2022 (7) TMI 1503 - HC - Income Tax

Reopening of assessment u/s 147 - jurisdictional requirement reason to believe - accommodation entries receipt - whether the reopening of the assessment as done by the assessing officer was justified? - assessee on earlier bogus bill has made accommodation entry - said allegation was made based upon a statement recorded from one Entry Operator - tribunal pointed out that in the reasons recorded for reopening nowhere the assessee s name has been specifically mentioned by Entry Operator nor there is anything adverse against the assessee -. HELD THAT - The assessee was found to have transacted with the said company through banking channel and faulted the assessing officer for reopening the assessment based on the statement of Shri Jindal which was a general statement and that the assessing officer assumed that the assessee is a beneficiary of the account. Furthermore the tribunal pointed out that the just because the assessee had transaction with M/s. Bridge Building Construction Co. Ltd. it cannot be a ground to believe that the assessee s income escaped assessment. It was further held that without any other material as discussed the conclusion drawn by the assessing officer merely on receipt of the aforesaid information does not master the requirement of law to validly form the reason to believe escapement of income. Accordingly the appeal filed by the revenue was dismissed. After considering the submissions made on either side and carefully perusing the materials placed before us we find that the entire matter is factual and the reopening itself was made on wrong presumption of facts. No substantial question of law.

Summary

Issues involved:
1. Jurisdictional requirement of 'reason to believe' for income escapement
2. Validity of reassessment proceeding under Section 147 of the Income Tax Act, 1961
3. Assessment officer's belief on income escapement based on information

Issue 1: Jurisdictional requirement of 'reason to believe' for income escapement

The High Court considered whether the assessing officer's reopening of the assessment was justified based on the allegation that the assessee made accommodation entry through a company via a bank account. The Court noted that the assessing officer concluded that income assessable to tax had escaped assessment due to this. However, the CIT(A) highlighted that the assessee had complied with all requisitions, provided evidence of transactions, and submitted relevant documents. The CIT(A) found that the assessing officer's addition was solely based on a statement without a direct link to the assessee's transactions. Additionally, the CIT(A) emphasized that the assessing officer's reasoning for reopening did not specifically mention the assessee's name or provide adverse information against the assessee. The High Court concurred with the CIT(A) and held that the assessing officer's conclusion, solely based on the statement, did not meet the legal requirement to form a valid reason to believe income escapement.

Issue 2: Validity of reassessment proceeding under Section 147 of the Income Tax Act, 1961

The Court examined whether the reassessment proceeding under Section 147 was lawful. It was observed that the tribunal re-examined the factual position and criticized the assessing officer for assuming the assessee's involvement in the alleged transactions without concrete evidence. The tribunal emphasized that the mere existence of transactions with a specific company did not automatically imply income escapement. The tribunal highlighted that the assessing officer's conclusion lacked substantial supporting material and failed to meet the legal standard for validly forming a reason to believe income escapement. Consequently, the High Court dismissed the revenue's appeal, affirming the tribunal's decision.

Issue 3: Assessment officer's belief on income escapement based on information

The Court analyzed the assessing officer's belief regarding income escapement based on the information received. It was noted that the assessing officer's presumption of facts was incorrect, leading to the flawed reopening of the assessment. The High Court emphasized that the entire matter revolved around factual inaccuracies and incorrect presumptions. After reviewing the submissions and evidence, the Court concluded that there was no substantial question of law arising from the appeal. Therefore, the revenue's appeal was dismissed, and the connected application for stay was closed accordingly.

This detailed analysis of the High Court judgment highlights the issues surrounding the jurisdictional requirement of 'reason to believe' for income escapement, the validity of reassessment proceedings under Section 147, and the assessing officer's belief based on information, providing a comprehensive understanding of the legal intricacies involved in the case.