Reasons to believe escapement of income should be for the same assessment Year not earlier

Reasons to believe escapement of income should be for the same assessment Year. Reasons recorded for earlier years can not be the basis – ITAT

In a recent judgment, the ITAT has held that reasons to believe escapement of income u/s 148 should be for the very assessment Year. Reasons recorded for earlier years can not be the basis for reopening.

ABCAUS Case Law Citation
ABCAUS 3575 (2022) (02) ITAT

Important case law relied referred:
New Delhi Television Ltd 424 ITR  607
Dwarka Das Kesardeo Morarka 44 ITR 529  
Ganga Saran & Sons 130 ITR  

In the instant case, the assessee had challenged the order passed by the Dispute Resolution Panel (DRP) framed under section 144C(13) r.w.s 147 r.w.s 143(3) the Income Tax Act, 1961 (the Act).

The appellant assessee was a foreign company. On the basis of information in his possession, the Assessing Officer reached to the conclusion that the assessee’s income has escaped assessment and after recording reasons in writing, issued a notice u/s 148 of the Act.

The Tribunal noted that the Assessing Officer had heavily influenced by the assessment orders passed for earlier Assessment Years.  Taking a leaf out of these assessment orders, the Assessing Officer was of the opinion that the assessee was having business connection as well as Permanent Establishment [PE] in India. Strong reliance was placed on the reasons recorded for issue of notice u/s 148 of the Act issued in earlier Assessment Years.

It was observed from the reasons recorded for reopening of the assessment that there was not even a whisper of facts pertaining to the Assessment Years under challenge.

It was also noted that on the basis of the reasons recorded, specific to the facts and more specific to the evidence gathered, the Tribunal had upheld the reopening in earlier years. The ITAT opined that the findings of the Tribunal given on specific facts of those assessment years were totally distinguishable on the facts of the years under consideration.

The Tribunal observed that Hon’ble Supreme Court had held that the words “has reason to believe” are stronger than the words “is satisfied.”. The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material.

The Tribunal stated that there must be direct nexus or live link coming to the notice of the Assessing Officer and formation of his belief that there has been escapement of income of the company from assessment in a particular year. Therefore, for every Assessment Year, there should be some tangible material evidence to form such a belief which was absent in the reasons recorded mentioned elsewhere for the years under appeal.

The Tribunal noted that the AO had placed strong reliance on various documents found during the course  of  survey pertaining to earlier Assessment Years.

The Tribunal opined that whether a PE exists or not is a fact specific issue and is to be decided on year on year basis.

The Tribunal held that for the Assessment Years under challenge, no new tangible material was brought by the Assessing Officer to justify the reopening.

The Tribunal stated that as held by Hon’ble Supreme Court, the reasons for reopening the assessment cannot be improved in the body of the assessment order.

Accordingly, the Tribunal quashed the notice issued u/s 148 and allowed the appeal in favour of the assessee.

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