Assessment notice quashed due to lack of independent belief by Assessing Officer. Petition disposed with costs.

The court quashed the notice for reopening the assessment, ruling that the Assessing Officer did not independently believe that income had escaped assessment but acted under the influence of the audit party. The petition was disposed of, and the rule was made absolute with no order as to costs.

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Issues Involved: Reopening of assessment, recording of reasons, audit party influence, independent belief of Assessing Officer, jurisdiction under section 147 of the Income-tax Act.

Detailed Analysis:

1. Reopening of Assessment:
The petitioner challenged the notice dated August 3, 2004, for reopening the assessment for the assessment year 2000-01. The original return was filed on November 29, 2000, and the assessment was completed under section 143(3) of the Income-tax Act. The Assessing Officer (AO) issued the notice to reopen the assessment based on three reasons: disallowance of Rs. 3,90,700 for penalty on non-fulfillment of export obligation, non-reduction of 90% of insurance claim from business profits for deduction under section 80HHC, and a transaction involving purchase and sale of units of Prudential ICICI Growth Plan deemed as a colorable device.

2. Recording of Reasons:
The petitioner argued that the AO did not record reasons before issuing the notice, which is a sine qua non for assuming jurisdiction for reopening the assessment. The court examined the original files and found that the reasons were recorded on August 3, 2004, the same date the notice was issued. However, there was a discrepancy as the Commissioner of Income-tax's approval was dated August 2, 2004, raising doubts about the sequence of events.

3. Audit Party Influence:
The petitioner contended that the AO issued the notice under the influence of the audit party and did not independently believe that income had escaped assessment. The petitioner cited specific averments indicating that the AO initially disagreed with the audit objections and communicated this to the audit party. The AO's affidavit did not specifically deny these averments but expressed surprise that the petitioner had access to inter-departmental correspondence.

4. Independent Belief of Assessing Officer:
The court emphasized that the AO must form an independent belief that income chargeable to tax had escaped assessment, even if the audit party brings the issue to notice. The court referred to the decision in Adani Exports v. Deputy CIT, which held that the AO's action must be based on their independent belief, not merely on audit objections.

5. Jurisdiction Under Section 147:
The court found that the AO did not independently believe that income had escaped assessment and issued the notice under compulsion from the audit party. This lack of independent belief invalidated the jurisdiction to reopen the assessment under section 147 of the Income-tax Act.

Conclusion:
The court quashed the notice for reopening the assessment, stating that the AO did not independently form the belief that income had escaped assessment. The petition was disposed of, and the rule was made absolute with no order as to costs.

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