2017 (1) TMI 980 - AT - Income Tax

Invalid reassessment orders for 2006-09 upheld due to vague reasons. Concrete grounds required for income escapement beliefs.

The Tribunal upheld the CIT(A)'s decision that the reassessment orders for the assessment years 2006-07, 2007-08, and 2008-09 were invalid due to vague ... Validity of reopening of assessment - reasons to believe - change of opinion - possession of assets by assessee - Held that:- There is no mention of what type of information the Department had about the assessee’s shop and another shop A/c hall along with vehicles, godowns and other assets. Neither the nature/source of information nor any specific allegation is mentioned. Mere possession of assets by itself does not constitute a belief that income of the years in question had escaped assessment. Thus, the reassessment proceedings are based on presumption and suspicion and not on the basis of any specific instance of escapement of income. Looking at the general and non-specific nature of reasons on the basis whereof the assessments have been reopened cannot be held as a valid basis for reopening. The reasons utterly lack in terms of objective, application of mind and specific instance; and, in considered view, a reasonable belief on this basis of reasons cannot be formed so as to issue notice u/s 148 of the Act. Supreme Court in the case of CIT vs Kelvinator of India Ltd,(2010 (1) TMI 11 - SUPREME COURT OF INDIA ) has held that the reasons must be specific, should have objective and a live connection with the escaped income and there should be a proper form of belief. - Decided in favour of assessee Issues Involved:1. Validity of reassessment orders under Section 147 of the Income Tax Act.2. Nature and sufficiency of reasons recorded for reopening assessments.3. Applicability and interpretation of Explanation 3 to Section 147.Detailed Analysis:1. Validity of Reassessment Orders under Section 147:The primary issue is whether the reassessment orders for the assessment years 2006-07, 2007-08, and 2008-09 were validly issued under Section 147 of the Income Tax Act. The Revenue argued that the reassessment was justified based on information that the assessee possessed certain assets, leading to a belief that income had escaped assessment. However, the Tribunal found that the reasons recorded were vague and general, lacking specific instances of income escapement. The CIT(A) had previously held that the reasons were not adequate to form a belief of income escapement, thus rendering the reassessment orders void ab initio.2. Nature and Sufficiency of Reasons Recorded for Reopening Assessments:The Tribunal scrutinized the reasons recorded for reopening the assessments, which were based on the possession of shops, vehicles, godowns, and other assets by the assessee. It was noted that these reasons were non-specific and did not indicate any particular instance or evidence of income escapement. The Tribunal emphasized that mere possession of assets does not constitute a valid reason for reopening assessments. The Hon’ble Supreme Court in CIT vs. Kelvinator of India Ltd. had established that reasons must be specific, objective, and have a live connection with the escaped income. The Tribunal concluded that the reassessment proceedings were based on presumption and suspicion rather than concrete evidence.3. Applicability and Interpretation of Explanation 3 to Section 147:The Revenue contended that Explanation 3 to Section 147, inserted by the Finance Act, 2009, allowed the Assessing Officer to assess any income that came to notice during reassessment proceedings, even if it was not included in the original reasons recorded. The Tribunal, however, upheld the CIT(A)’s view that the reasons for reopening must be specific and directly related to the income initially believed to have escaped assessment. The Tribunal referred to judgments from various High Courts, including the Bombay High Court in CIT vs. Jet Airways (I) Ltd., which held that if the original reason for reopening does not survive, the Assessing Officer cannot independently assess other income without issuing a fresh notice under Section 148.The Tribunal also considered the Karnataka High Court’s judgment in CIT vs. M/s. Mookambika Developers, which supported the Revenue’s stance that Explanation 3 allowed for the assessment of any income that came to notice during reassessment. Despite this, the Tribunal favored the interpretation that the original reason for reopening must be valid and specific, aligning with the Supreme Court’s judgment in Kelvinator of India Ltd.Conclusion:The Tribunal upheld the CIT(A)’s decision that the reassessment orders were invalid due to the vague and non-specific reasons recorded for reopening. The Tribunal dismissed the Revenue’s appeals, reinforcing that reassessment proceedings must be based on concrete and specific reasons, and mere possession of assets does not justify a belief of income escapement. The Tribunal’s decision emphasized the importance of adhering to legal standards and specific requirements for reopening assessments under Section 147 of the Income Tax Act.