2018 (10) TMI 871 - HC - Income Tax

Court validates notices under Income Tax Act Section 148 for assessment years, emphasizes 'reason to believe.'

The court upheld the validity of notices issued under Section 148 of the Income Tax Act for assessment years 2008-2009, 2010-2011, and 2011-2012, stating ... Reopening of assessment u/s 148 - “change of opinion” - lapse of six and half years - rejection of objections raised by the assessee - It is contended that the respondents had not considered the objections raised by the writ petiioner. An order of rejection has been issued mechanically and without considering the legal grounds raised by the writ petitioner. - Claim of excessive depreciation on licence fee Held that:- Mere issuance of notice cannot be construed as a final order. Initiation of the proceedings are to be construed as informations to the Assessee and can never be concluded as a final proceedings. - Thus, the issuance of notice is an information provided to the Assessee, enabling him to avail of all further opportunities contemplated under the Statutes. Thus, the Court cannot come to the conclusion that non quoting of the reasons by the Assessing Officer in the impugned notice will vitiate the entire proceedings. The writ petitioner, being a Company, is duty bound to respond to the notice to prove its innocence or otherwise. This Court is of an undoubted opinion that if the AO has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is however, to be noted that the conditions stipulated in the Act must be fulfilled if the case falls within the ambit of Section 147. Considering the fact that there are some materials on record and the informations with the Department of Income Tax, the reopening of the assessment in the writ petitions with reference to Sections 147 to 153 is in accordance with law and there is no infirmity, as such. Thus, the writ petitioner is bound to respond to the Assessing Officer for the purpose of arriving a conclusion and for taking a decision. In the event of passing an order of assessment or reassessment, then the writ petitioner is entitled to prefer an appeal contemplated under the provisions of the Act. Contrarily, based on the preliminary informations gathered by the AO, the notice issued for the purpose of reopening of the assessment would not provide a cause of action for filing of the present writ petitions and this Court has no hesitation in holding that the writ petitions are not only premature, even on merits the writ petitioner has failed to establish any acceptable reason to grant the relief, as such, sought for. This being the principles to be followed, the writ petitioner has miserably failed to establish any legally acceptable ground for the purpose of interfering with the actions initiated by the respondents by invoking the provisions of the Income Tax Act, 1961. Thus, there is no infirmity as such, in respect of the initiation of the proceedings for reopening of the assessment under the Act and the writ petitions are devoid of merits. Issues Involved:1. Validity of notices issued under Section 148 of the Income Tax Act.2. Whether the reopening of assessments was based on valid 'reason to believe' or merely a 'change of opinion.'3. Applicability of the limitation period for reopening assessments.4. Requirement to communicate reasons for reopening assessments at the notice stage.5. Availability and exhaustion of alternative remedies under the Income Tax Act.Detailed Analysis:1. Validity of Notices Issued Under Section 148:The petitioner challenged the notices issued under Section 148 of the Income Tax Act for the assessment years 2008-2009, 2010-2011, and 2011-2012. The petitioner argued that the notices were issued without valid grounds and were merely a 'change of opinion' rather than based on 'reason to believe' that income had escaped assessment. The court emphasized that the issuance of a notice under Section 148 is merely an initiation of proceedings and not a final order. The court held that the notices were valid as they were issued within the six-year limitation period prescribed under Section 149(1)(b) of the Act.2. 'Reason to Believe' vs. 'Change of Opinion':The petitioner contended that the reopening of assessments was based on a 'change of opinion' and not on 'reason to believe.' The court clarified that the phrase 'reason to believe' under Section 147 of the Act requires the Assessing Officer to have a prima facie opinion based on new material or information regarding the suppression of facts by the assessee. The court held that the reasons recorded by the Assessing Officer for reopening the assessments were adequate and satisfied the requirements under Section 147, as they were based on new information, including a CBI charge sheet indicating potential revenue receipts camouflaged as capital receipts.3. Limitation Period for Reopening Assessments:The petitioner argued that the reasons for reopening the assessments were communicated after the expiry of the six-year limitation period, rendering the proceedings invalid. The court held that the issuance of notices within the six-year period was sufficient to meet the limitation requirements. The date of communication of reasons does not affect the validity of the notices if they were issued within the prescribed period.4. Communication of Reasons for Reopening Assessments:The petitioner argued that the reasons for reopening the assessments should have been communicated along with the notices under Section 148. The court referred to the Supreme Court's decision in GKN Driveshafts (India) Ltd., which clarified that the reasons need not be communicated at the notice stage. The proper course of action for the assessee is to file a return and, if desired, seek reasons for issuing the notice. The Assessing Officer is then bound to furnish the reasons within a reasonable time. The court held that the respondents had complied with this requirement by providing the reasons upon the petitioner's request.5. Availability and Exhaustion of Alternative Remedies:The respondents raised a preliminary objection regarding the maintainability of the writ petitions, arguing that the petitioner should have exhausted the alternative remedies provided under the Income Tax Act. The court agreed, stating that the petitioner should participate in the assessment process and, if aggrieved by the final assessment order, avail the appellate remedies under the Act. The court emphasized that judicial review against the initiation of proceedings under Sections 147 and 148 should be limited and exercised cautiously.Conclusion:The court dismissed the writ petitions, holding that the notices issued under Section 148 were valid, the reopening of assessments was based on 'reason to believe,' and the limitation period was complied with. The court also held that the reasons for reopening need not be communicated at the notice stage, and the petitioner should exhaust the alternative remedies available under the Income Tax Act. The court emphasized that the initiation of proceedings for reopening assessments should not be interfered with in a routine manner, and the petitioner failed to establish any legally acceptable ground for quashing the notices.