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2014 Supreme(Del) 1923
High Court of Delhi
S. RAVINDRA BHAT & VIBHU BAKHRU, JJ.
Madhukar Khosla
Versus
Assistant Commissioner of Income Tax
W.P.(C) 1320 of 2014, & C.M. Nos. 2744, 2745 of 2014
Decided on: 14-08-2014
For the Petitioners:Salil Kapoor with Vikas Jain and Varun Gupta, Advocates.
For the Respondents: Sanjeev Sabharwal, Sr. Standing Counsel with Ruchir Bhatia, Jr. Standing Counsel.
The central legal point established in the judgment is that the 'reasons to believe' for reassessment must be based on new, tangible materials, and the absence of such a trigger renders the reassessment impermissible.
Headnote:
Income Tax - Assessment Reopening - Section 147 - 143(3) - 68 - 148 - 143(1) - 143(3) - 147
Fact of the Case:
The petitioner challenged the notice proposing to re-open the assessment for Assessment Year 2006-07 under Section 147 of the Income Tax Act. The petitioner argued that the reasons for re-opening the assessment were not based on new or tangible materials and amounted to a review or change of opinion.
Finding of the Court:
The Court found that the reassessment notice lacked a valid 'reason to believe' based on new, tangible materials, and therefore, could not be sustained. The Court quashed the reassessment notice.
Issues: The issues revolved around the validity of the reassessment notice under Section 147, the requirement of 'reasons to believe' based on new, tangible materials, and the distinction between review and reassessment.
Ratio Decidendi: The Court emphasized that the 'reasons to believe' for reassessment must have a rational connection or a live link with new, tangible materials, and the absence of such a trigger would render the reassessment impermissible. The Court also highlighted the mandatory nature of recording 'reasons to believe' even for assessments completed under Section 143(1).
Final Decision: The Court quashed the reassessment notice and allowed the writ petition without order as to costs.
S. Ravindra Bhat, J.
C.M.No.2745 of 2014 (for exemption)
Allowed, subject to all just exceptions.
W.P.(C) 1320/2014, C.M. No.2744/2014
1. The petitioner challenges the notice dated 25.03.2013 under Section 148 of the Income Tax Act (“the Act”) proposing to re-open the assessment for Assessment Year 2006-07 @ Rs.1,12,760/- completed under Section 143 (3) by the Assessing Officer (“AO”).
2. The brief facts are that the petitioner filed income tax returns on 30.10.2006 for AY 2006-07. The returns were selected for scrutiny; a notice was issued on 28.02.2008 along with a questionnaire. The required details were furnished by the petitioner on 07-03-2008. The AO, accepting the explanations, framed the assessment on 28-03-2008. In this background of circumstances, the respondent AO sought to re-open the assessment by the impugned notice, under Section 147 of the Act. Responding to this notice, the assessee, on 22-04-2013 stated that it stood by the returns filed originally (and accepted by the AO on 28-03-2008); it also requested that the reasons for re-opening the assessment be furnished.
3. The Revenue acceded to the petitioner’s request; the reasons furnished are extracted below:
“In this case assessment was completed under section 143(3) vide order dated 28.3.2008 on an income of Rs.1, 12,760/-.
2. On perusal of the records and the details filed by the assessee it came to the notice that the assessee has added an amount of Rs.25,31,003/- to its capital account of his proprietorship concern M/s Madhukar Khosla & Co. (Rs.14,31,000/- as gift and Rs.11 ,00,003/- addition). During the course of assessment proceedings the assessee offered no explanation to the above addition to the capital account.
3. In the absence of the source of the addition with documentary evidence on records, the same is required to be brought on tax net as per provisions of section 68 of the Income tax Act, 1961 as the assessee had offered no explanation about the nature and source of the said additions
4. I have therefore, reasons to believe that omission/failure on the part of the assessee to disclose fully and truly all material/facts necessary for assessment, income to the extent of Rs.25,31,003/- has escaped assessment for the assessment year 2006-07 and hence issue notice under section 148.”
4. On 28-11-2013 the assessee objected to re-opening of assessment, stating, inter alia, that:
“In this case, the assessee disclosed fully and truly all material facts relating to the said issue. In the Balance Sheet said amounts showing the nature thereof have been clearly shown. During assessment, the books of A/c were produced and were verified by the AO. The findings to this effect are available in Para-3 of the Assessment Order. Hence, since, the conditions of first proviso to Section 147 are not fulfilled, Section 147 cannot be invoked.”
and further that:
“there is no new information with your good self which was not available earlier. It is only on the basis of earlier existing Information and details that your good self has been forming an opinion that it is a case of escapement of income. Under the facts, it is a clear cut case of change of opinion. Section 147, cannot be resorted to in case of change of opinion…”
5. By the letter dated 20-12-2013, the assessee’s objections to the reopening of assessment were rejected; the AO in his letter, stated as follows:
…you have raised the issue that section 147 has been resorted to due to a change of opinion. It may be reiterated that the issues on which the case has been reopened, had not been discussed earlier. Thus the issue of change of opinion does not arise. The onus was upon the assessee to provide full and complete details during the earlier proceedings which he failed to do so and therefore Section 147 is being resorted to. It is for the A.O to draw inferences from the facts and apply the law determining the liability of the assessee. If there are sufficient reasons to believe that income has escape
