2007 (5) TMI 184 - HC - Income Tax

AO issued reassessment notice u/s 148 merely on basis of information that assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount information neither indicate the source of capital gains, nor shares which were transferred Correctness of information not verified by AO before issue of notice there is no reason to believe to issue reassessment notice, so action of AO was not sustainable

Summary

Issues:
Assessment of long term capital gains, validity of notice under Section 148 of the Income Tax Act, 1961, re-assessment proceedings, satisfaction of the Commissioner, reasons to believe for issuing a notice, legal principles regarding issuance of notice under Section 148.

Assessment of long term capital gains:
The assesses purchased shares through one broker and sold them at a higher value through another broker, disclosing long term capital gains. However, the Assessing Officer received information alleging that the assesses had taken a bogus entry of capital gains by paying cash along with a premium for accommodation entry. The Commissioner of Income Tax was satisfied that income had escaped assessment, leading to re-assessment by the Assessing Officer. The Tribunal later annulled the assessment, finding the initiation of proceedings vitiated.

Validity of notice under Section 148:
The Supreme Court precedent emphasized that the reasons recorded for issuing a notice must be specific and not vague. The Assessing Officer's reasons must establish a prima facie case for re-assessment. The Court highlighted that a mere statement of facts is not a substitute for reasons, and the Commissioner's satisfaction must be based on valid reasons recorded by the Assessing Officer. The absence of detailed information and the mechanical acceptance of vague information by the Assessing Officer rendered the notice invalid.

Re-assessment proceedings:
The Assessing Officer estimated a commission for the alleged accommodation entry, treating the undisclosed investment as income from undisclosed sources. The Commissioner partly allowed the assesses' appeals, but the Tribunal ultimately annulled the assessment, finding the initiation of proceedings flawed. The Revenue appealed against the Tribunal's decision.

Satisfaction of the Commissioner and reasons to believe:
The Commissioner's satisfaction must be based on valid reasons recorded by the Assessing Officer. The Court emphasized that the expression "reason to believe" in Section 147 of the Act requires a foundation based on information and reasons. Mere satisfaction of the Assessing Officer is insufficient; there must be concrete reasons to issue a notice. The Assessing Officer's acceptance of scanty and vague information without verifying its correctness rendered the notice invalid.

Legal principles regarding issuance of notice under Section 148:
The Court reiterated that the Assessing Officer must have valid reasons to believe that income has escaped assessment before issuing a notice under Section 148. The absence of detailed information and the mechanical acceptance of vague information without verifying its correctness rendered the notice invalid. The Court dismissed the appeals, upholding the Tribunal's decision that no substantial question of law arose for consideration.