2019 (4) TMI 299 - HC - Income Tax

Reopening of assessment u/s 147 - original assessment u/s 143(3) - no allegation of absence of full and true disclosure by the Assessee of all material facts necessary for the assessment - notice based on addition in subsequent year - addition deleted in appeal - no information in possession of the AO specific to AY 1986-87 which could have formed the basis of the formation of his opinion that income had escaped assessment. - Held That - It is not possible for this Court at a distance in time of three decades after the event, to be unmindful of the fact that for AY 1987-88, ultimately, there were no additions made to the income of the Assessee. If that was the only basis for reopening the assessment of AY 1986-87 it would be an entirely futile exercise for this Court to allow the reopening of the assessment for 1986-87 to remain. this Court is satisfied that in the present case the jurisdictional requirement of Section 147(b) of the Act as stood at the relevant time is not fulfilled. There was no information available to the AO specific to AY 1986-87 on the basis of which he could have formed a belief that income has escaped assessment - question answered in favour of the Assessee

Summary

Issues:
1. Validity of initiating reassessment proceedings under Section 147/148 of the Income Tax Act, 1961 for the assessment year 1986-87.
2. Assessment of the assessee company under Section 68 of the Income Tax Act, 1961 for the assessment year 1986-87.

Issue 1:
The appeal challenged the legality of the Assessing Officer's decision to initiate reassessment proceedings against the assessee-appellant company for the assessment year 1986-87 under Section 147/148 of the Income Tax Act, 1961. The court framed questions regarding the validity of the action based on the observations of the Assessing Officer. The background revealed that the assessment for the relevant year was scrutinized, and specific queries were answered by the assessee regarding the increase in share capital. The reasons for reopening the assessment highlighted three items for disallowance, which led to the addition of a significant amount to the returned income. The appellate authorities affirmed the reassessment order, leading to the appeal before the High Court.

Issue 2:
The second issue focused on the assessment of the assessee company under Section 68 of the Income Tax Act, 1961, for the assessment year 1986-87. The AO made additions based on share capital introduced, losses in share transactions, and office maintenance expenses. The court examined the legality of the assessment, particularly regarding the identity and creditworthiness of share subscribers. The appellant argued that subsequent developments in the assessment for the following year rendered the basis for reopening the assessment for the year in question invalid. The court analyzed relevant legal provisions and precedents to determine the justification for persisting with the reassessment. Ultimately, the court ruled in favor of the assessee, setting aside the additions made by the AO and allowing the appeal.

In conclusion, the High Court found that the Assessing Officer lacked specific information to justify the belief that income had escaped assessment for the relevant year. The court emphasized the importance of valid reasons for initiating reassessment proceedings and highlighted the need for a rational connection between the reasons and the belief formed by the AO. The judgment favored the assessee, setting aside the reassessment order and the additions made by the AO, ultimately allowing the appeal with no costs awarded.