2021 (2) TMI 102 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - reassessment after four years - validity of reason to believe - cash transaction of a huge amount - HELD THAT - There cannot be any action under Section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year until and unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make disclosure of all the material facts truly and fully necessary for assessment. In the present case, we have already held that initiation of the proceedings under Section 147 of the Act was based on the borrowed satisfaction. AO has not applied his mind to arrive at the conclusion that there was of failure on the part of the assessee to disclose fully and truly all the material facts - mentioning by the Assessing Officer that the assessee has failed to disclose all material facts in the reasons recorded is not sufficient enough. Rather the Assessing Officer is under the obligation to arrive at such conclusion that the assessee failed to disclose all material facts necessary for the assessment after applying his mind and verification of the facts. But the Assessing Officer has not done so. The entire basis for reopening the assessment is on the premise that there was a cash transaction of a huge amount, and having regard to the same, there was no true and full disclosure. We have already explained that this issue of cash transaction is nothing but a mere guess, and at the cost of repetition, the transaction of sale was not with K.Star Corporation. M/s. K.Star Corporation, in the present case, is the second buyer. There is no escapement of income chargeable to tax. The conditions precedent for resorting to reopening of the assessment under Section 147 of the Act 1961 are not satisfied in the present case. We are not convinced with the satisfaction arrived at by the respondent for the purpose of reopening of the assessment for the relevant Assessment Year 2011-12. - Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose full and true particulars of the transaction.
3. Basis for reopening the assessment beyond four years.
4. Alleged receipt of unaccounted cash by the petitioner.
5. Application of mind by the Assessing Officer in reopening the assessment.
6. Borrowed satisfaction and reliance on third-party information.

Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the legality and validity of the notice dated 28th March 2018 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the petitioner’s income tax assessment for the Assessment Year 2011-12. The petitioner argued that the notice was illegal, contrary to law, and without jurisdiction. The court noted that the petitioner had already been assessed under Section 143(3) of the Act and had disclosed all relevant details during the original assessment.

2. Alleged Failure to Disclose Full and True Particulars of the Transaction:
The petitioner contended that there was no failure on their part to make a full and true disclosure of the transaction. The capital gains earned on the sale of land were duly disclosed in the return of income. The original Assessing Officer, after examining all relevant aspects, chose not to make any addition in respect of the capital gains while framing the assessment under Section 143(3) of the Act. The court agreed with the petitioner, stating that the reopening was based on borrowed satisfaction and that the Assessing Officer did not apply his mind independently.

3. Basis for Reopening the Assessment Beyond Four Years:
The court observed that the reopening was initiated beyond the period of four years from the end of the relevant Assessment Year. According to the first proviso to Section 147 of the Act, reopening beyond four years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court found no such failure on the part of the petitioner and held that the reopening was not justified.

4. Alleged Receipt of Unaccounted Cash by the Petitioner:
The reasons for reopening the assessment included an allegation that the petitioner received unaccounted cash of ?2,90,61,775. The petitioner vehemently denied this allegation and argued that the sale consideration was received as per the document value only. The court found that the information relied upon by the Assessing Officer was based on an estimate sheet prepared by a third party (M/s. K.Star Corporation) and not on any concrete evidence of unaccounted cash receipts by the petitioner.

5. Application of Mind by the Assessing Officer in Reopening the Assessment:
The court emphasized that the Assessing Officer must independently apply his mind to the material on record before forming a belief that income has escaped assessment. In this case, the court found that the Assessing Officer relied solely on information received from the DCIT, Central Circle-4, Surat, without conducting an independent inquiry or verification. This amounted to borrowed satisfaction, which is not permissible under the law.

6. Borrowed Satisfaction and Reliance on Third-Party Information:
The court held that the reopening of the assessment was based on borrowed satisfaction from the information received from the DCIT, Central Circle-4, Surat, which was itself based on a search and survey operation at the premises of M/s. K.Star Corporation. The court reiterated that third-party information alone does not constitute "reason to believe" unless it is subjected to investigation and independent reasons are recorded by the Assessing Officer. The court found that the Assessing Officer had not applied his mind independently and had merely relied on the third-party information.

Conclusion:
The court quashed the impugned notice dated 28th March 2018 issued under Section 148 of the Income Tax Act, 1961, and set aside the reopening of the assessment for the Assessment Year 2011-12. The court held that the conditions precedent for reopening the assessment were not satisfied and that the reopening was based on borrowed satisfaction without independent application of mind by the Assessing Officer. The court allowed the writ application and the connected two writ applications, thereby quashing the impugned notices challenged in those applications.

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