The Income Tax Appellate Tribunal (ITAT), Mumbai Bench quashed re assessment proceedings on the ground by stating that Reasons for reopening assessment should be examined on standalone basis.
The reopening was done on the basis of inputs from the investigation wing about the outstanding put options, in respect of which the assessee company is said to have given the guarantee to the ICICI Bank Singapore. The Assessing Office, while recording the reasons for reopening the assessment, formed the view that the assessee, Reliance Industrial Holdings Pvt Ltd and Biomatrix Marketing Pvt Ltd on whose behalf the guarantee was said to be given by the assessee, are associated enterprise.
It was in this backdrop that the assessment was reopened, and the assessment was finally made, after an ALP adjustment in respect of the corporate guarantee extended by the assessee to ICICI Bank Singapore in respect of Biomatrix.
Aggrieved, assessee carried the matter in appeal before the CIT(A), and even though the assessee succeeded on other grounds, there was no adjudication on the correctness of the reasons for reopening the assessment- an aspect, given the relief given to the assessee anyway, was implicitly treated as infructuous.
In the cases of the reopened assessments first and foremost one has to see the reasons recorded for reopening the assessment, as these are the reasons which give jurisdiction to the Assessing Officer for initiating, and proceedings with, the reassessment. The reasons so recorded must meet judicial scrutiny. Unless this bridge is crossed, there is no occasion to deal with anything else pertaining to the whole process of reassessment.
Therefore, the reasons are to be examined only on the basis of the reasons as recorded. The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need for an inquiry which may result in detection of an income escaping assessment.
A Division Bench consisting of Pramod Kumar (Vice President) and Sandeep S Karhail(Judicial Member) observed that “It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. We hold that the reasons for reopening the assessment were unsustainable in law. The impugned reassessment proceedings must stand quashed for this short reason alone.”
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