The Income Tax Appellate Tribunal (ITAT), Chennai bench has held the income tax department cannot avail the extended time limit for re-assessment under the Income Tax Act, 1961 without new or tangible material.
The assessee, M/s. Global Arkitekts P. Ltd contended before the ITAT that the notice issued under section 148 is without any basis and without any reasonable belief. It was argued that the reopening has been resorted to based on information already available in the return of income and therefore, reopening beyond 4 years is not permissible in terms of various judicial pronouncements.
Shri V. Durga Rao, Judicial Member and Shri Manoj Kumar Aggarwal, AM observed that the Assessing Officer has power to reopen provided there is “tangible material” to come to the conclusion that there is escapement of income.
“There can be no review of an assessment in the guise of reopening and that a bare review without any tangible material would amount to abuse of the power. In this case, the Ld. AO reached the belief of escapement of income on going through the return of income filed by the assessee after the return was accepted u/s 143(1). The Hon’ble Court held that it was nothing but a review of the earlier proceedings and an abuse of power by AO. The less strict interpretation of the words “reason to believe” vis-à-vis an intimation issued u/s 143(1) cannot be permitted. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the AO subsequent to the issue of the intimation which reflects an arbitrary exercise of the power conferred under section 147,” the ITAT observed.
Relying on the decision of the High Court of Madras in M/s Tanmac India vs. DCIT, the ITAT held that if AO, after issuing intimation u/s 143(1), does not issue a notice u/s. 143(2) of the Act to initiate proceedings for scrutiny of the return of income then the obvious conclusion is that he does not consider it necessary or expedient to do so, the inference being that the Return of Income filed is in order.
“It is this opinion that cannot be arbitrarily changed by the assessing officer, to re-assess income on the basis of stale material, already on record. If we thus keep in the mind the above fundamental requirement of section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of re-assessment, but of review. Having missed the bus earlier, the Department cannot be permitted to avail the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment has already elapsed prior to issue of notice u/s. 148. The notice u/s 148 would be an arbitrary exercise of power and a review of proceedings which is impermissible in law. Having chosen not to scrutinize the return earlier, ld. AO cannot resort to the provisions of Sec.147 in the absence of any new or fresh material indicating escapement of income,” the ITAT observed.
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