In a Relief to Price Waterhouse & Co ( PwC ), the Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has quashed the re-assessment and held that in order to reopen the assessment by the Assessing Officers (AO) there must be a ‘reason to believe’.
The assessee PwC had filed the income tax return under Section 143(1) of the Income Tax Act, 1961 of the total income of Rs. 0. Subsequently, the same case was reopened by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961 on the grounds the assessee’s amount of income is not assessable under the head business and profession, further in the balance sheet the assessee has shown the amount under the head “reserve and surplus” and later it was revealed that no such amount has been transferred in the earlier years and as a consequence, AO claimed that the assessment has skipped. Therefore, the notice under Section 147 was sent to the assessee and the same is challenged.
The issue raised in this case pertains to the question that is the reopening of the assessment by the Assessing Officer (AO) is valid on the above-mentioned grounds or not.
While allowing the appeal, the Kolkata Bench of ITAT comprising of Accountant Member Dr. A.L. Saini, while taking into consideration the decisions of the Apex Court, the tribunal observed that the Assessing Officer (AO) is supposed to have the ‘reason to believe’ that the income chargeable to tax has escaped assessment. Further, it held that there must be the direct nexus between the material and the formation of such belief. The Assessing Officer has not scrutinised the assessment within the prescribed statutory limit and the act of reopening the assessment by AO did not meet the requirements of the phrase ‘reason to believe’ as there is no direct nexus.
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