Income Tax: Reopening of assessments based on mere doubts cannot be entertained in law

Reopening of assessments based on mere doubts cannot be entertained in law
Reopening of assessments based on mere doubts cannot be entertained in law

The Income Tax Tribunal at Mumbai on the case of Torm Shipping India Pvt. Ltd. (earlier called Orinoco Marine Consultancy India Pvt. Ltd.), Second Floor, Leela Business Park, Andheri Kurla Road, Andheri (East), Mumbai – 59 (having PAN: AACO1884D) vs. ITO, 93(4), Mumbai, being I.T.A. No.1272 & 1273/Mum/2013 has held that reopening of assessment based on mere doubts cannot be entertained in law. It has been further held that reopening of assessment cannot be done casually and the same should be done only after having firm reasons.

Pleaders engaged:

The assessee was led by Shri Girish Dave and Shri Mallikarjun Utture appeared on behalf of the respondent.

Date of hearing:

The hearing was concluded on 10.10.2016 and the judgment was pronounced on14 .10.2016

Facts of the case:

The two appeals were filed by the assessee for assessment years 2006-07 and 2007-08. First of all the appeal for A.Y. 2006-07 in I.T.A. No.1272/Mum/2013 was taken up for hearing.

The appeal has been filed by the assessee against the impugned order of Commissioner of Income-tax (Appeals)-7, Mumbai dated 26.9.2012 against the assessment order passed on 30.12.2009 under section 143(3) read with section 147 of the Income Tax Act, 1961.

The assessee objected to the order passed by the Commissioner of Income Tax (Appeals) – 7, Mumbai for the assessment year 2006-07 on the following grounds:

  1. The CIT (A) was wrong in holding that the Dy. Commissioner of Income Tax- 3(3) was justified in reopening under section 147 of the Act.
  2. The CIT (A) was also wrong in confirming the addition of Rs.1, 16, 50,971 considering the same as income under sections 69B/69C of the Act.
  3. The CIT (A) was wrong in confirming the dis allowance of Rs. 9, 00,000 which was actually professional fees paid towards the consultants.
  4. The CIT (A) further erred in confirming the dis allowance of Rs. 7, 65,120 towards rent paid to OMCI Marine Services Private Limited by applying provisions of section 40A(2)(b) of the Act.
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During the hearing, it was contended by the Ld. Counsel appearing for the assessee that the impugned order passed under the provisions of section 147 of the Act was illegal in law. Attention was drawn to the additional grounds filed by the assessee in its petition dated 21.6.2016, which stated that the learned Assessing Officer erred in not following the procedure provided in law for reassessment by the Supreme Court in the case of GKN Driveshafts (India) Pvt. Ltd. vs. ITO (259 ITR 19).

It was also stated that on the facts of the case, the learned Commissioner of Income Tax (Appeals) was absolutely wrong in affirming the reassessment proceedings when no addition was made by the Assessing Officer for the issue on which reassessment was started.

The reassessment order was against Jurisdictional Bombay High Court decision in CIT vs. Jet Airways (331 ITR 236). Therefore, the reassessment proceeding should be quashed in law.

It was observed that the assessment proceedings were initiated with issue of notice dated 24.07.2008 under Section 143(2) and 142(1) of the Act without disposing the objection of the Assessee for reopening of assessment. Therefore, the reassessment order passed should be set aside.

During the hearing it was argued that additional grounds were purely legal and do not need inquiry of fresh facts and they should be admitted for the ends of law.

The Ld. DR did not raise any objection regarding the additional grounds raised and so the additional grounds were thus admitted.

It was stated by the Ld. Counsel appearing on behalf of the assessee that there has been a failure on the part of the Assessing Officer in not following the direction of the law while framing assessment under section 147.

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It was submitted that though the reasons were provided by the Assessing Officer in reopening the case, but the objections raised by the assessee were not disposed of before framing the assessment order.

The Assessing Officer stated that the income that has escaped assessment had already been included by the assessee in its return of income filed originally. It was also requested by the assessee to the Assessing Officer to drop the reassessment proceedings as there has been no escapement of income.

The Assessing Officer was satisfied with the reply of the assessee and did not make any addition for the income alleged to have been escaped in his recorded reasons. But the Assessing Officer did not accept the request made by the assessee for dropping the proceedings. He framed the assessment order making additions on other issues that were not reflected in the reasons recorded by him.

It was submitted that the assessment order framed by the Assessing Officer cannot be allowed in law as per the judgment of the Hon’ble Bombay High Court in CIT (A) vs. Jet Airways Ltd. 331 ITR 236 (Bom). Another judgment of the Hon’ble Bombay High Court in V.M. Salgaonkar Sales International vs.  ACIT 59 Taxman.com stating that the Assessing Officer cannot complete the reassessment proceedings without disposing of the objections raised by the assessee was also referred.

The judgment of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd 259 reported in ITR 19 (SC) was cited.

The Ld. DR submitted that on simple perusal of the assessment order, it can be observed that the objections were not disposed of by the Assessing Officer and no addition was made in the reassessment order of the Assessing Officer for the income which was alleged to have been escaped assessment.

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After going through the submissions made by both the sides and evidences placed by both sides, it was held that the reasons were recorded based on mere doubts. There was no support of any material that impugned income was not included in the income offered to tax.

It was held that Reopening of assessment cannot be permitted merely on the basis presumptions. There must be existence of some material showing escapement of income. It was concluded that there was no necessity of going into the merits of the case. The re-assessment order was accordingly quashed on the jurisdictional aspect.

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