2009 (12) TMI 214 - HC - Income Tax

High Court upholds Revenue's appeals on reassessment validity under Income-tax Act, 1961

The High Court of Kerala allowed the Revenue's appeals, finding the reassessments under section 147 of the Income-tax Act, 1961 for the assessment years ... Reassessment- Notice- The Assessing Officer collected information from the hospitals and on the basis of these information he estimated the income by applying the minimum rate charged for each surgery and made assessment under section 147 of the Income Tax Act, 1961. The Commissioner (Appeals) held the reassessment barred by limitation as the Assessing officer had no materials to reopen the assessment. Tribunal affirmed this. Held that- allowing the appeal, as the Assistant Officer prior to the issuance of notice u/s 147, conducted inquiry in the hospitals about the payments made to the assessee and got full information about the number of surgeries attended by the assessee. He therefore, reopened the assessment under section 147 and issued revised assessment. The finding of the lower authorities was wrong. Therefore, the reopening of assessment was valid and within time. Issues:Validity of reassessments under section 147 of the Income-tax Act, 1961 for the assessment years 1998-99 and 1999-2000 as time-barred.Analysis:The High Court of Kerala heard appeals filed by the Revenue challenging the Tribunal's orders regarding the reassessments in the assessee's case. The Tribunal had held that the reassessments were invalid as they were time-barred under section 147 of the Income-tax Act, 1961. The Tribunal found that the Assessing Officer lacked material to reopen the assessment and only conducted inquiries and collected information after reopening the assessment under section 147. The court noted that the Tribunal decided the appeals without referencing the records containing the reasons for reopening the assessment. The Assessing Officer had collected information from hospitals regarding charges collected and income disclosed by the assessee, a freelance anaesthetist. The Assessing Officer estimated income based on this information and made assessments under section 147.The assessee challenged these assessments before the Commissioner of Income-tax (Appeals) citing limitation and lack of material. Both the first appellate authority and the Tribunal upheld the assessee's claim, canceling the assessments as time-barred. The Tribunal relied on Supreme Court decisions related to the unamended provisions of section 147(a) of the Income-tax Act. The standing counsel cited a later Supreme Court decision on the amended provision, emphasizing that the Assessing Officer must have a reason to believe income has escaped assessment, not conclusive proof at the notice stage.The court reviewed the reasons recorded by the Assessing Officer for reopening the assessment and found that the officer had conducted inquiries and collected information before issuing the notice under section 147. The court disagreed with the Tribunal's conclusion that the Assessing Officer lacked material to believe income had escaped assessment. The court highlighted that the Assessing Officer's actions were valid, considering the information collected from hospitals where the assessee practiced. The court set aside the Tribunal and first appellate authority's orders, remanding the matter to the Tribunal for a decision on the merits after hearing both sides. The court allowed the appeals, finding the reopening of assessments to be valid and within the time limit.