2017 (6) TMI 557 - HC - Income Tax

Reopening of assessment - proceedings initiated by the AO on the basis of material provided by the Principal Director of Income Tax (Investigation), Ahmedabad - Shri Pravin Kumar Jain is engaged in providing accommodation entries and the present assessee is also one of the beneficiary of such accommodation entry - Held that - AO received the information from the Principal Director of Income Tax (Investigation), Ahmedabad vide its Confidential Letter stating that a search under Section 132 was conducted in the case of one Shri Pravin Kumar Jain and the search action resulted in collection of the evidence and other findings which conclusively proved that the said Shri Pravin Kumar Jain was engaged in providing accommodation entries and the assessee is one of the beneficiaries of bogus share application from various bogus companies operated by the said Shri Pravin Kumar Jain. Thus, the information received from the Office of Principal Director of Income Tax (Investigation), Ahmedabad along with the evidence collected during the search action in case of said Shri Pravin Kumar Jain, the AO has reopened the assessments for AYs 201112 and 201213. Therefore, it cannot be said that there was no tangible material available with the AO to form an opinion that the income chargeable to tax has escaped assessment for the years under consideration. As on the basis of the information supplied by / from the office of Principal Director of Income Tax (Investigation), Ahmedabad, the AO has found that the petitioner assessee is the beneficiary of accommodation entries provided by one Shri Pravin Kumar Jain. The AO was having with him findings of the Investigating Team based on the material recovered during the search conducted of Shri Pravin Kumar Jain Group. Under the circumstances, it cannot be said that there was no tangible material available with the AO to prima facie form an opinion / belief that the income chargeable to tax has escaped assessment. In the facts and circumstances of the case, it cannot be said that the reopening of the assessment is on change of opinion by the subsequent AO. - Decided against assessee.

Issues Involved:
1. Legality of reopening assessments under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of assessments is merely a change of opinion by the subsequent Assessing Officer (AO).
3. Validity of utilizing information obtained from third-party searches.
4. Sufficiency and independence of the AO's reasons to believe that income has escaped assessment.
5. Impact of retracted statements on the reopening of assessments.

Detailed Analysis:

1. Legality of Reopening Assessments under Section 148 of the Income Tax Act, 1961:
The court examined the legality of the impugned notices issued under Section 148 for Assessment Years (AY) 2011-12 and 2012-13. The reopening was based on information received from the Principal Director of Income Tax (Investigation), Ahmedabad, indicating that the assessee had routed unaccounted money through bogus share application entries provided by entities controlled by Shri Pravin Kumar Jain. The court held that there was tangible material available with the AO to form an opinion that income chargeable to tax had escaped assessment, thus justifying the reopening of assessments.

2. Whether the Reopening of Assessments is Merely a Change of Opinion by the Subsequent AO:
The petitioner argued that the reopening was a mere change of opinion since the original assessments were completed under Section 143(3) after thorough scrutiny. The court, however, noted that the information leading to the reopening was not available during the original assessments. The AO's belief was based on new, specific, and reliable information obtained from the investigation, which constituted a valid ground for reopening and was not merely a change of opinion.

3. Validity of Utilizing Information Obtained from Third-Party Searches:
The petitioner contended that reliance on material found from third-party premises (Shri Pravin Kumar Jain) was not permissible. The court rejected this argument, stating that the information received from the investigation wing, corroborated by evidence collected during the search, was sufficient to justify the reopening of assessments. The AO had applied his mind to the information before forming an opinion, which was necessary for initiating reassessment proceedings.

4. Sufficiency and Independence of the AO's Reasons to Believe that Income has Escaped Assessment:
The court emphasized that the term "reason to believe" implies cause or justification and does not require the AO to have finally ascertained the fact by legal evidence. The AO must have relevant material on which a reasonable person could form the requisite belief. The court found that the AO had sufficient material and independent reasons to believe that income had escaped assessment, thus validating the issuance of the notice under Section 148.

5. Impact of Retracted Statements on the Reopening of Assessments:
The petitioner argued that the reopening was based on the retracted statement of Shri Pravin Kumar Jain, which should not be considered. The court clarified that the reopening was not solely based on the retracted statement but also on the corroborative evidence and material collected during the search. The effect of the retracted statement would be considered during the reassessment proceedings, not at the stage of issuing the notice.

Conclusion:
The court dismissed the petitions, upholding the validity of the notices issued under Section 148 of the Income Tax Act. It concluded that the AO had sufficient and independent reasons to believe that income had escaped assessment, and the reopening was based on tangible material and not merely a change of opinion. The reliance on third-party information and retracted statements was justified given the corroborative evidence available. The petitions were dismissed, and the notices under Section 148 were deemed lawful.

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