Mere receipt of information cannot be equated to reason to believe that income has escaped assessment

CA Prarthana Jalan

Hon’ble Bombay High Court in the case of Piramal Enterprises Ltd. v/s DCIT in their order dated 15^th February 2017 has held that “Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessment”

In the case the original return of income was processed u/s 143(1) of the Act. Subsequently the AO received a communication from the office of the Chief Commissioner of Income Tax wherein a list of companies was annexed, who had issued shares at the huge premium. The A.O on the basis of the information without conducting any tangible enquiry, initiated the re-assessment proceedings by recording in the reasons to believe that he acted upon the information received and learnt that there was a single subscriber to the share capital issued by the appellant at a huge premium viz. The Swastik Safe Deposit and Investment Ltd. (SSDI).

The reasons also mentioned that as the share premium charged was unbelievably high and therefore the genuineness of the transaction was not proved. It is pertinent to note that the reasons did not indicated any amount according to the AO which had escaped assessment. The reasons clearly showed that the AO did not apply his mind while initiating re-assessment proceedings and did not thoroughly go through all material available before him while recording his reasons to believe that income has escaped assessment. The Hon’ble High Court in its verdict stated as under:-

 “5. We note that the communication dated 10th February, 2014 from the  office of the Chief Commissioner of Income Tax directed that the matter be examined and appropriate action, if necessary, be taken in accordance with law. Consequent to the above communication dated 10th February, 2014, the Assessing Officer issued a notice on 19th March, 2014 under Section 133(6) of the Act seeking details of the issue of shares at a premium. The petitioner responded giving details as sought for. Thus details were available with the Assessing Officer to examine the material before arriving at a reasonable belief that income has escaped assessment for the subject Assessment Year. It is a settled position that even where an assessment has been only processed under Section 143(1) of the Act, the reopening notice must satisfy the test of having reason to believe that the income chargeable to tax has escaped assessment (see Asst. CIT v/s. Rajesh Jhaveri Stock Brokers (P)Ltd. 291 ITR 500). The reason to believe has to be arrived at after applying one’s mind to the material available and to reach a prima facie view that income chargeable to tax has escaped assessment. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessment. In the present case the Assessing Officer prima facie has not done the bare necessary/rudimentary enquiry into the material received before he concludes that income chargeable to tax has escaped assessment. The evidence of the same is the absence in the reason of any amount being determined by the Assessing officer as having escaped assessment. This prima facie determination of income escaping assessment would indicate application of mind to arrive at the reason to believe that income chargeable to tax has escaped assessment.  “

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