Reopening assessment us 147-148 for verification of details is illegal, A Fishing inquiry is not contemplated in Income Tax Act – ITAT

Reopening assessment us 147/148 for verification of details illegal

The Assessing Officer merely sought to reopen the assessment for verification of the details, which is not contemplated under section 147 of the Act. This was held by ITAT in a recent judgment.

ABCAUS Case Law Citation:
939 2016 (06) ITAT
Date of Judgment: June 2016

Brief Facts of the Case:
The appeal was filed by the Revenue on the grievance that the CIT(A) had erred in quashing the reassessment order on the ground that reopening of the assessment is not in accordance with the law.

The reasons recorded by the AO for reopening of the case was as under:

“It is pertinent to note here that in Original return of income, the assessee has shown income of Rs. Nil after claiming deduction under chapter VI-A of business income of Rs. 23,63,583 and in revised return loss of (-) 74,78,980 without claiming any deduction under chapter VI-A. As the revised return of income filed is regularized and huge difference of 98,42,563 exists (being loss of (-) 74,78,980 and Business income of Rs. Nil after claiming business income Rs. 23,63,583) between the two and to verify the claim of refund of Rs. 11,22,493 granted in original return of income and a refund of Rs. 1,39,263 in revised return (both inclusive of interest) involving the return of income shown in different asst years, it is necessary to verify and assess the income of the Asst Year 2002-03. Therefore, I have reason to believe that income/Loss of (-) 74,78,980 and income of Rs. Nil after business income 23,63,583 chargeable to tax has escaped assessment, Notice u/s 148 dated 13.10.2006 of the Act issued accordingly.”

CIT(A) observed that the AO failed to make out any case for escapement of income. He only sought to reopen the assessment merely for re-verification of certain documents, which was not contemplated in the Income Tax Act and accordingly he quashed the reassessment proceeding.

Important Excerpts from ITAT Judgment:

Recently Hon.ble Gujarat High Court in its decision in the case of Inductotherm (India) Pvt. Ltd. in Special Civil Application No. 858 of 2006 has held as follows: –

“16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.

17. If we accept such proposition, the petitioner’s apprehension that the Assessing Officer would arbitrarily exercise powers under section 147 of the Act to circumvent the scrutiny proceedings which could not be framed in view of notice under section 143(2) having become time barred, would be taken care of. To reiterate, even for reopening of an assessment which was accepted previously under section 143(1) of the Act without scrutiny, the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment.

18. Reverting to the facts of the present case, we notice that in two out of four reasons recorded by the Assessing Officer for reopening the assessment, he stated that he needs to verify the claims. In the second ground, he had recorded that admissibility of the bad debts written off required to be verified. In the fourth ground also, he had recorded that admissibility of royalty claim was required to be verified. We are in agreement with the contention of the counsel for the petitioner that for mere verification of the claim, power for reopening of assessment could not be exercised. The Assessing Officer in guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims as if it were a scrutiny assessment.”

4.3 Thus, as per the ratio laid down by this decision of the jurisdictional High Court as also the other decisions relied upon by the appellant, the in the reopening in the present case for the purposes of verification and assessment is not valid. Hence, the reassessment proceeding is quashed and the first ground of appeal is allowed.

5. Since the reopening of the assessment has been held to be invalid in this case, hence, the other ground of appeal regarding merit of the additions/disallowances made in the reassessment order are not adjudicated.”

After going through the finding recorded in the order of the ld.CIT(A), I do not find any merit in the present appeal, because, the ld.CIT(A) has placed reliance upon the decision of the Hon’ble jurisdictional High Court in holding that notice under section 148 was not issued by the AO after lying his hand on any information which enable him to form a belief that the income has escaped assessment. The ld.AO merely sought to reopen the assessment for verification of the details, which is not contemplated under section 147 of the Act.

reopening assessment us 147 148 for verification of details

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