2012 (1) TMI 72 - HC - Income Tax

Validity of reopening of assessments - unexplained credits amount received from company(entry provider) assessee contending the amount to be share application money and discrediting the reasons recorded for reopening the assessment - information received by the A.O. from DIT (Inv.), who was in charge of the investigation into groups that operate as entry providers or entry operators - Held that -Material present before the A.O. at the time of recording reasons for reopening the assessment did show a link between entry provider, with the petitioner herein together with date on which the entry was taken, the cheque or DD number, the name of the bank and branch and the account number. With such precise material before the A.O., the existence of which is beyond challenge, it can hardly be said that the A.O. could not have had even a prima facie belief that income chargeable to tax had escaped assessment in the hands of the assessee. - Decided against the assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Legitimacy of the reopening of the assessment based on the belief that income chargeable to tax had escaped assessment.
3. Adequacy and relevance of the material used to form the belief of escaped income.
4. Application of mind by the Assessing Officer while recording reasons for reopening the assessment.

Analysis of the Judgment:

1. Validity of the Notice Issued Under Section 148:
The petitioner, a private limited company, challenged the notice issued by the Income Tax Officer under Section 148 of the Income Tax Act on 28.3.2011, calling for a return of income on the ground that income chargeable to tax had escaped assessment. The petitioner argued that the notice and subsequent proceedings should be quashed. The court examined whether the notice was valid and if the reasons recorded by the Assessing Officer were sufficient to justify the issuance of the notice.

2. Legitimacy of the Reopening of the Assessment:
The petitioner contended that there was no escapement of income to justify the reopening of the assessment. The amount received from M/s. Shivam Softech Ltd. was claimed to be share application money, received through banking channels, and the share applicant company had sufficient creditworthiness. The Assessing Officer, however, based his belief on a report from the investigation wing, which meticulously examined various bank accounts and other substantive material, including recorded statements of proven entry operators. The court upheld the legitimacy of the reopening, stating that the Assessing Officer's belief was well-founded and not based on vague grounds.

3. Adequacy and Relevance of the Material Used:
The court evaluated whether the material before the Assessing Officer was relevant and sufficient to form a prima facie belief that income chargeable to tax had escaped assessment. The Assessing Officer recorded reasons based on an investigation by the DIT (Inv) into the Mukesh Gupta group, which found that the petitioner had taken accommodation entries from Shivam Softech Ltd. The court noted that the information contained in the table provided by the investigation wing constituted reasons to believe that income had escaped assessment. The material was deemed relevant and provided a live link or nexus to the formation of the prima facie belief.

4. Application of Mind by the Assessing Officer:
The court examined whether the Assessing Officer applied his mind to the information and material before recording reasons for reopening the assessment. The reasons recorded by the Assessing Officer were detailed, showing application of mind and recording inferences and conclusions. The court found that the material from the investigation wing, including the CD and printouts, was sufficient to form a prima facie belief. The court emphasized that at the stage of recording reasons for reopening, the Assessing Officer is not required to build a foolproof case but only to form a prima facie opinion.

Conclusion:
The court dismissed the writ petition, upholding the notice issued under Section 148 and the reopening of the assessment. The court found that the material before the Assessing Officer was relevant and sufficient to form a prima facie belief that income chargeable to tax had escaped assessment. The court also noted that the Assessing Officer had applied his mind while recording reasons for reopening the assessment. All interim orders were vacated, and no costs were awarded. The court clarified that its observations were only for the purpose of disposing of the writ petition and should not be construed as an expression of opinion on merits.

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