2005 (7) TMI 43 - HC - Income Tax

High Court: Reopening assessment rules are mandatory; Revenue justified in adding income.

The High Court held in favor of the assessee on the issue of reopening the assessment under section 147(a) of the Income-tax Act, emphasizing that the ... '1. Whether, Tribunal was right in holding that reopening of the assessment under section 147(a), could not be reagitated after the said point was consciously waived by the assessee vide letter dated August 10,1990, submitted to the Commissioner of Income-tax (Appeals)? 2. Whether, Tribunal was right in law in holding that the assessing authority had jurisdiction to initiate proceedings for reassessment under section 147(a) of the Act? 3. Whether Tribunal was justified in confirming the addition representing the difference between purchase price of the first floor of the house property as recorded in the seized diary and the purchase price shown in the agreement for purchase of the said property?' - impugned order of the Tribunal does not suffer from any legal infirmity Issues Involved:1. Reopening of the assessment under section 147(a) of the Income-tax Act, 1961.2. Jurisdiction of the assessing authority to initiate reassessment proceedings under section 147(a) of the Act.3. Justification of the addition of Rs. 1,85,900 representing the difference between the purchase price of the property as recorded in the seized diary and the purchase price shown in the agreement.Issue-wise Detailed Analysis:1. Reopening of the Assessment under Section 147(a):The Tribunal held that the reopening of the assessment under section 147(a) could not be reagitated as the assessee had consciously waived this point before the Commissioner of Income-tax (Appeals). However, it was argued that the Tribunal committed an error in law by not permitting the assessee to agitate the ground regarding the initiation of reassessment proceedings, as it was a legal issue going to the root of the matter. The High Court cited the case of P.V. Doshi v. CIT, emphasizing that the conditions for initiating reassessment proceedings are mandatory and cannot be waived. The Tribunal wrongly concluded that the assessee waived its right to challenge the reassessment proceedings before the Commissioner (Appeals) and could not raise the challenge before the Tribunal. The High Court held that the Tribunal's order on this issue could not stand and answered the question in the negative, in favor of the assessee.2. Jurisdiction of the Assessing Authority:The original assessment was completed under section 143(1) of the Act, accepting the returned income. The search proceedings took place on November 6, 1985, and the assessment order was made on January 21, 1987. The Tribunal found that the Assessing Officer had sufficient information from the seized diary to form a prima facie opinion of income escapement. The Tribunal justified that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The High Court agreed with the Tribunal, holding that the reassessment proceedings were correctly initiated and the assessing authority had jurisdiction to do so. This question was answered in the affirmative, in favor of the Revenue.3. Justification of the Addition of Rs. 1,85,900:The Tribunal recorded various findings of fact, including that the seized diary recovered from the assessee's residential premises contained a note indicating a higher purchase price than what was recorded in the sale agreement. The Tribunal rejected the assessee's contention of a mistake in the noted amount, citing the detailed and specific nature of the diary entry. The burden was on the assessee to explain the discrepancy, and the statutory presumption under section 132(4A) of the Act applied as the diary was seized from the assessee's possession. The Tribunal found the explanation offered by the assessee unsatisfactory and upheld the addition under section 69 of the Act. The High Court found no legal infirmity in the Tribunal's findings and upheld the addition of Rs. 1,85,900. This question was answered in the affirmative, in favor of the Revenue.Summary:(i) The Tribunal was not right in holding that the assessee could not reagitate the point regarding reopening of the assessment under section 147(a) of the Act as there could be no waiver of a mandatory condition relating to jurisdiction.(ii) The Tribunal was right in law in holding that the reassessment proceedings had correctly been initiated and the assessing authority had jurisdiction to do so.(iii) The Tribunal was right in confirming the addition of Rs. 1,85,900 representing the difference between the purchase price reflected in the sale deed and as recorded in the seized diary.In conclusion, the reference was disposed of accordingly, with no order as to costs.