2018 (1) TMI 810 - HC - Income Tax

Court upholds legality of notice & reassessment under Income Tax Act, rational nexus found, lack of justification dismissed.

The court upheld the legality of the notice issued under Section 148 of the Income Tax Act and the validity of the reassessment proceedings initiated by ... Reopening of assessment - recording the reasons for initiating the reassessment proceedings - legality of notice - sufficiency and adequacy of the reasons - Held that:- A perusal of the reasons recorded by the AO for issuing notice u/s 148 reveals that the re-assessment proceedings has been initiated against the assessee on the basis of the material impounded during the survey of M/s Akash Amar Agrotech Pvt. Ltd. and post survey investigation. As during the relevant A.Y. the assessee has shown agriculture income of ₹ 15,24,600/- in lieu of sale of agriculture land which has been claimed as exempt from tax. As main business activity of the appellant assessee as per its own record is purchase and sale for the purpose of development and subsequent sale, which forms the source of its revenue. The factum of the appellant assessee entering into development agreement for the purpose of development and sale of the land has also come on record. Thus where the return filed by the assessee was not subjected to scrutiny assessment, the belief formed by the AO after due examination of the material on record that the income of the assessee chargeable to tax during the relevant assessment year has escaped assessment cannot be said to be arbitrary or irrational or there exists no rational and intelligible nexus between the reasons and the belief. It is true that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the AO regarding the escapement of the income but then, while recording the reasons for belief formed, the AO is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the AO had cause or justification to know or suppose that income had escaped assessment [see Rajesh Jhaveri Stock Brockers Pvt. Limited’s case (2007 (5) TMI 197 - SUPREME Court )]. It is also well settled the sufficiency and adequacy of the reasons which have led to formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court. - Decided against assessee. Issues Involved:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.2. Validity of the reassessment proceedings initiated by the Assessing Officer (AO).3. Adequacy of the reasons recorded by the AO for initiating reassessment.4. Alleged failure of the AO to provide documents forming the basis for reassessment.5. Whether the reassessment was based on a mere change of opinion.Issue-wise Detailed Analysis:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:The appellant challenged the notice issued by the AO under Section 148 of the Act for the assessment year 2010-11. The AO issued the notice proposing to assess/re-assess the appellant's income, which was initially processed under Section 143(1) of the Act. The appellant argued that the AO did not dispose of the objections raised in response to the notice by a speaking order, as mandated by the Supreme Court in 'GKN Driveshafts (India) Ltd. vs. ITO & Ors.'2. Validity of the reassessment proceedings initiated by the Assessing Officer (AO):The reassessment proceedings were initiated based on documents impounded during a survey of M/s Akash Amar Agrotech Pvt. Ltd. and subsequent investigations. The appellant contended that there was no live link or close nexus between the material before the AO and the belief that income had escaped assessment. The AO, however, argued that there was a rational nexus between the reasons and the belief formed, justifying the reassessment proceedings.3. Adequacy of the reasons recorded by the AO for initiating reassessment:The appellant argued that the AO did not spell out how the information/material available led to the belief that income had escaped assessment. The court noted that the belief must be reasonable and based on material on record, and there must exist a rational and intelligible nexus between the reasons and the belief. The court found that the AO had sufficient cause or justification to believe that income had escaped assessment based on the material impounded during the survey and post-survey investigations.4. Alleged failure of the AO to provide documents forming the basis for reassessment:The appellant claimed that the AO did not supply the documents forming the basis for initiating reassessment proceedings, thus denying an effective opportunity to file objections. The court observed that the AO had supplied the reasons recorded for issuing the notice under Section 148, and the appellant had submitted objections questioning the legality of the notice and reassessment proceedings. The court found no merit in the appellant's contention that the reassessment proceedings were initiated without providing necessary documents.5. Whether the reassessment was based on a mere change of opinion:The appellant contended that the reassessment proceedings were initiated on a mere change of opinion, which is not permissible. The court referred to the Supreme Court's decision in 'ACIT vs. Rajesh Jhaveri Stock Brokers Private Limited,' which clarified that there being no assessment under Section 143(1), the question of change of opinion does not arise. The court concluded that the belief formed by the AO after examining the material on record was neither arbitrary nor irrational, and there was a rational and intelligible nexus between the reasons and the belief.Conclusion:The court dismissed the appeal, upholding the legality of the notice issued under Section 148 and the validity of the reassessment proceedings initiated by the AO. The court found that the AO had sufficient cause to believe that income had escaped assessment and that the reassessment proceedings were not based on a mere change of opinion. The court also noted that the AO had complied with the procedural requirements, including supplying the reasons for initiating reassessment and addressing the objections raised by the appellant.