2019 (2) TMI 456 - HC - Income Tax

Reopening of assessment u/s 147 - non-filing of return (ITR) - reason to believe - Held that - Assessing Officer has proceeded on wrong premise that even when called upon to state why the petitioner had not filed return of income, he had not responded to the said query. The petitioner did communicate to the Department that he had no taxable income and therefore, there was no requirement to file the return. The Assessing Officer did not carry out any further inquiry before issuing the impugned notice. In the reasons, one more error pointed out by the petitioner is that the Assessing Officer referred to the sum of ₹ 18.82 crore as total transaction in the commodities. In the petition as well as in the objections raised before the Assessing Officer, the petitioner pointed out that his sales were to the tune of ₹ 16.82 crore against purchases of 16.84 crore and thereby, he had actually suffered a loss. The Assessing Officer has not discarded these assertions. We are conscious that the petitioner not having filed return of income and consequently there being no scrutiny assessment, the Assessing Officer would have much wider latitude to reopen the assessment. However, in such a case also, the primary requirement of the Assessing Officer having a reason to believe that the income chargeable to tax had escaped assessment would apply. Decided against the revenue.

Summary

Issues:
Challenge to notice of reopening of assessment dated 28.3.2018 by Income Tax Officer for assessment year 2011-12.

Analysis:
The petitioner, a senior citizen, had traded in Commodity Exchange during the relevant period but did not file a return for the assessment year 2011-12 as he believed he had no taxable income. The Assessing Officer, however, alleged that the petitioner had entered into transactions of &8377; 18.82 crore in Commodity Exchange and issued a notice to reassess the petitioner's income. The reasons for reopening the assessment included the lack of filed returns, unexplained profit/gain on commodity exchange, and unexplained sources of investment. The petitioner objected, stating he had no taxable income and actually suffered a loss in his transactions. The Assessing Officer rejected the objections, emphasizing the need for further verification. The High Court noted that the Assessing Officer erred in assuming the petitioner did not respond to queries about filing returns, as the petitioner had communicated that he had no taxable income. The Assessing Officer failed to conduct further inquiry before issuing the notice and incorrectly cited the transaction amount. The court highlighted the Assessing Officer's failure to verify the petitioner's sales and purchases information, indicating a lack of prima facie evidence of escaped income. Despite the wider latitude for reopening assessments without filed returns, the court emphasized the necessity of the Assessing Officer having a valid reason to believe income had escaped assessment. Consequently, the court quashed the notice of reopening and allowed the petition in favor of the petitioner.