2004 (12) TMI 329 - AT - Income Tax

Tribunal upholds annulment of assessment orders for lack of valid reasons.

Income-tax Officer, Ward 3(2). Versus Satya Narayan Parwal.

The Tribunal upheld the CIT(A)'s decision to annul the assessment orders for the years 1996-97, 1997-98, and 1998-99, as the Assessing Officer lacked ... Income Escaping Assessment Issues Involved:1. Whether the CIT(A) erred in annulling the assessment orders made by the Assessing Officer.2. Whether the Assessing Officer had valid reasons to believe that income chargeable to tax had escaped assessment.3. Whether the CIT(A) could examine the sufficiency or correctness of the reasons recorded by the Assessing Officer.4. Whether the initiation of proceedings under section 147 and the issuance of notices under section 148 were valid.Issue-wise Detailed Analysis:1. Whether the CIT(A) erred in annulling the assessment orders made by the Assessing Officer:The appeals were filed by the Revenue against the orders of the CIT(A) who annulled the assessment orders for the assessment years 1996-97, 1997-98, and 1998-99. The CIT(A) held that the proceedings initiated under section 147 were ab initio bad in law, and the assessments based on such proceedings were annulled. The Revenue contended that the CIT(A) erred in annulling the assessment orders as the Assessing Officer had recorded his satisfaction that income chargeable to tax had escaped assessment.2. Whether the Assessing Officer had valid reasons to believe that income chargeable to tax had escaped assessment:The Assessing Officer recorded reasons on 12-5-2000 for the assessment years 1996-97 to 1998-99, stating that the assessee was involved in the business of finance brokerage and earning taxable income but did not file returns. The CIT(A) found that the Assessing Officer did not have any material, direct or circumstantial, to base his belief that income had escaped assessment. The reasons recorded by the Assessing Officer were deemed insufficient as they were based on suspicion rather than concrete evidence. The Tribunal concurred with the CIT(A), noting that the Assessing Officer had no information or material to entertain a reasonable belief that income chargeable to tax had escaped assessment.3. Whether the CIT(A) could examine the sufficiency or correctness of the reasons recorded by the Assessing Officer:The Revenue argued that the CIT(A) could not go into the sufficiency or correctness of the reasons recorded at the stage of initiation of proceedings under section 147, citing the Supreme Court's decision in Raymond Woollen Mills Ltd. v. ITO. However, the Tribunal found that while the sufficiency of the reasons could not be investigated, the existence of the reasons could be examined. The Tribunal noted that the Assessing Officer must have reasons to believe that income chargeable to tax had escaped assessment, and in this case, the reasons recorded did not meet this requirement.4. Whether the initiation of proceedings under section 147 and the issuance of notices under section 148 were valid:The Tribunal examined whether the Assessing Officer had valid reasons to initiate proceedings under section 147 and issue notices under section 148. The Tribunal found that the Assessing Officer did not quantify the escaped income at the stage of recording reasons, which is necessary to know if the income exceeded the taxable limit. The Tribunal also noted that the last return filed by the assessee for the assessment year 1991-92 showed an income below the taxable limit, and the returns filed in response to notices under section 148 were also below the taxable limit. Therefore, the initiation of proceedings under section 147 and the issuance of notices under section 148 were deemed invalid.Conclusion:The Tribunal upheld the orders of the CIT(A) for all three assessment years, agreeing that the Assessing Officer did not have valid reasons to believe that income chargeable to tax had escaped assessment. The appeals of the Department were dismissed.