2015 (10) TMI 754 - HC - Income Tax

Validity of reopening of assessment - receipt of accommodation entry - whether the ITAT was correct in holding that the Assessing Officer ( AO ) has not applied his mind and not come to an independent conclusion that he has reason to believe that the income of the Assessee has escaped assessment? - Held that - In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries. The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries .Thus the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case. In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous - Decided against revenue.

Summary

Issues Involved:
1. Jurisdictional requirement for reopening of assessment under Section 147/148 of the Income Tax Act.
2. Whether the Assessing Officer applied his mind and came to an independent conclusion for reopening the assessment.

Analysis:

Issue 1: Jurisdictional requirement for reopening of assessment under Section 147/148 of the Income Tax Act:
The High Court referred to the Supreme Court's decisions in Chhugamal Rajpal v. SP Chaliha and ACIT v. Dhariya Construction Co. to emphasize the necessity for the Assessing Officer (AO) to have valid reasons to believe that income has escaped assessment before issuing a notice under Section 148. The court highlighted that the AO must apply his mind to the information available and form a belief based on concrete evidence. The court reiterated that the jurisdictional requirement for reopening assessments has been consistently upheld in various judgments.

Issue 2: Assessing Officer's application of mind for reopening the assessment:
In the case at hand, the AO issued a notice under Section 148 based on information from the Directorate of Investigation regarding alleged accommodation entries. However, the High Court found that the AO's conclusion lacked clarity as he did not describe the materials he relied upon. The court emphasized that the AO must form a prima facie opinion based on the available material before concluding that income has escaped assessment. The High Court held that the AO's failure to apply his mind to the materials rendered the reopening order defective.

The High Court dismissed the appeal, stating that the conclusion reached by the Income Tax Appellate Tribunal (ITAT) was not erroneous, and no substantial question of law arose. The judgment highlighted the importance of the AO's application of mind and adherence to the jurisdictional requirements for reopening assessments under Section 147/148 of the Income Tax Act.