2022 (4) TMI 1391 - HC - Income Tax

Reopening of assessment u/s 147 - live link or close nexus between the material before the ITO in the case at hand and the belief which he was to form recording the escapement of income - HELD THAT - No doubt true that Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for re-opening assessment but at the same time, it is not any and every material, however vague and indefinite or distant, remote and far-fetched which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. It is also settled law that the reasons for re-opening assessment has to be tested / examined only on the basis of the reasons recorded at the time of issuing a notice under Section 148 of the Act seeking to re-open the assessment. These reasons cannot be improved upon and/or supplemented much less substituted by an Affidavit and/or oral submissions (First Source Solutions Limited vs. The Assistant Commissioner of Income Tax - 12(2)(1) and Another 2021 (9) TMI 248 - BOMBAY HIGH COURT ). Therefore, the submission of Mr. Sharma that respondent no.2 has explained in the order on objections what was the report and information and details on which he formed a reason to believe, will be of no assistance to respondents.

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961 for A.Y. 2014-15.
2. Rejection of objections filed against the notice.
3. Impugning the notice dated 31st March 2021 and the order dated 21st January 2022.

Issue 1: The validity of the notice issued under Section 148 of the Income Tax Act, 1961 for A.Y. 2014-15 was challenged. The petitioner argued that the reasons for forming the belief of income escapement must have a direct nexus with the material available. The petitioner contended that the reasons recorded lacked a demonstrable link between the tangible material and the belief formed, indicating non-application of mind by the authorities. The court observed discrepancies in the reasons recorded, highlighting errors and lack of clarity regarding the assessment year in question. The court emphasized the importance of a live link between the material before the Income Tax Officer and the belief formed for income escapement. It was held that the reasons for reopening assessment must be examined based on the recorded reasons alone, without improvements or supplementation through affidavits or oral submissions.

Issue 2: The objections filed by the petitioner against the notice were rejected by an order dated 21st January 2022. The court noted that the reasons recorded lacked clarity and a direct nexus between the information available and the belief formed by the authorities. The court emphasized the requirement of a rational connection between the material before the Income Tax Officer and the belief formed for income escapement. It was held that the reasons for reopening assessment must be scrutinized based on the recorded reasons alone, without additional explanations provided in subsequent orders.

Issue 3: The petitioner impugned the notice dated 31st March 2021 and the order dated 21st January 2022 in the petition. The court allowed the petition in terms of the prayer clause to quash and set aside the impugned reopening notice dated 31st March 2021. The court emphasized the obligation of the authorities to provide clear and valid reasons for reopening assessments, highlighting the importance of a direct nexus between the material available and the belief formed for income escapement. The court ruled in favor of the petitioner based on the discrepancies and lack of clarity in the reasons recorded for reopening the assessment.