2021 (3) TMI 909 - HC - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - undisclosed profit - No approval sought from the Additional Commissioner/Commissioner of Income tax for issuance of notice under section 148 - HELD THAT - There is no live link between the information received and reasons recorded so as to enable the Assessing Officer to form a reason to believe that income has escaped assessment for AY 2011- 12. On perusal of the material on record, it also appears that the Assessing Officer has nowhere found that how amount earned as profit by the petitioner and the same was not offered to tax for A.Y.2011 12. Therefore, the reasons recorded are only based upon the assumption and presumption. The petitioner is engaged in trading/broking of shares/ securities/ commodities including derivatives transactions and has carried out number of transactions and earned profit as well as losses with respect to them and as per Income Tax Act, loss is computed and reflected in the statement of income and after considering the materials on record, return was processed under section 143(1). On perusal of the report at Annexure R/1, it pertains to contrived losses claimed by the beneficiaries on the alleged modus operandi adopted by manipulative practices done at the NMCE. AO has failed to form his own opinion with regard to the petitioner for alleged escapement of income by merely stating that such amount pertains to profit earned for A.Y. 2011 12 though in the reasons recorded, it is mentioned for A.Y. 2010 11. No reference to approval sought from the Additional Commissioner/Commissioner of Income tax for issuance of notice under section 148 as provided in section 153 of the Act, 1961. Inspite of the fact that the petitioner raised the objections against the reopening of the assessment on the issue of approval from Additional Commissioner/ Commissioner of Income tax, the same is brushed aside in the impugned order rejecting the objections on the ground that such discrepancy is in nature of human error while typing. The impugned order rejecting the objections, the Assessing Officer has recorded that the mistake has happened in mostly all the cases reopened during the year because the cases were reopened on the information based and also of non filers which depicts that the Assessing Officer has mechanically recorded the reasons without properly appreciating the facts of the case. Taking into consideration the reasons recorded, the Assessing Officer cannot be said to have formed the reason to believe that the income has escaped assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2011-2012.
2. Application of mind by the Assessing Officer in recording reasons for reopening the assessment.
3. Discrepancies in the dates mentioned in the reasons for reopening and the approval process.
4. Applicability of clause (a) to Explanation 2 to section 147 of the Income Tax Act, 1961.
5. Adequacy of the information and evidence relied upon for reopening the assessment.

Detailed Analysis:

1. Validity of the Notice Issued under Section 148:
The petitioner challenged the notice dated 29.3.2018 issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2011-2012. The court noted that the reasons recorded for reopening the assessment pertained to transactions relevant to the assessment year 2010-2011, which indicated a lack of application of mind by the Assessing Officer. The court held that the notice for reopening the assessment for the assessment year 2011-2012 could not be sustained as it was based on information relevant to a different assessment year.

2. Application of Mind by the Assessing Officer:
The court observed that the reasons recorded by the Assessing Officer showed non-application of mind. Paragraph 3 of the reasons referred to transactions relevant to the assessment year 2010-2011, while the notice was issued for the assessment year 2011-2012. The court found that there was no data available in the return of income, audit report, balance sheet, or profit and loss account for the financial year 2010-2011 relevant to the assessment year 2011-2012 to support the claim that the petitioner earned a profit of ?15,55,275 by way of misuse of the NMCE platform. Therefore, the court concluded that the reasons recorded were based on assumptions and presumptions without proper evidence.

3. Discrepancies in Dates and Approval Process:
The petitioner pointed out discrepancies in the dates mentioned in the reasons for reopening and the approval process. The reasons were recorded on 29.3.2018, but the form for recording reasons showed the date as 28.3.2018. The court noted that the Assessing Officer brushed aside this discrepancy as a human error. However, the court found that there was no reference to the approval sought from the Additional Commissioner/Commissioner of Income Tax as required under section 151 of the Act. The court held that the Assessing Officer mechanically recorded the reasons without properly appreciating the facts of the case.

4. Applicability of Clause (a) to Explanation 2 to Section 147:
The court observed that paragraph 5 and 6 of the reasons recorded referred to clause (a) to Explanation 2 to section 147 of the Act, which applies to non-filers of the return of income. However, the petitioner had filed the return of income, and therefore, clause (a) was not applicable. The court concluded that the Assessing Officer recorded the reasons without proper application of mind.

5. Adequacy of Information and Evidence:
The court found that the Assessing Officer did not have any material or evidence to show that the petitioner earned a profit of ?15,55,275 through transactions relevant to the assessment year 2011-2012. The reasons recorded were based on information pertaining to the assessment year 2010-2011, and there was no live link between the information received and the reasons recorded for reopening the assessment for the assessment year 2011-2012. The court held that the reopening of the assessment was based on assumptions and lacked proper evidence.

Conclusion:
The court quashed and set aside the impugned notice dated 29.3.2018 issued under section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 2011-2012. The petition was disposed of, and the rule was made absolute to the aforesaid extent. No order as to cost.