2021 (3) TMI 330 - HC - Income Tax

Reopening of assessment u/s 147 - reopening after the expiry of 4 years - information provided by the DDIT (Inv.) Surat. relied upon - bogus transaction from entry provider u/s 68 - HELD THAT - A plain reading of the reasons recorded revels that the Assessing Officer has solely relied on the information received from the Investigation Wing- Surat. AO has not applied his independent mind while recording the reasons that the income has escaped assessment. The original assessment record was with the Assessing Officer. The scrutiny assessment framed by the respondent has been challenged by the assessee company and the appeal is pending before the Appellate Tribunal. As the issue of alleged transaction was earlier added by the then Assessing Officer under Section 68 of the Act at the original assessment stage, the same amount cannot be brought to tax once again in the reassessment proceedings. It is not the case of the revenue that the transaction as reported by the Investigating Wing, Surat was distinct and has no relation with the earlier scrutiny assessment made under Section 143(3) of the Act. Thus, as such there was no tangible material in the hands of the Assessing Officer for reopening of the proceedings. Assessing Officer has acted mechanically based on the information received from the Investigating Wing, Surat for the purpose of reopening of the assessment and any independent satisfaction to the effect that the income chargeable to tax has escaped assessment is not reflected. It is a settled principle of law that the respondent cannot justify by taking recourse to some material and information beyond the scope of the reasons recorded by the Assessing Officer prior to reopening. In the instant case, the respondent has traveled beyond the scope of reasons recorded in order to justify the action of reopening. It is pertinent to note that while disposing of the objections against the reopening, Assessing Officer has observed that it has credible information as received by the office pertaining to the transaction claimed as a part of turnover and same can be clearly made out from the copy of the reasons recorded provided by the office. After close scrutiny of the reasons recorded, the Assessing Officer did not have refer the facts that the transactions was part of the turnover. Therefore, we hold that the formation of belief entertained by the Assessing Officer seems to be vague and based on irrelevant material. - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening the assessment under Section 147 of the Act.
3. Examination of the reasons recorded for reopening the assessment.
4. Alleged failure of the assessee to disclose fully and truly all material facts.
5. Reliance on information from the Investigation Wing for reopening the assessment.
6. Whether the reopening was based on independent satisfaction by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:
The writ applicant challenged the notice dated 28.03.2019 issued by the respondent under Section 148 of the Income Tax Act, 1961, seeking to reopen the applicant's income tax assessment for the Assessment Year (A.Y.) 2012-2013. The primary contention was that the notice and the subsequent order disposing of the objections were patently illegal, bad in law, and without jurisdiction because the condition precedent for valid reopening under Section 147 of the Act was not satisfied.

2. Validity of reopening the assessment under Section 147 of the Act:
The writ applicant argued that the impugned amount of ?7,50,000 had already been added by the Assessing Officer at the original assessment stage, as the transaction with Mr. Naika was scrutinized and added under Section 68 of the Act. Therefore, there was no escapement of any income chargeable to tax, rendering the reopening under Section 147 invalid.

3. Examination of the reasons recorded for reopening the assessment:
The reasons recorded for reopening the assessment were based on information provided by the DDIT (Investigation)-2, Surat. The Assessing Officer noted that the assessee company had made a bogus transaction of ?7,50,055 with Mr. Shaileshkumar Naika, an entry provider, during the Financial Year (F.Y.) 2011-12. The Assessing Officer believed that this transaction was an attempt to reduce tax liability, thus justifying the reopening of the assessment.

4. Alleged failure of the assessee to disclose fully and truly all material facts:
The Assessing Officer contended that the assessee had not fully and truly disclosed all material facts necessary for the assessment for the year under consideration. This assertion was based on the information from the Investigation Wing and the material available on record. However, the writ applicant argued that all necessary primary evidence had been disclosed during the original scrutiny assessment, and the amount in question had already been considered and added by the then Assessing Officer.

5. Reliance on information from the Investigation Wing for reopening the assessment:
The writ applicant contended that the Assessing Officer had mainly relied upon the information received from the DDIT (Investigation)-2 for reopening the assessment and had not applied independent mind to reach the conclusion that income had escaped assessment. The court noted that the Assessing Officer had acted mechanically based on the information received and had not independently verified or applied his mind to the information provided.

6. Whether the reopening was based on independent satisfaction by the Assessing Officer:
The court observed that the Assessing Officer did not have any tangible material in his hands for reopening the proceedings and had solely relied on the information from the Investigation Wing. The court held that the Assessing Officer's action was not based on independent satisfaction and was thus not justified.

Conclusion:
The court concluded that the assumption of jurisdiction by the Assessing Officer under Section 147 of the Act to reopen the assessment was without authority of law, rendering the notice unsustainable. The petition was allowed, and the impugned notice dated 28.03.2019 issued under Section 148 of the Act was quashed and set aside.

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