2020 (6) TMI 636 - HC - Income Tax

Reopening of assessment u/s 147 - Validity of reason to believe - Undisclosed share transactions - HELD THAT - As we revert back to the reasons furnished by Respondent No. 2 for re-opening of assessment u/s 147 after referring to the information received following search and seizure action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of ₹ 23,98,014.00 and therefore, Respondent No. 2 concluded that he had reasons to believe that this amount had escaped assessment within the meaning of section 147 of the Act. First of all it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where-after the Assessing Officer had concluded the assessment proceedings by passing assessment order under section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings. It cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent No. 2 could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the same, Respondent No. 2 could not have assumed jurisdiction and issued the impugned notice under section 148 of the Act. Respondents have tried to traverse beyond the disclosed reasons in their affidavit which is not permissible. The same cannot be taken into consideration, while examining validity of notice under section 148. As has been held in Prashant S. Joshi 2010 (2) TMI 271 - BOMBAY HIGH COURT the reasons which are recorded by the Assessing Officer for re-opening an assessment are the only reasons which can be considered when the formation of the belief is impugned; such reasons cannot be supplemented subsequently by affidavit (s). Attempt made by Respondent No.2 to reopen the concluded assessment is not at all justified and consequently the impugned notice cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure of the petitioner to disclose material facts fully and truly.
3. Jurisdiction of the Assessing Officer to reopen the assessment under Section 147 of the Income Tax Act, 1961.
4. Limitation period for issuing the notice under Section 148.
5. Adequacy and sufficiency of reasons for reopening the assessment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner sought the quashing of the notice dated 31.03.2019 issued under Section 148 of the Income Tax Act, 1961, and the subsequent order rejecting the objections to reopening the assessment. The court examined whether the notice was validly issued within the statutory period and whether it was based on adequate reasons. The court found that the notice was issued within the limitation period but questioned the sufficiency of the reasons provided for reopening the assessment.

2. Alleged Failure of the Petitioner to Disclose Material Facts Fully and Truly:
The respondents argued that the petitioner failed to disclose fully and truly all material facts necessary for the assessment, particularly regarding transactions involving shares of Scan Steels Ltd. The court noted that the petitioner had disclosed all relevant details during the original assessment proceedings, and the Assessing Officer had accepted these details without cross-verification. The court concluded that the petitioner had made a full and true disclosure of the primary facts.

3. Jurisdiction of the Assessing Officer to Reopen the Assessment Under Section 147 of the Income Tax Act, 1961:
The court emphasized that for the Assessing Officer to assume jurisdiction under Section 147, there must be a "reason to believe" that income chargeable to tax had escaped assessment due to the failure of the assessee to disclose material facts fully and truly. The court found that the reasons provided by the Assessing Officer for reopening the assessment did not establish such a belief. The court held that the reopening of the assessment was based on a change of opinion, which is not permissible under the law.

4. Limitation Period for Issuing the Notice Under Section 148:
The court examined whether the notice was issued within the statutory period of six years as required under Section 149(1)(b) of the Income Tax Act. The court found that the notice was handed over to the postal authorities on 31.03.2019, within the limitation period, and thus, the notice was not barred by limitation.

5. Adequacy and Sufficiency of Reasons for Reopening the Assessment:
The court scrutinized the reasons provided by the Assessing Officer for reopening the assessment, which were based on information received from the Investigation Wing about alleged bogus transactions involving shares of Scan Steels Ltd. The court found that the reasons lacked a direct nexus or live link with the formation of the belief that income had escaped assessment. The court held that the reasons provided were insufficient to justify the reopening of the assessment and that the attempt to supplement the reasons through affidavits was not permissible.

Conclusion:
The court allowed the writ petition, setting aside the impugned notice dated 31.03.2019 issued under Section 148 of the Income Tax Act and the order dated 26.08.2019 rejecting the objections to reopening the assessment. The court concluded that the reopening of the assessment was not justified, and the notice could not be sustained. No order as to costs was made.

← Previous Next →