2023 (2) TMI 717 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - HELD THAT - From a reading of the reasons recorded although it has been mentioned that income chargeable to take had escaped assessment on account of failure on the part of the assessee to disclose fully and truly material facts, yet juxtaposed with the later part of the reasons, which states that no scrutiny assessment had been made and that the only requirement was to initiate proceedings under Section 147 on the basis of reason to believe goes to prove that the assessing officer had reopened the assessment only on the basis of reason to believe and not failure to disclose material facts fully and truly, on which too the assessing officer ought to have been satisfied as matter pertained to reopening beyond the period of four years. In our opinion, the manner in which the assessing officer proceeded reflects total non-application of mind, which neither satisfies the jurisdictional condition, which was required to be followed in terms of Section 147 nor does it in the least satisfy the conditions prescribed in the case of Hindustan Lever Ltd. 2004 (2) TMI 41 - BOMBAY HIGH COURT as the assessing officer had failed to highlight in the reasons recorded as to which was that material fact, which was not disclosed by the assessee in its return. Thus in our opinion, notice under Section 148 are held to be unsustainable and are accordingly quashed - Decided in favour of assessee.

Summary

Issues:
Validity of notice under Section 148 of the Income-tax Act, 1961 and proceedings for reopening of assessment under Section 147.

Analysis:
The petitioner challenged the validity of the notice issued under Section 148 of the Act and the proceedings for reopening of assessment under Section 147. The petitioner filed a return of income for the assessment year 2015-16, which was selected for scrutiny under CASS. The assessment proceedings were completed under Section 143(3) accepting the loss declared in the return. However, a notice under Section 148 was issued seeking to reopen the assessment on the ground that income had escaped assessment. The petitioner filed objections to the reopening, stating that the reasons were based on an incorrect factual matrix. The assessing officer provided reasons for reopening, mentioning the use of accommodation entries by the petitioner to evade taxation.

The petitioner challenged the reopening primarily on the grounds of non-application of mind by the assessing officer and the Principal Commissioner of Income Tax-5. The assessing officer admitted inadvertence in stating that no scrutiny assessment had been made. The respondent supported the action by stating that new information regarding accommodation entries was not part of the original scrutiny. The court referred to Section 147 of the Act and emphasized the importance of clear and unambiguous reasons for reopening assessments. The court cited a previous case where a notice was set aside due to vague reasons.

The court found that the assessing officer's reasons lacked clarity and failed to establish a vital link between the reasons and evidence for reopening the assessment. It was observed that the assessing officer proceeded without proper application of mind, leading to the quashing of the notice and the order for reopening. The court held the notice and order to be unsustainable and quashed them, with no order as to costs.