2021 (4) TMI 1027 - HC - Income Tax

Reopening of assessment u/s 147 - penny stock transaction entered by assessee - whether the revenue is justified in reopening the assessment for the year under consideration ? - HELD THAT - Assessing officer himself was satisfied with regard to the information and other material on record, he formed an opinion that, the income has escaped assessment. Therefore, when the information was specific with regard to transactions of penny stock entered into by the assessee with the Karma Ispat Ltd., and the AO had applied his independent mind to the information and upon due satisfaction, led to form an opinion that, the amount of claim of LTCG claimed by the assessee is chargeable to tax has escaped assessment, which facts suggests that, there is live link between the material which suggested escapement of income and information of belief. Under the circumstances, we are satisfied that, there was enough material before the AO to initiate proceedings under Section 147 of the Act. We do not agree with the contention that, merely on the information, the AO has recorded the reasons and on the basis of borrowed satisfaction, he formed an opinion with respect to the income chargeable to tax has escaped assessment. As examined the issue of valid sanction as raised by the learned counsel for the writ applicant. We take the notice of the fact that, the copy of the approval has been provided to the assessee at the stage of passing the order of disposing the objections raised by the assessee. Therefore, it is evident that, in the instant case, the authorities concerned have given approval after due application of mind and expressed their satisfaction with regard to the reasons recoded for reopening of the assessment. We have no hesitation to hold that it could not be said to have that there was no material or grounds before the AO and the assumption of jurisdiction on the part of the AO under Section 147 of the Act to reopen the assessment by issuing impugned notice under Section 147 of the Act is without authority of law, which render the notice unsustainable. Therefore, the assessee failed to make out a case.

Issues Involved: Validity of the Notice for Reopening Assessment, Reason to Believe, Independent Application of Mind, Valid Sanction under Section 151, Borrowed Satisfaction, Live Nexus/Link between Information and Material.

Issue-wise Detailed Analysis:

1. Validity of the Notice for Reopening Assessment:
The writ applicant challenged the notice dated 28.03.2019 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the income tax assessment for the A.Y. 2012-13. The applicant contended that the notice was issued without valid sanction under Section 151 of the Act and was based on borrowed satisfaction without independent application of mind.

2. Reason to Believe:
The Assessing Officer (AO) recorded reasons for reopening the assessment, stating that the assessee had sold 3600 shares of Karma Ispat Limited and earned long-term capital gain of ?8,93,677/-, which was not fully disclosed. The AO believed that the income chargeable to tax had escaped assessment due to the penny stock transactions. The court held that the AO had cause or justification to believe that income had escaped assessment, which is sufficient for reopening under Section 147.

3. Independent Application of Mind:
The applicant argued that the AO failed to record an independent finding and merely relied on information from the Investigation Wing, which is impermissible. The court found that the AO had made independent enquiries, verified the data, and upon due satisfaction, formed a belief that income had escaped assessment. The AO's belief was based on specific information about penny stock transactions and was not merely borrowed satisfaction.

4. Valid Sanction under Section 151:
The applicant contended that the necessary sanction under Section 151 was not obtained before issuing the notice. The court noted that the copy of the approval was provided to the assessee at the stage of disposing of the objections, indicating that the authorities concerned had given approval after due application of mind and expressed satisfaction with the reasons for reopening the assessment.

5. Borrowed Satisfaction:
The applicant argued that the reopening was based on borrowed satisfaction without any independent application of mind by the AO. The court rejected this contention, stating that the AO had independently applied his mind to the information received and formed a belief that the income had escaped assessment.

6. Live Nexus/Link between Information and Material:
The applicant argued that there was no live nexus or link between the information received and the material gathered. The court found that there was a live link between the material suggesting escapement of income and the information received. The AO had specific information about the penny stock transactions and had independently verified and formed a belief that the income had escaped assessment.

Conclusion:
The court held that the AO had sufficient material and grounds to initiate proceedings under Section 147 of the Act. The reopening of the assessment was justified, and the writ application was dismissed. The court found no merit in the applicant's contentions regarding the validity of the notice, reason to believe, independent application of mind, valid sanction, borrowed satisfaction, and live nexus/link between information and material. The writ application was dismissed with no order as to costs.

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