2019 (7) TMI 307 - HC - Income Tax

Reopening of assessment u/s 147 - reopening on the basis of search conducted on third party who was allegedly manipulating the scrips of M/s. Parikh Herbals Ltd. / Safal Herbs Ltd. - allegation that the petitioner has made a transaction of in alleged shares - no live nexus of assessee - HELD THAT - As submitted based upon borrowed satisfaction on the part of the AO who has not applied his mind independently to reach to the conclusion that income chargeable to tax has escaped assessment. As submitted that the petitioner has traded on the BSE platform and the scrip in question is not banned and it is open for anyone to invest in the same. As submitted that there is no live nexus between Shri Shailesh Shah and Shri Jignesh Shah and the petitioner, without which, the Assessing Officer has no jurisdiction to reopen the assessment. Having regard to the submissions advanced by the learned advocate for the petitioner, issue Notice, returnable on 05.08.2019. By way of adinterim relief, the respondent is permitted to proceed further pursuant to the impugned notice; he, however, shall not frame the final assessment without the prior permission of this Court.

Summary

Issues: Reopening of assessment under section 147 of the Income Tax Act, 1961 based on connection with individuals manipulating scrips; Validity of reopening based on borrowed satisfaction and lack of specific finding of income escapement; Jurisdiction of Assessing Officer to reopen assessment without live nexus between parties.

In this case, the petitioner challenged the reopening of their assessment under section 147 of the Income Tax Act, 1961. The petitioner's advocate argued that the assessment was being reopened merely based on the connection with individuals who were manipulating scrips of certain companies, without any evidence of accommodation entries or material seized linking the petitioner to them. It was contended that the Assessing Officer was attempting a roving inquiry without a specific finding of income escapement, which is impermissible. The advocate highlighted that the reopening was based on borrowed satisfaction, as the Assessing Officer did not independently apply their mind to establish income escapement. Moreover, it was emphasized that the scrip in question was not banned, and there was no direct nexus between the individuals manipulating the scrips and the petitioner, questioning the jurisdiction of the Assessing Officer to reopen the assessment without a live nexus between the parties.

The High Court, considering the submissions, issued a Notice returnable on a specified date. As an ad interim relief, the respondent was allowed to proceed further based on the notice, but the final assessment was prohibited without the prior permission of the Court. Direct service of the order was permitted in this case. The judgment reflects a critical analysis of the grounds on which the assessment was sought to be reopened, emphasizing the necessity of a specific finding of income escapement and a direct nexus between the parties involved to justify such reopening under section 147 of the Income Tax Act, 1961.