2016 (5) TMI 804 - DELHI HIGH COURT

Reopening of assessment - share of loss from the firm wrongly claimed - Held that:- When the case at hand is examined, it is seen that the return filed having been processed under Section 143 (1) of the Act, there was no occasion for the AO to form an opinion on whether that was any escapement of income to begin with. A perusal of reasons to believe reveals that the AO on going through the return subsequently found that the Assessee had showed a loss of the firm, M/s. Rangwala Enterprises at ₹ 3,12,885. A loss of ₹ 12,94,055 of the firm was converted into a loss of the proprietary concern. Thus it was after comparing the profit and loss account for the two periods, i.e., prior to the Assessee taking over the partnership firm and thereafter it was noticed that the Assessee had wrongly claimed share of loss from the firm which was impermissible in terms of Section 10 (2A) of the Act. The AO was of the view that the Assessee had 'artificially and with an ulterior motive' reduced the income from the property by setting off loss accruing to the firm. Apart from this the P&L account of the Assessee showed that she has claimed a loss on account of the bad debt of the firm.

The central submission of Assessee that the above reason to believe had to be based on some new tangible material cannot be accepted in light of the legal position explained hereinbefore. At the same time, the Court does not consider to express any opinion at this stage on the AO's reason to believe except to hold that it cannot be said to have been based on a mere „change of opinion‟. The other objections of the Assessee to the reopening are left open to be urged before the AO in the assessment proceedings in accordance with law.

By the order dated 26th November 2002 the Court had directed that the assessment proceedings would go on before the AO but no final order would be passed. The Court now vacates the said interim order and directs that the AO will now pass a final order within eight weeks from today, after affording the Petitioner one opportunity of being heard.