an HUF, filed its return of income for Assessment Year 2004-05, showing brokerage income. Subsequently, a reopening notice was issued under Section 148 of the Act, based on a gift received by the assessee from a non-related individual. The Tribunal questioned the genuineness of the gift and the rationality of reopening the assessment solely on this ground. The Tribunal emphasized that the reasons to believe must be connected to material facts and not be a fishing inquiry. The Tribunal found no material supporting the belief that income had escaped assessment due to the gift's genuineness.

2. The appellant argued that while the donor's identity and creditworthiness were established, the gift's genuineness remained unproven. The appellant contended that the reassessment proceedings would address this issue. However, the Court reiterated that the reason to believe must be based on existing material and not mere suspicion. The Court agreed with the Tribunal's view that the reopening lacked a rational nexus to material facts, constituting a fishing inquiry without substantial grounds.

3. The Court emphasized that even in cases processed under Section 143(1) of the Act, reopening assessments require a valid reason to believe income has escaped assessment. The reasons recorded must establish a link between available material and the belief formed. In this case, the Court concurred with the Tribunal's decision that the reopening lacked a valid basis and was without jurisdiction. The Court dismissed the appeal, upholding the Tribunal's order and emphasizing the necessity of a rational connection between reasons to believe and material facts.

In conclusion, the judgment highlights the importance of a valid reason to believe income has escaped assessment, emphasizing the need for a rational nexus between the reasons recorded and available material. The Court upheld the Tribunal's decision, emphasizing that reopening assessments cannot be based on vague or unfounded suspicions, reiterating the significance of substantive grounds for reassessment.