2019 (10) TMI 743 - HC - Income Tax

Reopening of assessment u/s 147 - as urged that in the entire reasons recorded for reopening of assessment, there is no application of mind as to why the transactions are sham. The reasons recorded are factually incorrect and are based on mere borrowed satisfaction without the Assessing Officer applying his mind to the facts of the case - HELD THAT - Having regard to the submissions advanced by the learned advocate for the petitioner, issue Notice, returnable on 25th November 2019. By way of ad-interim relief, further proceedings pursuant to the impugned notice dated 28.03.2019 issued under section 148 of the Income Tax Act, 1961 for the Assessment Year 2012-13 are hereby stayed.

Issues involved: Reopening of assessment for Assessment Year 2012-13 based on alleged sham transactions with a company, application of mind by the Assessing Officer, correctness of reasons recorded, jurisdiction under section 147 of the Income Tax Act.

Analysis:

1. Reopening of Assessment based on Sham Transactions:
The petitioner's advocate argued that the Assessing Officer sought to reopen the assessment for the year 2012-13 based on information regarding alleged sham transactions with a specific company. The petitioner contended that the reasons for reopening lacked substance as the Assessing Officer did not provide a valid explanation for deeming the transactions as sham. It was highlighted that the information was derived from a criminal complaint lodged with the CBI, which did not specifically mention the alleged sham transactions. Moreover, the directors mentioned in the reasons recorded were not associated with the company in question, as evidenced by the list of directors provided with the petition. The petitioner also disputed the claim of substantial credit transfer to the company's bank account, emphasizing that the transactions were duly reflected during the scrutiny assessment.

2. Application of Mind by Assessing Officer:
The petitioner raised concerns regarding the Assessing Officer's failure to apply proper judgment and reasoning in concluding that the transactions were sham. It was argued that the reasons recorded lacked factual accuracy and were primarily based on borrowed satisfaction without a thorough examination of the case specifics. The petitioner contended that the reopening of the assessment appeared to be a result of suspicion rather than a genuine effort to verify facts. Additionally, the petitioner highlighted discrepancies in the observation of common directors between the involved companies, suggesting that the reassessment was potentially a mere change of opinion.

3. Jurisdiction under Section 147 of the Income Tax Act:
The advocate for the petitioner challenged the jurisdiction of the Assessing Officer under section 147 of the Income Tax Act, asserting that the reopening of assessment for the year 2012-13 was beyond the permissible period of four years from the end of the relevant assessment year. It was argued that since there was no failure on the petitioner's part to disclose material facts, the assumption of jurisdiction by the Assessing Officer was deemed legally unauthorized. The petitioner sought relief by stating that the impugned notice for reassessment issued in March 2019 exceeded the statutory limitation period, thereby questioning the validity of the reassessment proceedings.

4. Court's Decision and Relief Granted:
In response to the submissions made by the petitioner's advocate, the court issued a notice returnable on a specified date in November 2019. As an interim measure, the court stayed further proceedings related to the impugned notice issued under section 148 of the Income Tax Act for the Assessment Year 2012-13. The court also permitted direct service in this matter, indicating a temporary halt to the reassessment process pending the final determination of the case.

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