2016 (7) TMI 137 - HC - Income Tax

Reopening of assessment - reasons to believe - receipt of accommodation entries - Assessee s return was accepted without scrutiny - 148 notice issued - Held that - If AO had reasons to believe that income chargeable to tax had escaped assessment, it would be open for him to re-open assessment by recording proper reasons and issuing notice. Since the original assessment was without scrutiny, the question of change of opinion would not arise. At the stage of issue of notice, what is required is reason to believe and not the established fact of escapement of income. Relied on Rajesh Jhaveri Stock Brokers P. Ltd. (2007 (5) TMI 197 - SUPREME Court) In the instant case, in reasons recorded AO pointed out that from the information received from the investigation wing, one Hawala entry operator stated on oath that he had provided accommodation entries to many companies including assessee company. In our opinion, such reasons cannot be stated to be irrelevant or mechanically recorded. This is not a case for quashing notice for re-opening. Merely because the order disposing of objections raised by assessee does not satisfy the assessee, would not be a ground to invalidate notice for re-opening - Decided against assessee.

Summary

Issues:
Challenge to notice of re-opening for assessment year 2010-2011 based on alleged income escapement due to accommodation entries received by the petitioner company.

Analysis:
1. Re-opening Notice Challenge:
The petitioner contested a notice issued by the Assessing Officer to re-open the assessment for the year 2010-2011. The notice was based on information from the DGIT, Mumbai, regarding accommodation entries received by the petitioner company. The Assessing Officer believed that income of ?50,00,000 had escaped assessment due to the petitioner's failure to disclose true facts. The petitioner argued against the re-opening, stating that the investing companies had regular PAN numbers and substantial funds. However, the objections were rejected by the Assessing Officer.

2. Contentions Raised:
The petitioner raised two main contentions in support of their challenge. Firstly, they argued that the reasons for re-opening were mechanically recorded without showing how income had escaped assessment. They suggested that the investing companies could have been investigated instead. Secondly, they contended that the Assessing Officer did not consider their objections adequately, leading to a non-speaking order.

3. Legal Perspective:
The High Court referred to the Supreme Court judgment in Assistant Commissioner of Income-Tax vs. Rajesh Jhaveri Stock Brokers P.Ltd., emphasizing that if the Assessing Officer had reason to believe that income had escaped assessment, re-opening was permissible. The court clarified that the Assessing Officer needed a cause or justification to believe in income escapement, not conclusive proof at the notice stage. The subjective satisfaction of the Assessing Officer was crucial in forming the belief.

4. Reasons for Re-opening:
The reasons recorded by the Assessing Officer were deemed relevant, considering the information received about accommodation entries received by the petitioner company. The court opined that the Assessing Officer had the authority to re-open the assessment, and the petitioner could present evidence to contest any income addition. Quashing the re-opening notice was not warranted in this case.

5. Final Decision:
The court dismissed the petition and upheld the re-opening notice, stating that the action of the Assessing Officer was based on valid reasons. The court highlighted that the order on objections not satisfying the petitioner did not invalidate the re-opening notice. The case was distinguished from CIT vs. Lovely Exports (P) Ltd., where the Revenue's premise was different, focusing on alleged sham transactions and unaccounted income.

In conclusion, the court upheld the re-opening notice based on the reasons recorded by the Assessing Officer, emphasizing the subjective satisfaction required for such decisions.