2016 (7) TMI 406 - HC - Income Tax

Reopening of assessment - application of mind - recording of satisfaction - Held that - We may recall that the return filed by the petitioner for the assessment year in question was accepted under Section 143(1) of the Act without scrutiny. In that view of the matter, the question of change of opinion would not arise since obviously the Assessing Officer had no occasion to form an opinion regarding any of the aspects of the petitioner s return. On receipt of the imported consignments, the same would be handed over to the actual importer and the bogus stock would be entered in the books of benami entities and would not be recorded in the books of actual importer. It was noticed that bogus entries worth ₹ 26.30 lacs was provided to the petitioner by one M/s. Mahalaxmi Gems Pvt. Ltd, one of the Bhawarlal group of bogus companies. When the Assessing Officer had such material at his command, after processing which, he recorded his reasons as can be seen from paras 4 to 6 of the reasons, we do not find that he acted without proper application of mind. First part of the reasons recorded in paras 1 to 3 give background of various activities carried on by Bhawarlal group of persons as revealed during search and seizure operation carried out by the investigation wing of the department. Contents of paras 4 to 6 of the reasons refer specifically to the petitioner and are in the nature of the Assessing Officer s observation on the basis of materials supplied to him. This is, therefore, neither a case of issuance of notice without application of mind nor a case of recording of reasons through borrowed satisfaction of another authority or wing of the department. - Decided against assessee.

Issues Involved:
1. Challenge to the notice for re-opening the assessment.
2. Validity of the reasons recorded by the Assessing Officer for re-opening the assessment.
3. Allegation of mechanical recording of reasons and lack of independent belief by the Assessing Officer.
4. Adequacy of the disposal of objections by the Assessing Officer.

Detailed Analysis:

1. Challenge to the Notice for Re-opening the Assessment:
The petitioner, a partnership firm engaged in diamond trading, challenged a notice dated 13.03.2015, which sought to re-open the assessment for the assessment year 2008-09. The petitioner also contested an order dated 08.12.2015, which rejected the petitioner’s objections to the notice issued by the Assessing Officer for re-opening the assessment. The initial return of income for the said assessment year was accepted without scrutiny under Section 143(1) of the Income Tax Act, 1961.

2. Validity of the Reasons Recorded by the Assessing Officer:
The Assessing Officer issued the notice based on materials collected during a search and seizure action on the Bhawarlal Jain Group, which revealed that the group provided accommodation entries for bogus unsecured loans and bogus purchases through various benami concerns. The reasons recorded by the Assessing Officer indicated that the petitioner had indulged in imports of rough diamonds through these benami entities to suppress profits. Specifically, it was noted that the petitioner received bogus purchase entries worth ?26,03,997 from M/s. Mahalaxmi Gems Pvt. Ltd., a benami entity of the Bhawarlal Jain Group.

3. Allegation of Mechanical Recording of Reasons and Lack of Independent Belief:
The petitioner argued that the Assessing Officer mechanically recorded the reasons by borrowing the opinion of the investigation wing without independently arriving at a belief that the income chargeable to tax had escaped assessment. However, the court found that the Assessing Officer had proper reasons to believe that income had escaped assessment, supported by tangible material. The court referred to the decision in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd., which clarified that at the initiation stage, what is required is "reason to believe" and not the established fact of escapement of income.

4. Adequacy of the Disposal of Objections by the Assessing Officer:
The petitioner contended that the Assessing Officer rejected the objections without proper application of mind, contrary to the directives of the Supreme Court in GKN Driveshafts (India) Ltd. vs. Income Tax Officer and ors. The court acknowledged this contention but emphasized that the genuineness of the transactions and the evidence provided by the petitioner would need to be examined during the assessment process. The court noted that in cases where the original assessment was accepted without scrutiny, the Assessing Officer must be allowed to scrutinize the purchases during the re-opening process.

Conclusion:
The court dismissed the petition, upholding the notice for re-opening the assessment. The court found that the Assessing Officer had acted with proper application of mind and had sufficient material to form a belief that income had escaped assessment. The objections raised by the petitioner were deemed to require detailed examination during the assessment process, and the court did not find it necessary to quash the notice based on the manner of disposal of the objections.

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