2017 (1) TMI 728 - HC - Income Tax

Invalidity of Income Tax Act Section 148 notices for assessments 1989-92

Amar Hotchand Nagpal Versus The Assistant Commissioner of Income Tax, The Commissioner of Income Tax, Union of India

The Court held that the notices issued under Section 148 of the Income Tax Act, 1961 to reopen assessments for the years 1989-90, 1990-91, and 1991-92 ... Validity of reopening of assessment - valid reasons to believe - review v/s reassessment - Held that:- It is a settled position in law that a re­opening of assessment has to be done only by the Assessing Officer based on his reasonable belief that income chargeable to tax has escaped assessment. This satisfaction of the Assessing officer has to be disclosed /made explicit in the reasons recorded and the same cannot be a subject of speculation and /or drawing inferences. Any improvement in the reasons recorded as sought to be done by oral submissions on the basis of the affidavit in reply of the Commissioner of Income Tax Mr. K.K. Deb Burman dated 12 May 1988 has to be ignored. The reasons as recorded can alone be subjected to examination, to determine whether it supports the belief that income chargeable to tax has escaped assessment. On minute examination of the reasons recorded, we find that even when reasons recorded are read as a whole, it does not indicate that there has been a failure on the part of the petitioner to disclose fully and truly all facts necessary for assessment. Nor does it state that there has been any misrepresentation on the part of the petitioner. It is on re­examination of the seized diaries(A­1 to A­6) alone, without any fresh material which points to the falsity of the diaries(A­1 to A­6). Therefore when we examine the reasons recorded, without the aid of the affidavit in reply dated 12 March 1988 of the Commissioner of Income Tax, it clearly indicates a change of opinion on the same set of facts. Thus it is a clear case of the Assessing officer seeking to review his decision taken during the earlier assessment/ re­opening assessment and not a case of reassessment. In the present facts, it is not the case of the Revenue that any material evidence which was a part of the seized six diaries (A1 to A6),was not brought to the notice of the Assessing Officer, and it does not mention which material relied upon by the Petitioner during the assessment proceedings, had led the Assessing Officer to conclude that the Petitioner is only a finance broker and not a financier. In fact the reasons recorded in this case does not even remotely indicate that any part of the evidence being relied upon to issue the impugned notices were not brought attention to by the petitioner during earlier assessment proceedings for the very assessment years which are sought to be reopened. - Decided in favour of assessee Issues Involved:1. Validity of the notices issued under Section 148 of the Income Tax Act, 1961 for reopening assessments for the years 1989-90, 1990-91, and 1991-92.2. Allegations of misleading the Assessing Officer and incorrect decoding of seized diaries.3. Permissibility of improving reasons for reopening through affidavits or oral submissions.4. Application of Explanation I to Section 147 of the Income Tax Act.5. Relevance of case laws cited by both parties.Detailed Analysis:1. Validity of the Notices Issued Under Section 148:The petitioner challenged three notices dated 23rd September 1997, issued under Section 148 of the Income Tax Act, 1961, which sought to reopen assessments for the years 1989-90, 1990-91, and 1991-92. The petitioner argued that these notices were without jurisdiction and thus invalid. The Court noted that the reopening of assessments must be based on the Assessing Officer's reasonable belief that income chargeable to tax had escaped assessment, which should be explicitly stated in the recorded reasons.2. Allegations of Misleading the Assessing Officer and Incorrect Decoding of Diaries:The respondent-revenue contended that during the assessment proceedings, the petitioner misled the Assessing Officer regarding entries in six seized diaries (A1 to A6) and incorrectly decoded these entries. The affidavit filed by the Commissioner of Income Tax supported this contention. However, the Court emphasized that the recorded reasons did not indicate any such misleading or incorrect decoding by the petitioner.3. Permissibility of Improving Reasons for Reopening:The Court reiterated that reasons for reopening must be read as recorded by the Assessing Officer, without any substitution or deletion. The reasons should be clear, unambiguous, and self-explanatory. The Court referred to its earlier judgment in Hindustan Lever Ltd., which held that reasons recorded cannot be supplemented by affidavits or oral submissions. Thus, the affidavit of the Commissioner of Income Tax could not be used to improve the recorded reasons.4. Application of Explanation I to Section 147:The respondent-revenue cited Explanation I to Section 147, arguing that mere production of account books or other evidence does not constitute full and true disclosure. The Court distinguished the present case from the case cited by the respondent, Zohar Siraj Lokhandwala, where the trust deed itself indicated a cost of acquisition, which was not disclosed. In the present case, the reasons recorded did not suggest that any material evidence from the seized diaries was not brought to the Assessing Officer's attention during the original assessment.5. Relevance of Case Laws Cited:The Court found the reliance on Zohar Siraj Lokhandwala misplaced, as the facts differed significantly. In Zohar Siraj Lokhandwala, the trust deed contained clear evidence of the cost of acquisition, which was not disclosed. In contrast, the present case involved no such specific non-disclosure. Similarly, the Calcutta High Court's decision in Eureka Stock & Share Broking Services Ltd. was found irrelevant, as it involved misrepresentation of facts by the assessee, which was not alleged in the recorded reasons in the present case.Conclusion:The Court concluded that the impugned notices dated 23rd September 1997 were based on a change of opinion on the same set of facts, rather than new material evidence. Therefore, the notices were deemed invalid. The Court quashed and set aside the notices, making the rule absolute in terms of prayer clause (a), with no order as to costs.