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2013 (9) TMI 810 - HC - Income TaxNotice for income escaping assessment u/s 148 of the Income Tax Act – Reasons to believe – Held that:- It would be the proximity of the reasons with the belief of escapement of income which would be the determinative factor for reopening of the assessment. The remoteness of the reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion which cannot be a ground for reopening of assessment - The prior period expenses are eligible for deduction during the current year provided the liability was determined and crystallized during the relevant year. In the present case, the assessee has debited a sum of Rs 1,20,765/- in the P & L account on account of prior period expenses after netting income of Rs 30,34,463/- and expenditure of Rs. 31,55,228/- - The Assessing Officers has placed reliance on the notes to the accounts that were available at the time of the scrutiny assessment. But the notes also states that the prior period expenses had crystallized/ settled in the year. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said expenditure had not crystallized during the year relevant to the assessment year. The words "reason to believe" indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The reason to believe recorded do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the expenditure referred to had not crystallized during the relevant year. The reasons to believe recorded that income has escaped assessment are not based on any direct or circumstantial evidence and are in the realm of mere suspicion. The requirement of law is "reason to believe" and not "reason to suspect". In the present case Since the reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rationale basis, the action of reopening of the Assessment is thus clearly contrary to law and unsustainable – Decided in favor of Assessee.
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