2019 (8) TMI 410 - HC - Income Tax

Reopening of assessment u/s 147 - live link between the material in the form of the investigation report and the formation of belief that income that has escaped assessment - HELD THAT - On a perusal of the report of the investigation which was produced before this Court, it appears prima facie that there was sufficient material to justify the reopening of the assessment in both sets of cases. Further, upon reading the reasons to believe as a whole the live link between the material in the form of the investigation report and the formation of belief that income that has escaped assessment is prima facie discernable. Where a similar challenge is made to the reopening of assessments by issuing notice u/s 148 of the Act, where the Court invariably directs as an interim measure that the re-assessment proceedings may go on but no final order should be passed during the pendency of the petition, in the present case the Court ordered a total stay of further proceedings pursuant to the impugned notices dated 31st March 2015. This in effect meant that the re-assessment proceedings before the AO did not progress. With the Court disinclined to interfere at this stage for the reasons explained above, it would be open to the two Petitioners to advance all the arguments made by them in these petitions, except the point that the reopening constitutes a change of opinion, before the AO. This would include the point urged by Mr. Chetan Sabharwal that the reopening is bad in law because the reasons do not expressly state that there was a failure on his part to disclose fully and truly all material facts in relation to his assessment. Consequently, this Court would not like to further dwell on the other points urged before this Court on behalf of the Petitioners or express a view one way or the other on them except to hold that at this stage the Court, prima facie, finds no merit in the contention that there is no live nexus between the material relied upon and the reasons to believe that income has escaped assessment in both sets of cases.

Issues Involved:
1. Reopening of assessments under Sections 147/148 of the Income Tax Act, 1961 for AY 2008-09 and 2009-10.
2. Validity of reasons to believe that income had escaped assessment.
3. Difference in scrutiny assessments under Section 143(3) and intimation under Section 143(1).
4. Allegations of change of opinion in reopening assessments.
5. Legal implications of the Investigation Wing's report as tangible material for reopening assessments.
6. Failure to disclose material facts fully and truly by the Assessee.

Detailed Analysis:

1. Reopening of Assessments under Sections 147/148:
The four writ petitions challenge the reopening of assessments for AY 2008-09 and 2009-10 under Sections 147/148 of the Income Tax Act, 1961. Notices were issued on 31st March 2015 by the Respondent/Assistant Commissioner of Income Tax (ACIT) to reopen assessments, citing reasons to believe that income chargeable to tax had escaped assessment.

2. Validity of Reasons to Believe:
The reasons for reopening were based on a report from the Investigation Wing, Lucknow, which suggested that the shares of Pawan Impex Pvt. Ltd. and SVIIT Software Pvt. Ltd. were overvalued, leading to substantial income escaping assessment. The Court noted that there must be a rational/intelligible nexus between the material relied upon and the reasons to believe that income had escaped assessment.

3. Difference in Scrutiny Assessments and Intimation:
Mr. Chetan Sabharwal's assessments were initially completed under scrutiny (Section 143(3)), while Mr. Nitin Sabharwal's assessments were accepted under Section 143(1) without scrutiny. The Court highlighted that for Mr. Nitin Sabharwal, there was no question of change of opinion as the initial assessments were not under Section 143(3).

4. Allegations of Change of Opinion:
The Court examined whether the reopening of assessments constituted a change of opinion. It was noted that the original assessment orders for Mr. Chetan Sabharwal did not indicate any opinion formed by the AO on the aspects now highlighted for reopening. Therefore, the reopening did not constitute a change of opinion.

5. Investigation Wing's Report as Tangible Material:
The Court found that the report from the Investigation Wing could constitute tangible material for reopening assessments, provided there was a live link between the report and the reasons to believe that income had escaped assessment. The Court referred to precedents where investigation reports were deemed sufficient for forming a belief that income had escaped assessment.

6. Failure to Disclose Material Facts:
The Court noted that the reasons to believe did not explicitly state that there was a failure on the part of the Assessee to disclose fully and truly all material facts. However, it was held that the reasons should be read as a whole, and if they indicate that material particulars were not disclosed, it would suffice for reopening assessments.

Conclusion:
The Court dismissed the writ petitions, vacated interim orders, and allowed the re-assessment proceedings to continue. The Petitioners were permitted to advance all arguments before the AO, except the point of change of opinion. The Court found no merit in the contention that there was no live nexus between the material relied upon and the reasons to believe that income had escaped assessment.

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