1993 (4) TMI 29 - HC - Income Tax

Invalid Reassessment: Lack of Evidence for Income Escapement under Income-tax Act

The Tribunal held that the reopening of assessments under section 147(a)/148 of the Income-tax Act was not legal as it lacked concrete evidence of income ... Failure To Disclose Fully And Truly, Reassessment Issues Involved:1. Whether the initiation of proceedings under section 147(a)/148 of the Income-tax Act, 1961, was proper.2. Whether the Tribunal was justified in holding that the reopening of the assessments was not legal.Issue-wise Detailed Analysis:1. Initiation of Proceedings under Section 147(a)/148:The primary issue was whether the initiation of proceedings under section 147(a)/148 of the Income-tax Act, 1961, was proper. The original assessments for the assessment years 1972-73, 1974-75, and 1975-76 were completed under section 143(3) after thorough investigations. However, reassessment proceedings were initiated later based on notices issued under section 148 read with section 147(a).For the assessment year 1972-73, the Income-tax Officer recorded reasons based on the seizure of the company's books by the CBI, alleging that income amounting to Rs. 2,50,000 had escaped assessment due to the assessee's failure to disclose all material facts. Similarly, for the assessment years 1974-75 and 1975-76, the reasons recorded included claims of bogus expenditures on brokerage and commission to Sahualla Trading Company, which was allegedly constituted to siphon off profits.2. Tribunal's Justification in Holding Reopening of Assessments as Illegal:The Tribunal held that the reopening of the assessments was based on no evidence. According to section 147(a), the Income-tax Officer can reopen an assessment if there is a failure by the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal found that the assessee had filed all necessary documents, including audited profit and loss accounts and balance sheets, during the original assessments.The Tribunal noted that the reasons recorded by the Income-tax Officer for the assessment year 1972-73 were vague and lacked specific material facts indicating escapement of income. There was no break-up or detailed explanation of the alleged Rs. 2.5 lakhs of escaped income. The Tribunal referenced several Supreme Court decisions, including Sheo Nath Singh v. AAC of I.T. and ITO v. Lakhmani Mewal Das, to support its view that mere quoting of section 147(a) without concrete evidence cannot justify reopening an assessment.For the assessment years 1974-75 and 1975-76, the Tribunal observed that the alleged bogus expenditures were disclosed in the audited profit and loss accounts and were allowed as business expenditures during the original assessments. The Tribunal concluded that the reassessment proceedings were initiated based on a mere change of opinion without any new material facts, which is not permissible under the law. The Tribunal cited several cases, including CIT v. Burlop Dealers Ltd. and ITO v. Madnani Engg. Works Ltd., to emphasize that reassessment cannot be initiated merely on a change of opinion.The Tribunal also distinguished the Revenue's cited cases, Md. Serajuddin and Bros. v. ITO and H. A. Nanji and Co. v. ITO, based on the detailed reasons recorded in those cases, which were not present in the current case.Conclusion:The Tribunal concluded that the initiation of reassessment proceedings was not proper due to the lack of specific material facts and evidence. The Tribunal's decision to strike down the reassessment proceedings was upheld. The reference to the second set of books of account was found irrelevant as it did not pertain to the second and third assessment years and was not shown to conceal income for the first year. The question was answered in the affirmative and against the Revenue, with no order as to costs.The concurring judgment by Shyamal Kumar Sen J. agreed with the analysis and conclusions drawn.