Re-Assessment Notice should contain a ‘Reason to believe’ with supporting Evidence: Delhi HC [Read Judgment]

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The Delhi High Court held that assessing officer can initiate the notice for re-assessment with the reasons to believe and with reference to any fresh tangible material.

The writ petitions under Article 226 /227 of the Constitution of India are directed against the notice issued by respondent No.1 under Section 148 of the Income Tax Act for the assessment year (AY) 2012-13 and the orders disposing of the objections filed by the respective petitioners and also the proceedings emanating therefrom.

The petitioner is a private limited company engaged in the business of construction-development projects. Pursuant to a scheme of amalgamation approved by this Court vide order dated 20.12.2012, M/s. Experion Developers International Pvt. Ltd amalgamated with M/s. Experion Developers Pvt. Ltd

During the financial year relevant to the assessment year under consideration i.e. AY 2012-13, (FY 2011-12) the Petitioner and the erstwhile-assessee, EDIPL, were separate/independently assessable assessees.

 For the assessment year under consideration, i.e., AY 2012-13, as Petitioner (EDPL) was the only surviving entity, it alone filed return of income declaring loss of Rs.7,82,95,075/-. The return of income was selected for scrutiny and after making certain disallowances, the total income was assessed at Rs. 90,15,239/- and assessment order dated 19.03.2015 was passed under Section 143(3) of the Act.

The said order is presently a subject matter of a pending appeal.

The division bench comprising of Justice Vipin Sanghi and Justice Sanjeev Narula pronounced the judgment based on a writ petition filed by Experion Developers Private Limited.

Section 147 and 148 of Income Tax Act is a well-designed weapon for the Income Tax Department empowering it to assess, re-assess or re-compute income, turnover, etc, which has escaped assessment. Assessment and Re-assessment is a procedure adopted to determine the correctness of the income disclosed by the assessee and tax payable thereon.

The expression “reason” in Section 147 of the Act means a “cause” or “justification”. The Assessing Officer can be said to have reason to believe that income has escaped assessment if he has a cause or justification to know or suppose, that income has escaped assessment.

The bench observed that the tangible material in the present case is information received by the AO from DIT. The relevant portion of the said report revealed that “Gold Singapore” does not appear to be carried out regular business activities in Singapore.

The bench also observed the series of transactions undertaken through complex legal arrangements among entities spread across various jurisdictions to fund investments made in India, justifies the AO to form a “reason to believe” to investigate the genuineness of the funds and creditworthiness of the investing entities.

While dismissing the writ petition court opined that the AO had sufficient tangible materials and was justified in issuing the notice for re-assessment.

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