2021 (5) TMI 690 - HC - Income Tax

Reopening of assessment u/s 147 - reassessment after expiry of 4 years - Bogus purchases - as per assessee reassessment proceedings could be said to have been initiated mechanically on the basis of third party information - HELD THAT - We are of the view that, the assessee was aware that the transaction with M/s. Kalyan Exports 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 stands to expose the untruthfulness of the entry of purchase made in the books of accounts. In this context, we may refer the observation of the Apex Court in the case of Honda Siel Power Products Vs. Dy. CIT, 2011 (7) TMI 275 - SC ORDER wherein, it is held that assessee having not pointed out during assessment proceedings about exprenses incurred relatable to tax free income u/s. 14A, there was an omission and failure on its part to disclose fully and truly material facts, hence, reopening was justified. As examined the reasons as indicated above, and we are of the view that the Assessing Officer has verified the information and after application of mind and upon due satisfaction, he formed an opinion that income has escaped assessment. See GOKUL CERAMICS 2016 (7) TMI 214 - GUJARAT HIGH COURT Eligible sanction under Section 151 - As perused the papers of the sanction which would show that Assessing Officer presented the reasons recorded for approval of Principal Commissioner in prescribed format on 29.03.2019 through Additional Commissioner of Income Tax. Both the officers have perused the reasons recorded and opined that it is a fit case to issue notice under Section 148 of the Act. The Additional Commissioner of the Income Tax has expressed his satisfaction with regard to reasons recorded by the AO and found that it is a fit case to issue notice. The Principal Commissioner of Income Tax was also satisfied with the reasons recorded and put his remarks of his own handwriting that on the basis of the reasons recorded, I am satisfied that it is a fit case for issue of notice under Section 148 of the Act. On 29.03.2019, the Additional Commissioner of Income Tax has expressed his opinion, whereas, on 30.03.2019, the Principal Commissioner has expressed his satisfaction with regard to reasons recorded and accord the sanction to issue the impugned notice dated 31.03.2019. Thus, the sanction for reassessment was granted on 31.03.2019 on the date on which the impugned notice was issued. In this circumstances, it is evident that before issuing the notice, there was compliance of Section 151 of the Act and the authority concerned had expressed their satisfaction with regard to reasons recorded and accordingly, accorded the sanction. Therefore, 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 of the Act. - Decided against assessee.

Issues Involved:
1. Compliance with Section 148(2) of the Income Tax Act.
2. Alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment.
3. Reopening based on "borrowed satisfaction."
4. Compliance with Section 151(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Compliance with Section 148(2) of the Income Tax Act:
The petitioner argued that the Assessing Officer (AO) failed to comply with Section 148(2) of the Act, which mandates recording reasons for reopening the assessment before issuing the notice. The petitioner pointed out that the reasons recorded did not have a date, suggesting that they were not recorded before the notice was issued. However, the court found that the reasons were indeed recorded and verified by the AO, satisfying the requirement under Section 148(2).

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The petitioner contended that there was no failure on their part to disclose all material facts necessary for the assessment. They argued that during the original assessment proceedings, all details, including transactions with Kalyan Exports Pvt. Ltd., were disclosed. The court, however, noted that subsequent information from the investigation revealed that Kalyan Exports Pvt. Ltd. was involved in providing accommodation entries and was not engaged in actual business activities. This new information indicated that the petitioner did not disclose the true nature of the transactions, justifying the reopening of the assessment.

3. Reopening Based on "Borrowed Satisfaction":
The petitioner claimed that the AO acted mechanically based on information from another department without independent application of mind, constituting "borrowed satisfaction." The court examined the reasons recorded and found that the AO had verified the information received and conducted independent inquiries before concluding that the income had escaped assessment. The court referenced several judgments, including Phoolchand Bajranglal and another Vs. ITO, to support the view that acquiring fresh, specific, and reliable information justifies reopening, even if it is based on third-party information.

4. Compliance with Section 151(1) of the Income Tax Act:
The petitioner argued that the revenue failed to produce the sanction from the competent authority required for reopening the assessment beyond four years, as per Section 151 of the Act. The court reviewed the sanction process and found that the Additional Commissioner and Principal Commissioner of Income Tax had both expressed their satisfaction with the reasons recorded by the AO and had granted the necessary sanction before issuing the notice. The court concluded that the sanction process was duly followed, and the contention of non-compliance was not accepted.

Conclusion:
The court held that the reopening of the assessment was justified based on the new information received, which indicated that the petitioner had not disclosed the true nature of the transactions with Kalyan Exports Pvt. Ltd. The AO had recorded reasons, verified the information, and obtained the necessary sanction from the competent authority, complying with the requirements under Sections 148 and 151 of the Income Tax Act. Consequently, the writ application was dismissed.

← Previous Next →