Tribunal Upholds Reopening of Tax Assessment, Validates AO's 'Reason to Believe' Standard, Remands Case for Merits Review.

Income-tax Officer, Ward 11 (6), New Delhi. Versus Smt. Gurinder Kaur.

Income-tax Officer, Ward 11 (6), New Delhi. Versus Smt. Gurinder Kaur. - ITD 102, 189, TTJ 105, 198, [2007] 288 ITR (A. T.) 207 Issues Involved:
1. Validity of the reopening of assessment under section 148 of the Income-tax Act, 1961.
2. Recording and communication of reasons for reopening the assessment.
3. Service of notice under section 148.
4. Approval of the Joint Commissioner of Income-tax under section 151(1).
5. Whether the Assessing Officer had 'reason to believe' or merely 'reason to suspect' that income had escaped assessment.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 148:
The Department contended that the Commissioner of Income-tax (Appeals) erred in annulling the assessment order on the grounds that it was ab initio null and void despite sufficient reasons to believe that income had escaped assessment. The case was reopened based on information that the assessee had received a gift of Rs. 21 lakhs, which was suspected to be bogus. The Commissioner of Income-tax (Appeals) held that the reasons recorded by the Assessing Officer amounted to 'reason to suspect' rather than 'reason to believe,' which was contrary to the Supreme Court's judgment in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437.

2. Recording and Communication of Reasons for Reopening the Assessment:
The assessee argued that no reasons were recorded for reopening the assessment as required by section 148(2) and that the reasons, if any, were not supplied to the assessee despite repeated requests. The Tribunal inferred from the material in the order of the income-tax authorities that the reasons were indeed recorded. The Tribunal found that the reasons for reopening the assessment were adequately recorded and communicated to the assessee.

3. Service of Notice under Section 148:
The assessee claimed that the notice under section 148 was not served on her, which is fatal to the validity of the reassessment. The Tribunal noted that the assessee had acknowledged the notice in her letter dated March 10, 1998, and had complied with it by stating that the return filed on June 30, 1993, may be taken as the return filed in response to the notice. Therefore, the Tribunal held that the reassessment proceedings could not be invalidated on the ground of non-service of the notice.

4. Approval of the Joint Commissioner of Income-tax under Section 151(1):
The assessee contended that the Assessing Officer did not take the approval of the Joint Commissioner of Income-tax before issuing the notice under section 148 as required by section 151(1). The Tribunal held that the satisfaction of the Joint Commissioner of Income-tax was not required in this case because the notice was issued by an Assessing Officer who was at least of the rank of Assistant Commissioner of Income-tax or Deputy Commissioner of Income-tax.

5. Whether the Assessing Officer had 'Reason to Believe' or Merely 'Reason to Suspect':
The Tribunal held that the information received from the Central Information Bureau (CIB) was sufficient to constitute 'reason to believe' that income chargeable to tax had escaped assessment. The Tribunal emphasized that at the stage of issuing the notice under section 148, the Assessing Officer is only required to form a prima facie belief and is not expected to make a cast-iron case for the Department. The Tribunal disagreed with the Commissioner of Income-tax (Appeals) and concluded that the Assessing Officer had 'reason to believe' rather than merely 'reason to suspect.'

Conclusion:
The Tribunal allowed the Department's appeal, holding that the reopening of the assessment was valid and based on 'reason to believe' that income had escaped assessment. The case was remanded to the Commissioner of Income-tax (Appeals) for a decision on the merits, as the Commissioner had not addressed the merits of the case in the initial appeal.