2018 (2) TMI 517 - HC - Income Tax

Reopening of assessment - eligible reasons to believe - proof of accommodation entries - Held that - A plain reading of the reasons recorded for reopening the assessment reveals that the basis for formation of belief that the transaction made by the assessee with M/s Shreeji Trading Company is bogus in nature is that Shri Anil Kumar Jain and Shri Pravin Kumar Jain admitted to carrying on the business of giving accommodation entries in the names of various entities and upon verification it was found that one such entity handled by them was M/s Shreeji Trading Company. As noted hereinabove, the information which was received by the Assessing Officer nowhere discloses that M/s Shreeji Trading Company was an entity handled by Shri Anil Kumar Jain and Shri Pravin Kumar Jain. No nexus has been established between Shri Anil Kumar Jain and Shri Pravin Kumar Jain who had made the statements under section 131 of the Act and M/s Shreeji Trading Company. Thus, the reasons are based upon a factually incorrect premise that M/s Shreeji Trading Company was being handled by Shri Anil Kumar Jain and Shri Pravin Kumar Jain. Absence of any material on record to indicate any nexus between M/s Shreeji Trading Company and Shri Anil Kumar Jain and Shri Pravin Kumar Jain, erodes the very substratum for formation of belief that income has escaped assessment. Consequently, once there is no foundation for such belief, the reasons based thereupon have no legs to stand, hence, on the reasons recorded - AO could not have formed the belief that any income chargeable to tax has escaped assessment. Therefore, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act to reopen the assessment by issuing the impugned notice under section 148 of the Act is without authority of law - Decided in favour of assessee

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment year 2010-11.

Analysis:
1. The petitioner challenged the notice dated 31.3.2017 issued under section 148 of the Income Tax Act, seeking to reopen the assessment for the year 2010-11. The petitioner contended that the notice was issued beyond the four-year period from the end of the relevant assessment year and without any failure to disclose material facts, rendering the jurisdiction of the Assessing Officer under section 147 of the Act invalid. The petitioner argued that the reasons for reopening the assessment were based on a misconception of facts, as the income from trading gold had been offered for taxation, and all taxes had been duly paid. The petitioner emphasized that the reasons for reopening lacked valid grounds and failed to establish any income escapement, making the notice illegal.

2. On the other hand, the respondent argued that there was sufficient material for the Assessing Officer to form a belief that income chargeable to tax had escaped assessment. The respondent contended that the reasons recorded for reopening the assessment indicated a failure on the part of the assessee to fully and truly disclose income, justifying the reopening beyond the four-year period. The respondent maintained that as long as there was tangible material supporting the belief of income escapement, the challenge to the reopening would fail.

3. The reasons recorded for reopening the assessment highlighted suspicious financial transactions involving high-value credits and withdrawals, leading to the discovery of an entity, M/s Shreeji Trading Company, linked to accommodation entries. The Assessing Officer believed that the petitioner had received a significant sum from this entity, which was deemed bogus due to its association with individuals involved in accommodation entries. However, a critical examination of the information provided to the Assessing Officer revealed a lack of direct evidence linking Shreeji Trading Company to the individuals involved in accommodation entries, undermining the basis for assuming income escapement.

4. The court scrutinized the reasons for reopening and the information received by the Assessing Officer, which indicated a connection between Shreeji Trading Company and Jay Corporation, without establishing a direct link to the individuals admitting to accommodation entries. The court emphasized that the reasons for reopening were premised on a factually incorrect assumption that Shreeji Trading Company was managed by the individuals involved in accommodation entries. Due to the absence of any substantial evidence linking the entity to the individuals, the court concluded that the belief of income escapement was unfounded, rendering the notice unsustainable.

5. Consequently, the court allowed the petition, quashing and setting aside the impugned notice dated 31.3.2017 issued under section 148 of the Act for the assessment year 2010-11. The court held that the Assessing Officer lacked the authority of law to reopen the assessment based on erroneous grounds, thereby declaring the notice as invalid.