Court grants interim relief in challenge to Income Tax Act notice lacking jurisdiction for reopening assessment.

M/s. Coronation Agro Industries Ltd. Versus Deputy Commissioner of IncomeTax Circle6 (2) (1)

M/s. Coronation Agro Industries Ltd. Versus Deputy Commissioner of IncomeTax Circle6 (2) (1) - [2017] 390 ITR 464 Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2009-10 based on client code modification leading to reduction of taxable income.

Analysis:
The petition challenges a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the year 2009-10. The impugned notice is based on information received from the Principal Director of Income Tax, alleging that the petitioner benefited from a client code modification resulting in a profit shift of Rs. 22.50 lakhs by the petitioner's broker, leading to a reduction in taxable income. The Assessing Officer formed a belief that there was an escapement of income and failure to fully disclose material facts based on this information. However, it was noted that the reasons provided in the notice did not establish a link between the client code modification and an intentional escape of income. The court observed that the reasons presented only raised a suspicion rather than a reasonable belief that income chargeable to tax had escaped assessment.

The court highlighted that the reasons in support of the notice acknowledged that client code modifications by brokers in the stock exchange were a regular business practice to rectify errors post-trading. However, the basis for the Assessing Officer's belief that the modification in this case was not due to a genuine error leading to income escapement was not adequately demonstrated. The court opined that the available material suggested a reason to suspect rather than a reason to believe that income had escaped assessment. Consequently, the court concluded that the notice lacked jurisdiction as it failed to establish a reasonable belief that income chargeable to tax had indeed escaped assessment.

In light of the above analysis, the court granted interim relief in favor of the petitioner, indicating that the impugned notice was without jurisdiction due to the absence of sufficient grounds to support the belief that income chargeable to tax had escaped assessment.