2022 (3) TMI 1290 - HC - Income Tax

Reopening of assessment u/s 147 - Reopening notice within four years - eligibility of reason to believe - HELD THAT - Section 148 notices have been issued within four years from the end of the relevant Assessment Years. Also no scrutiny assessment has been taken place in the present cases. Consequently, the test to be applied for re-assessment in the present cases is whether there is reason to believe that income chargeable to tax has escaped assessment. In Raymond Woollen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT the Supreme Court has held that the expression reason to believe means that there is some prima facie material on the basis of which the Department can reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice under Section 148 of the Act. This Court is of the view that the aforesaid test stipulated in Raymond Woollen Mills Ltd. (supra) is satisfied in the present case. However, the contentions and submissions raised by the petitioner are relevant and must be examined by the Assessing Officer while passing the reassessment order. It will also be open to the assessee to show in the re-assessment proceedings that the assumption of facts made in the notice is erroneous.

Summary

Issues:
Challenging notices under Section 148 of the Income Tax Act and orders disposing of objections for Assessment Years 2016-17 & 2017-18.

Analysis:
The petitioner filed writ petitions challenging notices issued under Section 148 of the Income Tax Act and orders disposing of objections for the Assessment Years 2016-17 & 2017-18. The notices were based on the petitioner's transactions flagged in the Non-Filers Monitoring System for the Financial Years 2015-16 & 2016-17, specifically related to remittance without deducting TDS and claiming it as tax-free under the DTAA between India and the USA. The impugned orders highlighted that despite the receipts, the petitioner had not filed any return of income for the relevant years and had not offered the receipts to tax. The plea of the petitioner was considered under CBDT instructions for issuing notices under Section 148. The petitioner argued that the notices and orders were illegal and without jurisdiction, as they were based on assertions that did not meet the requirements of Section 147 of the Act.

The petitioner's senior counsel contended that the income, including dividend income and long-term capital gain, was exempt under relevant sections of the Act. On the other hand, the respondents argued that the income was chargeable to tax, and the exemption claimed by the petitioner needed examination during re-assessment proceedings. The Court acknowledged the need for detailed consideration of the issues regarding dividend income and long-term capital gain on the sale of shares. The notices were issued within the prescribed time frame, and no scrutiny assessment had taken place, requiring the application of the "reason to believe" test for reassessment. Referring to precedent, the Court emphasized that the sufficiency or correctness of material is not to be considered at the notice issuance stage under Section 148.

The Court found that the test stipulated in the precedent case was satisfied in the present situation. However, it directed the Assessing Officer to consider the contentions and submissions raised by the petitioner during the reassessment process. The petitioner was granted the opportunity to demonstrate in the reassessment proceedings if the assumptions made in the notice were erroneous. Consequently, the Court disposed of the writ petitions and pending applications with the provided directions for the reassessment process.