'Reasons To Believe' Ought To Spell Out All Reasons, Grounds For Reopening Income Tax Assessment: Bombay High Court Comes Down Heavily On Income Tax Dept

The division bench of Justice N.J.Jamadar and Justice K.R.Shriram relied on the judgement of the Delhi High Court in case of Sabh Infrastructure Ltd. vs. Assistant Commission of Income Tax wherein the guidelines has been laid down on reopening cases for assessing officers (AO) for strict compliance.

As per the guidelines, while communicating the reasons for reopening the assessment, the copy of the standard form used by the Assessing Officer for obtaining the approval of the Superior Officer should itself be provided to the assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the Assessing Officer to the assessee is to be avoided.

Furthermore, the reasons to believe ought to spell out all the reasons and grounds available with the Assessing Officer for re- opening the assessment - especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the Assessing Officer on the same and if so, the conclusions thereof.

The guidelines further added that where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons.

The exercise of considering the assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi- judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed.

The petitioner has been a wholly owned subsidiary of Tata Capital Limited and a Systematically Important Non-Deposit Accepting Non-Banking Finance Company (NBFC) registered with Reserve Bank of India (RBI). Petitioner is required to comply with the directions issued by RBI from time to time to all NBFCs.

The petitioner received a notice under Section 148 of the Act stating that there are reasons to believe that petitioner's income chargeable to tax for A.Y. 2013-14 has escaped assessment within the meaning of Section 147 of the Act. By a letter petitioner filed its objections to the said notice. Thereafter, the petitioner received reasons for re-opening. In the objections to the re-opening, petitioner raised various points including the fact that interest and other charges on NPA ought to be taxed on actual realisation basis and not on accrual basis.

The petitioner requested the Assessing Officer to provide photocopies of documents evidencing request sent by the Assessing Officer to the Principal Chief Commissioner of Income Tax/Chief Commissioner/Principal Commissioner/ Commissioner in terms of Section 151(1) of the Act for obtaining an approval for re-opening of the assessment for the year under consideration and documents evidencing the approval received from the Principal Chief Commissioner of Income Tax/Chief Commissioner/Principal Commissioner/ Commissioner.

However, the Assessing Officer instead of providing these documents simply dismissed the petitioner's request by saying it is purely an administrative matter and all correspondence has been made through the system.

The court noted that the Assessing Officer was duty bound to provide all the documents called for by petitioner and his reluctance to provide these documents only would make the court draw adverse inference against the department.

"The matter is remanded for denovo consideration. The concerned officer shall keep in mind that the exercise of considering the assessee's objections to the reopening of assessment is not a mechanical ritual but a quasi judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. He shall also grant a personal hearing to the petitioner and the notice of personal hearing shall be communicated at least seven working days in advance," the court added.

Case Title: Tata Capital Financial Services Limited Versus Assistant Commissioner of Income Tax Circle 1(3)(1) and Ors.

Citation: 2022 LiveLaw (Bom) 62

Case No.: Writ Petition No. 546 Of 2022

Date: 15.02.2022

Counsel for Petitioner: Senior Advocate J.D. Mistri, along with Advocate Niraj Sheth

Counsel for Respondents: Advocate Suresh Kumar

Click Here To Read/Download Order