2012 (5) TMI 44 - HC - Income Tax

Court upholds validity of notice under Income Tax Act, 1961 Section 148, supporting Revenue's position

The Court upheld the validity of the notice issued under Section 148 of the Income Tax Act, 1961, and the reasons recorded for reopening the assessment. ... Re-assessment proceedings - return of income declaring loss – assessee contested against the re- assessment proceedings as notice u/s 148 has been issued beyond the period of 4 years from the end of the assessment year – Held that:- Sanction for the proposal to reopen the assessment was accorded by the ACIT on 9.3.2011, notice to reopen the assessment was issued on 15.3.2011 and reasons for reopening the assessment had been recorded on 9.3.2011. These were however supplied to the petitioner only on 30.8.2011 - There is no requirement in Section 147 or Section 148 or Section 149 that the reasons recorded should also accompany the notice issued under Section 148 and served on the assessee before the period of limitation - only a delay of 4 ½ months in supplying the reasons recorded by the AO to the petitioner cannot invalidate the reassessment proceedings - against assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Adequacy of reasons recorded for reopening the assessment.3. Compliance with procedural requirements, including the timing of communication of reasons for reopening.Issue-Wise Detailed Analysis:1. Validity of the Notice Issued under Section 148:The petitioner challenged the notice issued under Section 148 on 15.3.2011 for the assessment year 2004-05, claiming it was beyond the permissible time limit. The Court noted that the notice was issued beyond four years from the end of the assessment year, invoking the first proviso to Section 147. The assessment could only be reopened if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The petitioner argued that all relevant facts, including audited accounts, were disclosed in the original return. The Court, however, found no evidence that these details were filed with the original return, thereby supporting the Revenue's position that there was a failure to disclose material facts.2. Adequacy of Reasons Recorded for Reopening the Assessment:The reasons recorded by the Assessing Officer (AO) were based on information from the Directorate of Investigation, which indicated that the petitioner was a beneficiary of bogus accommodation entries amounting to Rs.4,50,000/-. The petitioner contended that the reasons were vague and did not establish a clear basis for reopening the assessment. The Court held that the information from the Directorate was sufficient to form a prima facie belief that income had escaped assessment. The Court emphasized that at the stage of issuing the notice, the AO is only required to form a tentative belief, not to conclusively establish the escapement of income.3. Compliance with Procedural Requirements:The petitioner argued that the reasons for reopening the assessment were communicated beyond the statutory period, rendering the proceedings invalid. The Court examined the timeline and found that while the reasons were recorded on 9.3.2011 and the notice was issued on 15.3.2011, the reasons were communicated to the petitioner on 30.8.2011. The Court clarified that there is no statutory requirement for the reasons to be communicated within the limitation period. The mandatory requirement is that reasons must be recorded before issuing the notice. The Court distinguished this case from the Haryana Acrylic Manufacturing Co. case, noting that there were no two sets of reasons and the delay in communication did not invalidate the proceedings.Conclusion:The Court dismissed the writ petition, upholding the validity of the notice issued under Section 148 and the reasons recorded for reopening the assessment. The Court found no procedural lapses that would invalidate the reassessment proceedings and vacated all interim orders.