2016 (2) TMI 797 - HC - Income Tax

Reopening assessments based only on search without new incriminating evidence is not allowed under tax law

The HC held that reopening an assessment solely based on a search, without incriminating material, and reassessing accounts already accepted in the ... Assessment reopened on the basis of search - additions to income - accounts maintained by the assessee and found at the time of search were different from the ones which were submitted by the assessee at the time of regular assessment - same did not tally with the corresponding accounts of the creditors and debtors - Held that:- If assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of account which had been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee. - Decided in favour of assessee Issues:- Discrepancy in accounts found during search- Validity of additions made by Assessing Officer- Reopening of assessment without incriminating material- Requirement of rejection of books of account for making additionsAnalysis:Issue 1: Discrepancy in accounts found during searchThe case involves discrepancies in the accounts maintained by the assessee found during a search conducted by the Revenue. The Revenue alleged that the accounts did not match with the corresponding accounts of creditors and debtors, leading to the issuance of notices to the assessee.Issue 2: Validity of additions made by Assessing OfficerThe Assessing Officer made additions based on the alleged discrepancies in the accounts. The assessee challenged these additions before the Appellate Commissioner, who allowed the appeals stating that no incriminating documents were found during the search to support the additions. The Tribunal also dismissed the Revenue's appeal, upholding the decision of the Appellate Commissioner.Issue 3: Reopening of assessment without incriminating materialBoth the Tribunal and the Appellate Commissioner found that no incriminating documents were discovered during the search to justify the reassessment of the assessee's accounts. They held that reassessing the accounts without additional material found during the search would amount to reopening a concluded assessment, which is impermissible under the law.Issue 4: Requirement of rejection of books of account for making additionsThe Court agreed with the Tribunal's view that the Assessing Officer cannot make additions without rejecting the books of account of the assessee or without any adverse comments on the maintained books. Reassessment based solely on a search without incriminating material would provide the Revenue with a second opportunity to reassess a concluded assessment, contrary to the statutory procedure for reassessment.In conclusion, the Court dismissed the appeals, affirming the Tribunal's decision that no substantial legal questions arose in the case. The judgment emphasized the importance of adhering to the statutory requirements for reassessment and the impermissibility of reopening assessments without incriminating material.