ITO's Personal Opinion In Prior Assessment Not A Valid “Reason To Believe” For Reopening Assessment: Punjab & Haryana High Court

The Punjab and Haryana High Court while quashing the reopening proceedings initiated under Section 148 of the Income Tax Act stated that merely on account of there being an error found based on a personal opinion of the Income Tax Officer in relation to the earlier assessment, cannot be a reason to believe for initiating reassessment. The Bench consists of Justices Sanjeev Prakash Sharma and Sanjay Vashisth observed that “merely because a new assessing officer may not be happy with the manner in which assessment was done earlier, cannot be a reason to review assessment.” Section 144 of the Income Tax Act, 1961 empowers the Assessing Officer (AO) to make a tax assessment based on their best judgement when a taxpayer fails to comply with certain statutory requirements. Section 147 of the Income Tax Act, 1961 provides for the reopening of assessment proceedings. This section gives discretion to the Assessing Officer (AO) to reopen the assessment proceedings when he/she has reason to believe that some of the income has escaped assessment. Section 148 of the Income Tax Act, 1961 gives the Assessing Officer the power to reassess tax returns if income is inaccurately reported. Notice is sent under Section 148 or 148A for reassessment. Taxpayer has the right to explain before reassessment. Facts of the case: The assessee/petitioner purchased agricultural land from three brothers and transferred it to DSS Mega City Projects. Since the land was agricultural and not a capital asset, no taxable income arose which was verified by the ITO Intelligence in its verification report. The assessment proceedings for the year 2013-14 was finalized in March 2016 without any additions for undisclosed income or capital gains. However, in March, 2020, a notice was served to the assessee under Section 148 of the Income Tax Act wherein it was stated that there had been reasons to believe that the income chargeable for A.Y. 2013-14 had escaped assessment within the meaning of Section 147 of the Act. The order was passed under Section 144 read with Section 147 of the Income Tax Act. The notice stated that the land sale resulted in an unexplained income of Rs. 19.34 crores and accordingly a draft assessment order was prepared. The assessee has filed the petition challenging the notice issued under Section 148 of the Income Tax Act, 1961, draft assessment order under Section 144 read with Section 147 of the Act and the order whereby the objections filed by the assessee were rejected. The assessee submitted that there was no reason to believe that there is a case of escape assessment nor there was any new material available with the ITO to reach to a conclusion that the earlier assessment required to be re-assessed. The final assessment order passed by the assessing officer was not based on the draft assessment order and the reasons to believe mentioned therein for initiating proceedings under Section 148 of the Income Tax Act. The department submitted that that the time of reassessment, the assessing officer cannot be said to only limit himself to the contents of the show cause notice issued for reassessment. The entire reassessment can be done and the scope is large for him. He will look into the different aspects which are brought to his notice at the time of passing of order of reassessment under Section 143(3) read with Section 147 of the Act. The tentative view taken at the time of initial stage of draft assessment under Section 144 of the Act cannot limit his powers. Observations of the High Court: The bench observed that reassessment and reopening of assessment are two issues which are different from regular assessment conducted under Section 143 of the Income Tax Act. Regular appeal lies against regular assessment before the CIT (Appeals). It is true that an appeal would lie against the final order passed under Section 147 of the Income Tax Act. The bench noted that no document has been produced by the respondents to show that they had any new information or documentary evidence for reopening of the case while the power is available with them. The same has to be exercised carefully and sanctity of assessments already done should be maintained. Merely because a new assessing officer may not be happy with the manner in which assessment was done earlier, cannot be a reason to review assessment. The Court opined that “the ITO cannot be allowed to merely reopen the assessments already finalized based on his opinion that the earlier assessment was wrongful or that he has a reason to suspect that the assessment was done wrongfully. Re-assessment, therefore, has to be based on cogent material available before it, which was not available at that relevant time.” The bench concluded that the assessment proceedings did not warrant any interference or warrant any re-opening for fresh assessment. In view of the above, the...

ITO's Personal Opinion In Prior Assessment Not A Valid “Reason To Believe” For Reopening Assessment: Punjab & Haryana High Court

Mehak Dhiman

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