2017 (1) TMI 1041 - HC - Income Tax

Reopening of assessment - reopening initiated by AO on the basis of material provided by the Principal Director of Income Tax (Investigation) - assessee engaged in bogus share applications - Held that - Genuineness of the various companies who made share applications are doubted. The assessee is alleged to have been engaged in bogus share applications from various bogus concerns operated by Shri Pravinkumar Jain. The assessee is the beneficiary of the said transactions of share application by those bogus concerns. In the wake of information received by the Assessing Officer, when Assessing Officer formed a belief that the investment made from the funding of such companies which are bogus, the Assessing Officer has rightly assumed the jurisdiction of initiating the reassessment proceedings. Assessing Officer, on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier. In the present case, since both the necessary conditions to reopen the assessment have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. Information furnished at the time of original assessment, when by subsequent information received from the Principal Director of Income Tax (Investigation), Ahmedabad, itself found to be controverted, the objection to the notice of reassessment under section 147 of the Act must fail. Thus it cannot be said that impugned notice issued under Section 148 of the Act is without jurisdiction and/ or contrary to Section 147 of the Act. - Decided against assessee

Issues Involved:
1. Compliance with Section 151 of the Income Tax Act.
2. Validity of the notice under Section 148 of the Income Tax Act based on borrowed information.
3. Sufficiency of tangible material for reopening the assessment.
4. Applicability of precedents and judicial decisions.

Issue-wise Detailed Analysis:

1. Compliance with Section 151 of the Income Tax Act:
The petitioner initially contended that the notice under Section 148 was issued without compliance with Section 151 of the Income Tax Act, which requires prior approval from the Commissioner. However, it was clarified through an affidavit that the notice was issued after obtaining the necessary approval from the Principal Commissioner of Income Tax, Circle I, Ahmedabad. The petitioner conceded this point, acknowledging that the ground of non-compliance with Section 151 does not survive.

2. Validity of the Notice Under Section 148 Based on Borrowed Information:
The petitioner argued that the notice under Section 148 was based on information from the Principal Director of Income Tax (Investigation), Ahmedabad, and not on the Assessing Officer's independent opinion. The court noted that the Assessing Officer received specific information that the petitioner was a beneficiary of accommodation entries provided by Shri Pravinkumar Jain, based on material recovered during a search. The court held that this constituted tangible material, justifying the reopening of the assessment. The reliance on borrowed information was deemed permissible as the Assessing Officer formed an independent opinion based on the information received.

3. Sufficiency of Tangible Material for Reopening the Assessment:
The petitioner contended that there was no tangible material to conclude that income had escaped assessment. The court observed that the original assessment was under Section 143(1), where the return was accepted without detailed inquiry. The information received from the investigation team indicated that the petitioner was involved in bogus share applications from concerns operated by Shri Pravinkumar Jain. The court cited the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Pvt Ltd., emphasizing that the Assessing Officer only needs a reason to believe, not conclusive proof, at the stage of issuing the notice. The court found that the Assessing Officer had sufficient material to form a prima facie belief of income escapement.

4. Applicability of Precedents and Judicial Decisions:
The petitioner relied on the Delhi High Court's decision in Commissioner of Income Tax, Central 1 vs. Indo Arab Air Services, arguing that reassessment based on borrowed satisfaction is not permissible. However, the court found this decision inapplicable to the present case. Instead, it relied on the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Pvt Ltd. and the Gujarat High Court's decision in Yogendrakumar Gupta vs. Income Tax Officer. These decisions support the view that reassessment can be initiated based on new, specific, and reliable information, even if the original assessment was under Section 143(1).

Conclusion:
The court concluded that the impugned notice under Section 148 was valid and within jurisdiction, as it was issued based on tangible material and after obtaining the necessary approvals. The petition was dismissed, and the interim relief was vacated.

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