Captive Commerce Pvt. Ltd. vs ACIT - (Income Tax Appellate Tribunal) (09 Aug 2023)

A completed assessment cannot be disturbed based on fancy or whimsical grounds or on the basis of 'reason to suspect'

MANU/ID/1173/2023

Direct Taxation

Appeal has been filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals) arising from the assessment order passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2010-11. The assessee has challenged the assumption of jurisdiction under Section 147 of the Act as well as confirming notional income of Rs. 41,48,008 on account of client code modification.

The Assessing Officer has merely made averments towards the modus operandi used by the different brokers for transfer of profit and loss of one constituent to another by modification of the client code but however, there is no reference to any relevant material which can given rise to prima facie believe of an escapement resulted to the Revenue. There is no iota of reference to any transaction wise detail where the client code of the assessee is undergone any modifications causing transfer of profits from assessee to any other party/constituent. The name of the broker facilitating such alleged client code modification is also not mentioned in the reasons recorded. It is a classic case of assumption of jurisdiction under Section 147 by recording 'believe' based extremely vague and non-descript reasons. No reference to any material providing foundation for holding belief is available.

The allegation towards escapement of income must be backed by expression 'reasons to believe' and such believe requires to be based on some credible or relevant material. A completed assessment cannot be disturbed based on fancy or whimsical grounds or on the basis of 'reason to suspect' towards alleged escapement without giving reference to any relevant material which may give rise to a bona fide believe towards escapement to a reasonable person instructed in law. The Assessing Officer is expected to exercise jurisdiction under Section 147 of the Act with scrupulous care and based on material which are clear and beyond reasonable doubt. The reasons recorded in the instant case are in complete disarray.

The believe towards escapement in the instant case is only pretence and a mere doubt and suspicion towards probable escapement though worded as 'reasonable to believe'. The vague feeling or suspicion of the Assessing Officer towards possible escapement would not permit to reopen a completed assessment in defiance of statutory requirement of substantial nature. The notice issued under Section 148(1) is thus ultra vires the provision of Section 147 of the Act. Hence, the re-assessment notice under Section 148 giving rise to the jurisdiction under Section 147 of the Act is quashed and consequently the re-assessment order appeal against is also similarly quashed and set aside. The appeal of the assessee is allowed.

Tags : RE-ASSESSMENT JURISDICTION LEGALITY