2004 (1) TMI 357 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessments under section 147 of the Income-tax Act.
2. Basis for Assessing Officer's belief that income had escaped assessment.
3. Sufficiency of information from CBI investigations and FIRs for reopening assessments.

Detailed Analysis:

1. Validity of Reopening Assessments Under Section 147:
The primary issue revolves around whether the reopening of assessments for the respective assessment years was validly initiated by the Assessing Officer under section 147 of the Income-tax Act. The department contended that the CIT(A) erred in holding that the basis for reopening the assessments was non-existent. The reopening was based on the FIR filed by the CBI (RC 55(A)/96-Patna) alleging fraudulent withdrawals by the assessee from the Animal Husbandry Department (AHD), Government of Bihar. The CIT(A) had quashed the reassessments on the ground that the assessee's name did not appear in the charge-sheet filed by the CBI.

2. Basis for Assessing Officer's Belief:
The Assessing Officer had information about the FIRs against the assessee and its sister concern, alleging criminal connivance in drawing fake bills of supply to the AHD. This led to the belief that the assessee had claimed false purchases and transportation expenses. The Assessing Officer recorded reasons for reopening the assessments, stating that the purchases and expenses claimed by the assessee were inflated to avoid higher tax liability. The CIT(A) disagreed, stating that there were no specific findings of bogus supplies or inflated expenses in the assessment order.

3. Sufficiency of Information from CBI Investigations and FIRs:
The Assessing Officer's belief was based on the information from the CBI investigations and FIRs, which indicated fraudulent activities by the assessee and related concerns. The Judicial Member emphasized that the Assessing Officer's belief need not be conclusive at the time of reopening but should be based on reasonable grounds. The belief should not be arbitrary or irrational but must have a rational connection to the material facts. The Judicial Member concluded that the Assessing Officer had valid reasons to believe that income had escaped assessment, given the large-scale fraud detected in the AHD and the involvement of the assessee's relatives in similar fraudulent activities.

Separate Judgments:
The Accountant Member agreed with the CIT(A) that the reopening was without jurisdiction, while the Judicial Member held that the reopening was valid. The Third Member, Vice President M.A. Bakshi, supported the Judicial Member's view, stating that the Assessing Officer had reasonable grounds to believe that the assessee's income had escaped assessment. The Third Member emphasized that the material available at the time of forming the belief need not be sufficient for making the reassessment but should justify the initiation of proceedings.

Conclusion:
The majority view concluded that the reopening of assessments was validly initiated. The appeals of the revenue were allowed, overturning the CIT(A)'s decision to quash the reassessments. The Assessing Officer had reasonable grounds based on the CBI's FIRs and investigations to believe that the assessee's income had escaped assessment due to inflated purchases and expenses.