2019 (8) TMI 1420 - HC - Income Tax

Reopening of the assessment for u/s 147 - whether the impugned notice under Section 148 of the Act for the purpose of reopening of the assessment deserves to be quashed and set aside? - HELD THAT - There is a total non-application of mind on the part of the AO while recording the reasons for reopening of the assessment. It also cannot be said that his conclusion was merely based on the observations and information received from the Investigation Wing. AO could be said to have applied his mind to the same. AO could not be said to have merely concluded without verifying the facts that it is the case of reopening of the assessment. No merit in the vociferous submission of the learned counsel appearing for the writ applicant that the contents of the reasons recorded by the AO for the reopening of the assessment is merely an introduction about the investigations conducted by the Investigation Wing, the modus operandi of the entry provided, the summing up of inquiry of the Investigation Wing, the information received from the Investigation Wing etc. As examined the belief of the AO to a limited extent to look into whether there was sufficient material available on record for the AO to form a reasonable belief and whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. The case on hand is not one where it could be argued that the AO, on absolutely vague or unspecific information, initiated the proceedings of reassessment without taking the pains to form his own belief in respect of such materials.

Summary

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Sufficiency and correctness of the reasons for reopening the assessment.
3. Application of mind by the Assessing Officer in forming the belief that income has escaped assessment.
4. The existence of a live link between the tangible material and the formation of the belief.
5. Compliance with the principles governing the reopening of assessment under Section 147 of the Act.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The writ applicant challenged the notice issued under Section 148 of the Income Tax Act, 1961 for the assessment year 2012-13, arguing that the reasons for reopening were factually incorrect and that the Assessing Officer (AO) did not have jurisdiction to reopen the assessment based on these incorrect reasons. The court examined whether the impugned notice for reopening the assessment deserved to be quashed and set aside.

2. Sufficiency and Correctness of the Reasons for Reopening the Assessment:
The AO recorded reasons for reopening the assessment, stating that the assessee had obtained accommodation entries amounting to ?1,20,00,000 from Pravinkumar Jain during the year under consideration. The AO noted that the assessee did not furnish any details or relevant documents regarding these accommodation entries. The court emphasized that at the commencement of reassessment proceedings, the AO needs to see if there is prima facie material justifying the reopening of the case. The sufficiency or correctness of the material is not to be considered at that stage.

3. Application of Mind by the Assessing Officer in Forming the Belief that Income has Escaped Assessment:
The court highlighted that the basic requirement for reopening an assessment is the application of mind by the AO to the materials produced before reopening the assessment. The AO must conclude that there is reason to believe that income has escaped assessment. The court found that the AO had applied his mind to the information received and did not merely rely on the Investigation Wing's report without verification.

4. The Existence of a Live Link Between the Tangible Material and the Formation of the Belief:
The court noted that the reasons recorded by the AO should demonstrate a link between the tangible material and the formation of the belief that income has escaped assessment. The reasons must be self-evident and speak for themselves. The court found that the AO had sufficient material on record to form a reasonable belief and that there was a live link between the material and the income chargeable to tax that had escaped assessment.

5. Compliance with the Principles Governing the Reopening of Assessment Under Section 147 of the Act:
The court summarized the principles governing the reopening of assessments, including that the validity of the assumption of jurisdiction under Section 147 can only be tested by reference to the reasons recorded under Section 148(2) of the Act. The AO must have a reason to believe that income has escaped assessment, and this belief must be based on tangible material. The court found that the AO had complied with these principles and that the reopening of the assessment was justified.

Conclusion:
The court concluded that there was no non-application of mind on the part of the AO and that the AO had formed his belief based on sufficient material. The court rejected the writ application, finding that no case was made out for interference. The writ application was thereby dismissed.