2013 (2) TMI 348 - AT - Income Tax

Re opening of assessment - difference in professional income as shown in the P & L account & TDS certificates - Held that - Professional receipts as per the profit and loss account were far more than aggregate of professional receipts as per tax deduction at source certificates. Thus it is difficult to understand as to how can anyone form belief or even a suspicion that an income has escaped assessment. The income which is offered to tax is clearly more than the income as per the tax deduction at source certificates. It is therefore a clear case of non-application on this aspect of the matter and in any case the reassessment proceedings have been initiated on the short ground of need for verification of which cannot be a legally sustainable reason for reopening a completed assessment even under section 143(1).In this view of the matter the very initiation of reassessment proceedings on the facts of this case was devoid of legally sustainable merits. Therefore quash the reassessment proceedings - the appeal for the assessment year 2005-06 & 2006-07is allowed in the terms indicated above - in favour of assessee.

Issues Involved:
1. Jurisdiction of the Assessing Officer under section 148 of the Income-tax Act, 1961.
2. Validity of reassessment proceedings under section 147 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer under section 148 of the Income-tax Act, 1961:

The Tribunal was directed by the Hon'ble Calcutta High Court to first address the question of jurisdiction. The High Court observed that the Tribunal had previously failed to discuss or provide reasons regarding the jurisdictional question, which is fundamental to the case. The High Court emphasized that the question of jurisdiction must be decided first before addressing the merits of the case.

The assessee contended that the notice issued under section 148 was without jurisdiction due to the absence of valid reasons to believe that income had escaped assessment. The Tribunal noted that the assessment was reopened on the ground that there was a discrepancy between the professional income declared by the assessee and the income as per the tax deduction at source (TDS) certificates. The Assessing Officer had stated that "the discrepancy may be verified," which led to the reopening of the assessment.

The Tribunal concluded that the mere need to verify a discrepancy does not constitute a valid reason to believe that income has escaped assessment. The Tribunal emphasized that there must be a live link between the reasons recorded and the formation of belief that income chargeable to tax had escaped assessment. The reasons must be self-explanatory and should not keep the assessee guessing. The Tribunal found that the reasons recorded by the Assessing Officer did not indicate any escapement of income but merely pointed out the need for verification.

2. Validity of reassessment proceedings under section 147 of the Income-tax Act, 1961:

The Tribunal examined whether the reassessment proceedings initiated under section 147 were sustainable in law. It was noted that the original assessment was completed under section 143(1) and the reassessment was initiated within four years. However, the Tribunal highlighted that irrespective of whether the original assessment was under scrutiny or summary assessment, the conditions precedent for invoking section 147 must be satisfied.

The Tribunal referred to the case of Prashant S Joshi v. ITO, where it was held that the Assessing Officer is competent to initiate reassessment proceedings provided that the requirements of section 147 are fulfilled. The Tribunal emphasized that there must be reasons to believe that income had escaped assessment, and these reasons are subject to judicial scrutiny. The mere fact that the assessment was completed under section 143(1) does not justify reopening the assessment without satisfying the conditions for invoking section 147.

The Tribunal also referred to the case of Hindustan Lever Ltd. v. R B Wadkar, where it was held that the reasons recorded by the Assessing Officer should be read as they were recorded, without any substitution or deletion. The reasons should provide a link between the conclusion and the evidence. In the present case, the Tribunal found that the reasons recorded by the Assessing Officer did not indicate any escapement of income but merely pointed out the need for verification of a discrepancy.

The Tribunal concluded that the initiation of reassessment proceedings was devoid of legally sustainable merits. The mere need to verify a discrepancy does not constitute a valid reason to believe that income has escaped assessment. The Tribunal quashed the reassessment proceedings for both assessment years 2005-06 and 2006-07 on the grounds that the initiation of reassessment was not based on legally sustainable reasons.

Conclusion:

In summary, the Tribunal allowed both appeals filed by the assessee, quashing the reassessment proceedings for the assessment years 2005-06 and 2006-07. The Tribunal held that the initiation of reassessment proceedings was not based on valid reasons to believe that income had escaped assessment, and therefore, the reassessment proceedings were not sustainable in law.

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