2019 (1) TMI 1277 - HC - Income Tax

Reopening of assessment - unaccounted cash receipts - validity of notice - non independent application of mind by AO - Held that - It emerges from the record that the Assessing Officer has merely acted upon the information submitted to him by the investigation wing that there is material to suggest that Mudra had paid cash amount to AB&D whereas, the material collected during the survey against Mudra prima faice suggests such cash payment to AD. This would demonstrate total lack of application of mind on the part of the AO. If he had perused the material supplied to him by the investigation wing, he would have immediately noticed that material referred would suggest cash payment to AD and not AB&D i.e. the present petitioner. Even in a case where the return filed by the assessee is accepted without scrutiny, as per the settled law, the Assessing Officer can issue a notice of reopening of assessment provided he has reason to believe that income chargeable to tax has escaped assessment. The Assessing Officer cannot proceed mechanically and also on erroneous information that may have been supplied to him. In fact, we note that in the present case the Assessing Officer had issued a notice to a wrong person. The impugned notice is, therefore, set aside. - Decided in favour of assessee

Summary

Issues:
Challenging notice of reopening of assessment for A.Y. 2011-12 based on recorded reasons, objections filed by petitioner, sufficiency of material for reopening assessment, distinction between entities AB&D and AD, application of mind by Assessing Officer, legality of reopening assessment after scrutiny.

Analysis:
The petitioner challenged a notice of reopening of assessment for A.Y. 2011-12, issued by the Assessing Officer, based on certain recorded reasons. The Assessing Officer relied on information from a detailed investigation report forwarded by the Directorate of Investigation, indicating cash payments made to entities including the petitioner. The notice was issued under Section 147 of the Income Tax Act, 1961, as the Assessing Officer believed that income chargeable to tax had escaped assessment amounting to ?3,54,82,000. The petitioner objected to the notice, highlighting the lack of tangible material to support the belief that income had escaped assessment. The Counsel argued that the Assessing Officer's reliance on seized documents from another entity, Mudra Real Estate Pvt. Ltd., did not directly implicate the petitioner, a separate partnership firm with different partners and PAN numbers.

The Department opposed the petition, citing the wider scope for reopening assessments not previously scrutinized. Referring to a Supreme Court decision, the Department argued that the sufficiency of material for reopening assessments should not be scrutinized by the Court at this stage. The Assessing Officer justified the reopening based on the material available to him, including information on cash payments received by the petitioner. However, it was noted that the Assessing Officer's actions lacked proper application of mind, as the material suggested cash payments to a different entity, AD, rather than the petitioner, AB&D. The Assessing Officer attempted to justify this discrepancy by suggesting that the two entities were the same, despite evidence of their separate identities.

The Court observed that the Assessing Officer's reliance on information indicating cash payments to a different entity demonstrated a lack of proper consideration and application of mind. Even in cases where returns are accepted without scrutiny, the Assessing Officer must have a valid reason to believe that income has escaped assessment before issuing a notice of reopening. In this case, the Court found that the Assessing Officer had issued the notice to the wrong entity, leading to the notice being set aside. The petition was disposed of accordingly, highlighting the importance of proper assessment procedures and the need for valid reasons to support reopening assessments.