Reassessment: S/s. 147 and 148: A. Y. 1999-00: Note forming part of return mentioning and describing the nature of receipt under a noncompete agreement: Return accepted u/s. 143(1): Notice u/s. 148 on the basis of same material and nothing more: Not valid:

For the A. Y. 1999-00, in the note filed together with the accounts and the returns disclosed that he received a sum of Rs. 88 lakh as a one-time, non-compete fee. He concededly paid advance tax of Rs. 27,60,600/- on the same. He claimed that this is a one-time capital receipt. The return was processed u/s. 143(1) of the Income-tax Act, 1961. Subsequently, the Assessing Officer reopened the assessment by issuing notice u/s. 148 dated 09-01- 2002 and brought the said amount of Rs. 88 lakh to tax as business income. The Tribunal held that there was no tangible material and that it was under mere circumstance that the advance tax to the tune of Rs. 27.6 lakh was paid did not amount to admission by the assessee. The Tribunal allowed the assessee’s appeal and held that the reopening was not valid.

In appeal, the Revenue contended that having regard to Explanation 1 to section 147 read with section 143(1), the reopening in this case was justified. The Revenue also argued that the agreement entered into by the assessee under which the amount was paid had not been filed during the assessment stage. And this justified the reassessment proceedings.

The Delhi High Court upheld the decision of the Tribunal and held as under: “

i) A valid reopening of assessment has to be based only on tangible material to justify the conclusion that there is escapement of income.

ii) The note forming part of the return filed for the A. Y. 1999-00 clearly mentioned and described the nature of the receipt under the non-compete agreement. The reasons for Notice u/s. 147 nowhere mentioned that the Revenue came up with any other fresh material warranting reopening of assessment. Therefore, mere conclusion of the proceedings u/s. 143(1) ipso facto did not permit invocation of powers for reopening the assessment.