2015 (4) TMI 834 - HC - Income Tax

Court quashes improper income tax reassessment for AY 2009-10, citing procedural lapses and lack of valid reasons.

The court quashed and set aside the reassessment proceedings and notice issued under Section 148 of the Income Tax Act for AY 2009-10. The court found ... Reopening of assessment - as per reasons recorded the assessee has purchased bonds / debenture of ₹ 50,00,000/- during the FY 2008-09 relevant to AY 2009-10. Also the assessee has claimed high value of refund for AY 2009-10 which requires to be verified - Held that:- Considering the reasons recorded for reopening of the assessment for AY 2009-10 and even considering the affidavit in reply it appears that even as per AO investment made by the assessee in certain bonds as well as high value of refund sought by her required deeper verification. If that be so and in that case, subjective satisfaction and / or belief of the AO while reopening the assessment that the income chargeable to tax has escaped assessment has been viatiated. Even according to the respondent and in the reasons recorded for reopening of assessment, the aforesaid was required to be verified. Therefore, as such the condition precedent for reopening of the assessment under Section 147 of the Act are not satisfied. As per the catena of decisions while exercising the powers under Section 147 of the Act and while reopening of any assessment, the AO must form, on the basis of tangible material a tentative or prima facie opinion that there is an underassessment or escapement of income. As per the catena of decisions, a computed assessment cannot be reopened to make inquiry or further verification of the claim. After due verification and inquiry when AO forms prima facie opinion that income chargeable to tax has escaped assessment in that case only the reopening of assessment under Section 147 of the Act is permissible. The things which are yet to be verified, on that the AO cannot have a subjective satisfaction that income chargeable to tax has escaped assessment. That will be putting a cart before horse - Decided in favour of assessee. Issues Involved:1. Validity of the reassessment notice under Section 148 of the Income Tax Act.2. Satisfaction of conditions precedent for reopening assessment under Section 147 of the Income Tax Act.3. Adequacy of reasons recorded for reopening the assessment.4. Procedural lapses in communication of reasons for reopening.Detailed Analysis:1. Validity of the reassessment notice under Section 148 of the Income Tax Act:The petitioner challenged the reassessment notice dated 28.3.2014 issued under Section 148 of the Income Tax Act, proposing to reopen the assessment for AY 2009-10. The petitioner argued that the notice was illegal and arbitrary as it did not satisfy the conditions precedent for reopening an assessment under Section 147 of the Act. The court noted that the reasons provided by the Assessing Officer (AO) were insufficient and primarily aimed at verifying claims rather than establishing a belief that income had escaped assessment.2. Satisfaction of conditions precedent for reopening assessment under Section 147 of the Income Tax Act:The petitioner contended that the AO must have a reason to believe that income chargeable to tax had escaped assessment, which was not evident in this case. The AO's reasons for reopening included the need to verify the high value of refund claimed and the investment in bonds. The court observed that the AO had not formed a prima facie belief of income escapement but rather intended to verify the claims, which does not satisfy the conditions for reopening an assessment under Section 147.3. Adequacy of reasons recorded for reopening the assessment:The reasons recorded by the AO for reopening the assessment were communicated to the petitioner in two parts, with the second part being communicated later. The reasons included the verification of investment in bonds and the high value of refund. The court found that these reasons were inadequate as they did not indicate any tangible material or prima facie opinion of income escapement. The court held that reopening an assessment to make inquiries or further verification is not permissible under Section 147.4. Procedural lapses in communication of reasons for reopening:The court noted procedural lapses in the communication of reasons for reopening the assessment. The second paragraph of the reasons recorded was communicated to the petitioner after the initial objections were filed, raising doubts about the authenticity and completeness of the reasons provided. The court found this delay and manner of communication suspicious and lacking in credibility.Conclusion:The court concluded that the conditions precedent for reopening the assessment under Section 147 were not satisfied. The reasons recorded by the AO were aimed at verification rather than forming a belief of income escapement. The procedural lapses in communication further undermined the validity of the reassessment notice. Consequently, the court quashed and set aside the reassessment proceedings and the notice issued under Section 148 of the Income Tax Act for AY 2009-10. The petition was allowed, and the rule was made absolute to the extent of quashing the impugned reassessment proceedings. No costs were awarded.