2017 (1) TMI 517 - HC - Income Tax

Reopening of assessment - validity of assessment - reasons to believe - it was not clear that income was taxable in the hands of assessee or loaner - Held that - AO was in receipt of information from the Deputy Director of Income Tax (Investigation), Faridabad, which revealed that out of his agricultural income and advances received from his friends, loaner had advanced payments as interest free unsecured loan to the petitioner and his family members. - The factum of advancement of such money came to be admitted only in response to the notice. Prior thereto, both the petitioner and his family members maintained stoic silence - also, the source from which the loaner itself received such income, prima facie, was found to be false The Assessing Officer, in our considered view, has considered the entire material while forming its prima facie view with regard to the alleged payments of interest. Also what was the purpose of loan and what was the source from where it came to be returned is a question, which being a jurisdictional fact requires adjudication by the Assessing Officer. The petitioner may also have justifiable explanation of repayment, but from the material placed before us, it cannot be said that either the initiation of process of assessment or rejection of objections is on flimsy grounds or in an arbitrary manner. We find existence of reasonable ground, enabling the Assessing Officer to form a belief, with regard to the non-disclosure/escapement of income - In the instant case, we find that the petitioner seeks adjudication, on merits, of the fact in issue, which is impermissible in law. In the absence of definite and authentic information, this Court cannot as a fact finding authority, by way of a roving inquiry examine the matter, holding the proceedings initiated under Section 148 of the Act to be untenable on merits. Assessee is always open to make all such submissions before the appropriate authority. Application of mind by the sanctioning authority - Held that - the instant case is not that of mere rubber stamping, for the competent authority, in principle, was in agreement with the reasons assigned by the Assessing Officer, so placed before him, which came to be considered and sanction accorded, with proper application of mind. He himself wrote I am satisfied that it is a fit case for issue of notice u/s 148 . Rejection of objections - Held that - It cannot be said that rejection of the objections are based on frivolous or extraneous factors and circumstances. There is complete and proper application of mind to the attending facts and circumstances. The objections rejected, by a speaking order, also stands duly communicated to the petitioner. Mere rejection of objections cannot lead to formation of an opinion about the Assessing Authority, under all circumstances, deciding the matter in favour of the revenue. Reliance on a decision dated 04.03.2016, rendered by the Calcutta High Court in Prem Chand Shaw (2016 (3) TMI 328 - CALCUTTA HIGH COURT) is only for the purpose of pressing the provisions of Section 292-B of the Act, which, in the instant case, we do not find to be applicable. At this stage, what is required to be considered by the jurisdictional authority is only reasons to believe and not the established fact of escapement of income , on the lines of Rajesh Jhaveri (2007 (5) TMI 197 - SUPREME Court). Petition dismissed - Decided against the assessee.

Issues Involved:
1. Amenability of an order passed by an authority under the Income Tax Act to writ jurisdiction.
2. Justiciability of the exercise of power by the jurisdictional authority in initiating action for assessment of escaped income.
3. Sufficiency of material to form reasons of belief by the jurisdictional authority.
4. Existence and sufficiency of reasons for belief.
5. Accordance of sanction by the appropriate authority as per law.
6. Conformity of the order passed by the authority with the settled procedure of law.
7. Whether the action of the authorities can be considered arbitrary, whimsical, or capricious.

Detailed Analysis:

1. Amenability of an Order to Writ Jurisdiction:
The court highlighted that the jurisdiction under Article 226 of the Constitution is discretionary and not intended as an alternative remedy for relief which may be obtained through statutory modes. The court cited several precedents, including Thansingh Nathmal v. The Superintendent of Taxes, and The Commissioner of Income-tax, Gujarat v. M/s A. Raman and Co., emphasizing that the High Court generally does not interfere where an alternative remedy exists unless there is a jurisdictional error or the action is arbitrary.

2. Justiciability of the Exercise of Power:
The court noted that the belief of the Assessing Officer must be based on reasonable grounds and not arbitrary or irrational. The court referred to decisions such as S. Narayanappa v. Commissioner of Income-Tax and Lakhmani Mewal Das v. Income-Tax Officer, asserting that the sufficiency of the grounds for the belief is not a justiciable issue. The court found that the Assessing Officer had reasonable grounds to believe that income had escaped assessment, thus justifying the initiation of reassessment proceedings.

3. Sufficiency of Material to Form Reasons of Belief:
The court examined the material before the Assessing Officer, including information received from the Deputy Director of Income Tax (Investigation), which indicated that the loaner did not have sufficient agricultural income or unsecured loans to justify the amounts advanced to the petitioner. The court found that the Assessing Officer had sufficient material to form a belief that income had escaped assessment.

4. Existence and Sufficiency of Reasons for Belief:
The court emphasized that the reasons for belief must have a rational connection to the formation of the belief. The court found that the reasons recorded by the Assessing Officer were based on specific and reliable information, distinguishing the case from Lakhmani Mewal Das, where the information was vague and indefinite. The court concluded that the reasons for belief were adequate and justified the initiation of reassessment proceedings.

5. Accordance of Sanction by the Appropriate Authority:
The court noted that the reasons for belief were placed before the sanctioning authority, who recorded satisfaction and accorded sanction for issuing the notice under Section 148 of the Act. The court rejected the contention that the sanction was mechanical, finding that the sanctioning authority had applied its mind to the material before it.

6. Conformity with Settled Procedure of Law:
The court found that the Assessing Officer had followed the procedure prescribed by law, including recording reasons for belief, obtaining sanction from the appropriate authority, and issuing the notice under Section 148. The court emphasized that the process was not carried out in undue haste and that the Assessing Officer had been applying his mind to the material for over three months.

7. Arbitrariness, Whimsicality, or Capriciousness:
The court concluded that the action of the Assessing Officer was not arbitrary, whimsical, or capricious. The court found that the reasons for belief were based on material that had a rational connection to the formation of the belief and that the Assessing Officer had acted within the scope of his jurisdiction. The court dismissed the petitions, finding no merit in the contention that the action was ex-facie illegal or based on extraneous factors.

Conclusion:
The court dismissed the petitions, holding that the Assessing Officer had reasonable grounds to believe that income had escaped assessment and had followed the procedure prescribed by law. The court found no jurisdictional error or arbitrariness in the action of the authorities, emphasizing that the reasons for belief were based on relevant and specific information. The court did not express any opinion on the merits of the case, leaving it to the jurisdictional authority to adjudicate the matter in accordance with law.

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