The Delhi High Court ruled that the validity of the initiation of reassessment under Sections 147 and 148 of the Income Tax Act must be evaluated independently, and should not be conflated with the powers that may ultimately be exercised by the Assessing Officer ( AO ) after a reassessment has been validly reopened.
The notice issued under Section 148A (b) of the Income Tax Act, 1961, alleged that the petitioner had received a loan from its wholly-owned subsidiary, Gul Properties Pvt. Ltd.
The petitioner, ATS Infrastructure Limited submitted that a careful and comparative analysis of the Section 148A(b) notice and the Section 148A(d) of Income Tax legislation order revealed that the respondents have unequivocally shifted their position, now attempting to support the proposed reassessment with reasoning that was neither constructive nor referenced in the original notice.
The petitioner provided a response asserting that the loans mentioned were actually obtained in previous years and were currently being repaid.
In the case of Jet Airways, the Division Bench of the Bombay High Court addressed a significant issue related to the jurisdiction of the Assessing Officer under Section 147 of the Income Tax Act. The Court observed that the Assessing Officer is empowered to assess or reassess any income chargeable to tax that has escaped assessment for a specific assessment year only if he has ‘reason to believe’ that such income has indeed escaped assessment.
The Court further clarified that if, during the proceedings under Section 147, the Assessing Officer concluded that the income he initially believed to have escaped assessment has, in fact, not escaped assessment, and this finding limits his jurisdiction. Specifically, the Assessing Officer cannot subject to tax any other income that may subsequently come to his notice during these proceedings, even if he later discovers that such income is also chargeable to tax.
In essence, the ruling emphasizes that a genuine ‘reason to believe’ does not automatically grant the Assessing Officer the ongoing authority to tax additional income that may have escaped assessment. The jurisdiction is contingent on the validity of the original belief regarding the income in question.
This interpretation highlighted the importance of the Assessing Officer’s findings during the reassessment process and serves as a critical reminder of the limitations of his powers under Section 147. Thus, the Division Bench Justice Yashwanth Varma and Justice Ravinder Dudeja concluded that the validity of the initiation of reassessment under Sections 147 and 148 of the Income Tax Act must be evaluated independently and should not be conflated with the authority that the Assessing Officer (AO) may ultimately possess, which can only be invoked after a valid reopening of the assessment, therefore, the writ petitions were allowed, and the impugned notices and orders in each of the aforementioned petitions were quashed
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