INCOME TAX ACT, 1961

Section 148

Reassessment - Notice under section 148 - Reasons to believe - Borrowed satisfaction of audit department

AO issued notice under section 148 on the ground that amount of Rs. 2 crores shown by assessee in its return of income as capital gain should have been assessed as income of assessee under section 28(iv). Also, assessee had created a provision for future development expense of Rs. 3 crores and had debited same under the head 'cost of materials', which was created on estimation basis and hence, this was a provision which was required to be added to net profit for computing book profit as per section 115JB. Assessee challenged this by way of writ petition on the ground that reasons for reopening were recorded on the basis of borrowed satisfaction of audit department. Held: It emerged that upon audit department bringing impugned two issues to the notice of AO he did not agree with objections raised by audit department and expressed opinion that original assessment was not erroneous. However, on the insistence of audit department, which found that reply of AO was not tenable, AO proceeded to reopen assessment. Accordingly, it was evident that AO did not form requisite belief that income chargeable to tax had escaped assessment, but the reasons had been recorded on the basis of borrowed satisfaction of audit department, therefore, basic requirement for assumption of jurisdiction under section 147, i.e., formation of belief on the part of AO that income chargeable to tax had escaped assessment, was not satisfied and impugned notice under section 148 was, therefore, quashed as invalid.

REFERRED : Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) : 1979 TaxPub(DT) 1081 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2012-13

SUBSCRIBE FOR FULL CONTENT