2022 (3) TMI 306 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - HELD THAT - The reason to believe is invalid and has no rational nexus to the belief for escapement of income and there was no fresh material on record to initiate re-assessment proceedings. This Court is further of the view that no useful purpose would be served by giving an opportunity to file a counter affidavit. Accordingly, the said request of learned counsel for the respondent is declined and the impugned notice dated 28th March, 2021 and the order disposing objections dated 27th December, 2021 are quashed.

Summary

Issues:
Challenge to impugned notice under Section 148 of Income Tax Act, 1961 for assessment year 2015-16 based on alleged claim of deduction not made by petitioner, reopening of assessment on the basis of audited accounts subject to original assessment proceedings, non-application of mind in the impugned order, invalid reason to believe for escapement of income, quashing of impugned notice and order, liberty granted to Assessing Officer for action based on fresh material.

Analysis:

1. The petitioner challenged the impugned notice dated 28th March, 2021 issued under Section 148 of the Income Tax Act, 1961 for the assessment year 2015-16. The petitioner contended that the reopening of assessment was solely based on a claim of deduction of ?1,54,05,798, which the petitioner had never made. The petitioner had only claimed expenses as per audited accounts, and the alleged contingent liabilities were disclosed in accordance with Accounting Standards AS-29.

2. The petitioner argued that the reopening was initiated on the basis of a review of the audited accounts, which were already subject to verification during the original assessment proceedings under Section 143(3). The petitioner emphasized that such re-appreciation of the same material is not permissible in law, as stated by the learned counsel.

3. The respondents, on the last hearing date, sought time to obtain instructions. Subsequently, they referred to Note No.24 of the audited accounts, highlighting the Assessing Officer's concern regarding the increase in contingent liability on account of statutory forms. However, the Court observed that the impugned order did not address the petitioner's contentions and was based on the erroneous premise that the contingent liability was claimed as a revenue expense, contrary to the Accounting Standards requirement.

4. The Court found that the impugned order disposing of objections suffered from a complete non-application of mind, with numerous repetitions. Consequently, the Court concluded that the reason to believe for escapement of income was invalid and lacked a rational nexus, as there was no fresh material to initiate reassessment proceedings.

5. Declining the request for a counter affidavit, the Court quashed the impugned notice dated 28th March, 2021, and the order disposing of objections dated 27th December, 2021. However, the Court granted liberty to the Assessing Officer to take action if fresh material is available, allowing the petitioner to respond accordingly in accordance with the law.

6. In the event of any further action by the Assessing Officer based on fresh material, the petitioner was granted the liberty to pursue appropriate proceedings as per the law. Consequently, the writ petition and application were disposed of by the Court, providing clarity on the invalidity of the reason to believe and the importance of adherence to Accounting Standards in disclosure of contingent liabilities.