2021 (5) TMI 324 - HC - Income Tax

Reopening of assessment u/s 147 - Bogus LTCG - Assessee earned long term capital gain on shares and claimed it as exempt income under Section 10(38) - whether the revenue is justified in reopening the assessment for the year under consideration? - HELD THAT - At the stage of issuing the notice, the court cannot investigate into adequacy or sufficiency of the reasons. When no scrutiny assessment made under section 143(1) of the Act, the requirement for reopening is only reason to believe. Considering the facts of the present case, the Assessing Officer has caused of justification that, the alleged transaction of penny stock, claiming amount of long term capital gain has escaped assessment - the word reason in the phrase reason to believe in Section 147, would means cause or justification. If the assessing officer has cause or jurisdiction to know or suppose that income has escaped assessment he can be said to have reason to believe that income has escaped assessment. The expression cannot be read to mean that the assessing officer should have finally ascertained the fact by legal evidence or conclusion. A plain reading of reasons recorded reveals that, the case of the assessee is reopened under Section 147 of the Act, since the information was received as per AIMS module and as per the penny stock transaction data, the assessee had sold 85,000 shares of Tuni Textile Limited for the consideration. Assessing Officer himself was satisfied with regard to the information and other materials 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 Tuni Textiles Ltd., and the Assessing Officer 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 Assessing Officer to initiate proceedings under Section 147 of the Act. We do not agree with the contention that, merely on the information, the Assessing Officer 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. Valid sanction - 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. No hesitation to hold that it could not be said to have that there was no material or grounds before the Assessing Officer and the assumption of jurisdiction on the part of the Assessing Officer 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 into the notice unsustainable. Therefore, the assessee failed to make out a case. - Decided against assessee.

Issues Involved:
1. Validity of the sanction under Section 151 of the Income Tax Act.
2. Accuracy of the reasons for reopening the assessment.
3. Presence of a "reason to believe" that income chargeable to tax has escaped assessment.
4. Existence of a live nexus between the information received and the material gathered.
5. Permissibility of reopening for proving or fishing inquiry without specific findings.
6. Allegation of reopening based on borrowed satisfaction.

Detailed Analysis:

1. Validity of the Sanction under Section 151:
The writ applicant argued that the necessary sanction under Section 151 of the Act was not obtained before issuing the notice for reopening the assessment. The court found that the approval was duly obtained from the Principal Commissioner of Income Tax as per the provisions of Section 151, and the authorities had applied their minds and expressed satisfaction regarding the reasons recorded for reopening the assessment.

2. Accuracy of the Reasons for Reopening the Assessment:
The applicant contended that the reasons for reopening were factually incorrect and based on borrowed satisfaction. The court examined the reasons recorded by the Assessing Officer, which highlighted the penny stock transactions and the substantial rise in the share price of Tuni Textiles Ltd., unsupported by financial fundamentals. The court found that the Assessing Officer had made independent inquiries and applied his mind to the information received, forming a belief that income had escaped assessment.

3. Presence of a "Reason to Believe":
The applicant argued that there was no "reason to believe" that income chargeable to tax had escaped assessment. The court noted that under Section 147, the Assessing Officer must have reasons to believe that any income chargeable to tax has escaped assessment. It was observed that the Assessing Officer had sufficient cause or justification to believe that the income had escaped assessment based on the information received and the independent inquiries conducted.

4. Existence of a Live Nexus:
The applicant claimed that there was no live nexus between the information received and the material gathered. The court found that there was a specific reference to the information received from the investigation wing regarding bogus accommodation entries of long-term capital gain. The Assessing Officer had applied his mind to this information and formed an opinion that the income had escaped assessment, establishing a live link between the material and the belief of escapement of income.

5. Permissibility of Reopening for Proving or Fishing Inquiry:
The applicant argued that reopening was not permissible for proving or fishing inquiry without specific findings of escaped income. The court held that at the stage of issuing the notice, it is not necessary for the Assessing Officer to have final evidence or conclusions. The belief that income has escaped assessment can be based on the information received and the initial examination of the return and documents.

6. Allegation of Reopening Based on Borrowed Satisfaction:
The applicant contended that the reopening was based on borrowed satisfaction without independent application of mind by the Assessing Officer. The court found that the Assessing Officer had independently examined the information received and conducted inquiries, leading to the formation of a belief that income had escaped assessment. The court rejected the contention that the reopening was based on borrowed satisfaction.

Conclusion:
The court concluded that the Assessing Officer had valid reasons to believe that income had escaped assessment and had obtained the necessary sanction under Section 151. The reasons for reopening were found to be accurate and based on independent inquiries. The court dismissed the writ application, stating that the reopening of the assessment was justified and within the authority of law. The applicant failed to make out a case, and the impugned notice was upheld.

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