2023 (3) TMI 1415 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - as per the information received the petitioner was engaged in reversal trade resulting in non-genuine business loss or gains - As argued the reasons recorded for re-opening were scanty and non-specific and not indicated that the transactions allegedly referred to resulted into loss or profit - HELD THAT - When it comes to exercise of powers u/s 147 and 148 there has to be a greater thrust for necessity of recording reasons. The entire exercise of reopening hinges on the reasons recorded by the AO. It is the reasons which weigh with him. When the concluded assessment is to be revisited with by the AO recording of reasons for exercise of such powers has to be viewed as vested rights for the assessee. While exercising powers under the Act to reopen the assessment the AO would harbour reasons to believe that on particular set of facts the income had escaped assessment and tax was not paid in relation to the year under consideration. All the reasons which hold good in the eye of and with the AO must be made known to the assessee. Assessee has right to refute the reasons for reassessment by filling objections. Unless the AO appropriately delineates and communicates the reasons for reassessment right of the assessee to file objections would remain an eye-wash. Whether the reassessment powers are adverted to on objective basis whether the element of assessment of income is noticed from the facts and whether formation of opinion by the AO is based on some relevant facts or not could be judged provided the reasons are properly recorded and the details are given with regard to reopening of assessment that the reasons to believe with the AO must be reflected in recording of such reasons to be communicated to the assessee. The cryptic way of recording of reasons like found in the instant case would render the exercise of powers vitiated. With such vague reasons the respondent could be said to have failed to demonstrate that there was any escapement of income chargeable to tax. He could demonstrate such element if he gives reasons for the same. Notice issued to the petitioner u/s 148 is liable to be set aside on the aforesaid ground alone. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Adequacy and specificity of the reasons provided for reopening the assessment.
3. Compliance with the requirement of recording reasons in administrative, quasi-judicial, or judicial orders.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 30.3.2021 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2015-2016. The petitioner argued that the notice was issued without adequate reasons and was therefore invalid. The court scrutinized the reasons provided by the AO and found them to be vague and insufficient, thereby setting aside the notice.

2. Adequacy and Specificity of the Reasons Provided:
The petitioner contended that the reasons for reopening the assessment were vague and non-specific. The AO had stated that the petitioner had created a profit/loss of Rs. 74,62,860/- based on data from Project Falcon, alleging involvement in reversal trade resulting in non-genuine business loss or gains. However, the court found these reasons to be cryptic and lacking in detail. The reasons did not specify the transactions, dates, or entities involved, making it difficult for the petitioner to defend against the allegations. The court emphasized that reasons must be detailed and specific to justify the reopening of an assessment.

3. Compliance with the Requirement of Recording Reasons:
The court underscored the necessity of recording reasons in administrative, quasi-judicial, or judicial orders, citing various Supreme Court judgments. The court noted that reasons are essential for ensuring transparency, fairness, and accountability in decision-making. The absence of detailed reasons renders an order lifeless and indefensible. The court reiterated that the reasons must be cogent, clear, and succinct, and should reflect the decision-maker's application of mind. The court concluded that the cryptic reasons provided by the AO did not meet these requirements, thereby vitiating the exercise of reopening the assessment.

Conclusion:
The court set aside the notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2015-2016, on the grounds of inadequate and vague reasons. The court allowed the petitioner to succeed and held that the AO could issue a fresh reasoned notice, provided the law of limitation permits. The petition was allowed accordingly.