2021 (3) TMI 1171 - HC - Income Tax

Reopening of assessment u/s 147 - assessment beyond the period of 4 years - sanction of the competent authority as provided under Section 151 granted or not? - bogus transactions -HELD THAT - As during the course of previous assessment proceedings, the assessee failed to disclose material particulars with regard to alleged transactions and the true facts of the transactions having been discovered by the Assessing Officer on the basis of the information received from the concerned department. Law in this regard has been settled by various decisions of this Court as well as the Apex Court that burden is on the assessee to make true and full disclosure. Therefore, where the transaction itself on the basis of the subsequent information is found to be a bogus transactions, mere a disclosure of said transaction at the time of original proceedings, cannot be said to be a disclosure of true and full facts in the case. As assessee was aware that the transaction with M/s. Agni Pvt Ltd was not business transaction but in the form of bogus purchase, it was only an accommodation entries and the company was one of the beneficiaries of the transactions, despite of this, the assessee failed to disclose true and correct facts at the relevant time and therefore, the Assessing Officer is entitled to initiate reassessment proceedings on the basis of tangible material came in his hand, which tends to expose the untruthfulness of the entry of purchase made in the books of accounts. Whether reassessment proceedings could be said to have been initiated mechanically on the basis of third party information? - Assessing Officer has verified the information and after application of mind and upon due satisfaction, he formed an opinion that income has escaped assessment. While according the sanction under Section 151 of the Act, the authority concerned has not applied his mind properly and mechanically accorded the sanction - As perused the papers of the approval, which shows that the competent authority has given the satisfaction in hand writing and has expressed his satisfaction with regard to reasons recorded and accorded the sanction to issue impugned notice. Therefore, the approval for reassessment was granted on the date on which the impugned notice was issued. In this circumstances, the contention raised by the learned advocate for the writ applicant that sanction was not obtained before issuance of the notice cannot be accepted. It cannot be said that there was no tangible material before the Assessing Officer and that he proceeded mechanically based on the sole information and the impugned notice is without jurisdiction and contrary to Section 147 - Decided against assessee.

Summary

Issues Involved:

1. Compliance with Section 148(2) of the Income Tax Act, 1961.
2. Alleged failure to disclose fully and truly all material facts.
3. Reopening based on "borrowed satisfaction."
4. Compliance with Section 151(1) of the Income Tax Act, 1961.

Detailed Analysis:

1. Compliance with Section 148(2) of the Income Tax Act, 1961:

The petitioner argued that the respondent failed to comply with Section 148(2) as the reasons for reopening were not recorded before issuing the notice. The counsel pointed out that no date was mentioned on the reasons recorded, suggesting non-compliance. However, the court found that the reasons were recorded and analyzed by the Assessing Officer (AO), who formed a belief based on tangible material received from the Investigation Wing, Surat.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:

The petitioner contended that there was no failure to disclose all material facts necessary for assessment. They argued that during the original assessment under Section 143(3), all transactions, including those with M/s. Agni Gems Pvt. Ltd., were disclosed and verified. However, the court noted that the AO discovered new information indicating that the transactions were not genuine and were part of a money laundering scheme. The court emphasized that mere disclosure of transactions does not equate to full and true disclosure if the transactions are later found to be bogus.

3. Reopening Based on "Borrowed Satisfaction":

The petitioner claimed that the AO acted mechanically based on information from the Investigation Wing without independent application of mind, constituting "borrowed satisfaction." The court disagreed, stating that the AO had verified the information, conducted independent inquiries, and formed a belief that income had escaped assessment. The court cited previous judgments affirming that reopening based on specific and reliable information is valid.

4. Compliance with Section 151(1) of the Income Tax Act, 1961:

The petitioner argued that there was no valid approval from the sanctioning authority under Section 151 before issuing the notice. The court examined the approval papers and found that the competent authority had provided handwritten satisfaction and accorded sanction before the notice was issued. Thus, the court concluded that the approval process was properly followed.

Conclusion:

The court found that the reopening of assessment was justified based on new, tangible material indicating that the petitioner had engaged in bogus transactions. The AO had complied with the procedural requirements of Sections 148(2) and 151(1) and had not acted on borrowed satisfaction. The court dismissed the writ application, affirming the validity of the reopening notice and subsequent proceedings.