Agfa India Pvt. Ltd. Vs. ACIT (ITAT Pune)
Procedural formalities for reopening of the assessment under the provisions of the Income Tax Act, 1961 (for short ‘the Act’) have to be followed. Recently, in Agfa India Pvt. Ltd. (now merged with Afga Healthcare India Pvt. Ltd.) vs. ACIT [ITA No. 1020/PUN/2015, decided on 15.09.2017], briefly, the appellant among st other grounds submitted before Pune ITAT that the CIT(A) erred in confirming the action of the Assessing Officer (AO) of re-opening the assessment under section 147 of the Act and the reassessment proceedings were not in accordance with the law and the provisions of the Act.
The AR on behalf of the appellant among st other points submitted that the AO initiated reassessment proceedings on the directions of JCIT, Range-1, Thane. The provisions of section 147 of the Act mandates that reassessment proceedings can be initiated only if the AO has reason to believe that any income chargeable to tax has escaped assessment. It is the opinion and belief of the AO which ignites reassessment proceedings and not the directions of any other superior authority.
The learned Members of the ITAT took into account the decision of the Full Bench of Honorable Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. [(2002) 256 ITR 1 (Del)] where it has been held that one of the pre conditions for reopening is that the AO must have reason to believe that income chargeable to tax has escaped assessment. The relevant extract of the observations of Honorable High Court in this regard were as under :
“7. From a bare perusal of the provisions contained in s. 147 of the said Act, as it stood up to 31st March, 1989, it is evident that to confer jurisdiction under s. 147(a) of the Act two conditions were required to be satisfied viz., (i) the AO must have reason to believe that income chargeable to tax has escaped assessment; and (2) he must also have a reason to believe that such escapement occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under s. 139; or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The afore- mentioned requirements of law must be held to be conditions precedent for invoking jurisdiction of the AO to reopen the assessment under s. 147 of the said Act. It is trite that both the conditions afore- mentioned are cumulative. It is also a well settled principle of law that, in the event, it is found that any of the said two conditions is not fulfilled the notice issued by the AO would be wholly without jurisdiction. The expression “reason to believe” finds place both in cls. (a) and (b) of s. 147 of the Act. Sub-s. (2) of s. 148 of the Act mandates that before jurisdiction under s. 147 of the Act is invoked by the AO he is to record his reasons for doing so or before issuing any notice under s. 147 of the said Act. Therefore, formation of reason to believe and recording of reasons were imperative before the AO could reopen a completed assessment.”
The learned Members of the ITAT observed that a perusal of above observations of Honorable High Court makes it unambiguous clear that reason to believe that income chargeable to tax has escaped assessment should be of AO. It is AO’s reason to believe that taxable income has escaped assessment that forms bedrock for reopening assessment under section 147 of the Act. Directions from JCIT or CIT to issue notice cannot in any manner be construed as AO reason to believe for initiating reassessment proceedings. The provisions of section 147 of the Act in unambiguous terms mandates that the reason to believe for reopening assessment should be of AO. In other words the AO should carry out independent exercise to examine fresh material in his possession to come to a conclusion that the assessment warrants reopening on account of escapement of income. In the present case, a perusal of reasons for initiating reassessment proceedings clearly show that they are against the sprit of provisions of section 147 of the Act. The AO has issued notice under section 148 of the Act on the directions of JCIT and CIT. The learned Members of the ITAT held that in our considered opinion the notice issued under section 148 of the Act was bad in law and the subsequent proceedings arising there from are vitiated.