2021 (5) TMI 692 - HC - Income Tax

Reopening of assessment u/s 147 - information received from ITO (CIB1), Mumbai, that as per the penny stock transaction data, the assessee had sold 30000 shares - respondent seeks to supplement the reasons recorded by the Assessing Officer, which is not permissible in law - HELD THAT - Applying the principle of law, in the case of Aayojan Developers 2011 (2) TMI 738 - GUJARAT HIGH COURT to the facts of the present case, we are of the view that, the facts mentioned in the affidavit by the revenue could not be termed as new ground or new reasons to supplement the reasons recorded by the Assessing Officer. Therefore, the contention raised by the learned counsel for the writ applicant that, by way of affidavit in reply, the revenue has improved the reasons recorded, has no any merit and cannot be accepted to hold that, the exercise to reopen the assessment is without jurisdiction. Assessing Officer failed to record an independent finding as to how the income has escaped assessment - Assessing Officer was satisfied with regard to the information and other materials on record, he formed an opinion that, the income has escaped assessment - 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. As examined the issue of valid sanction as raised by the learned counsel for the writ applicant - 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.

Summary

Issues Involved:
1. Lack/absence of valid sanction under Section 151 of the Income Tax Act.
2. Incorrectness of the reasons for reopening.
3. Absence of 'reason to believe' that income chargeable to tax has escaped assessment.
4. Lack of live nexus between the information received and material gathered.
5. Reopening for fishing inquiry or investigation without specific findings of income escape.
6. Reopening based on borrowed satisfaction.

Detailed Analysis:

1. Lack/absence of valid sanction under Section 151 of the Act:
The petitioner argued that the sanction required under Section 151 of the Act before issuing the notice was not obtained by the Assessing Officer. The court found that the authorities had given approval after due application of mind and expressed their satisfaction with the reasons recorded for reopening the assessment. Therefore, the contention regarding the absence of valid sanction was dismissed.

2. Incorrectness of the reasons for reopening:
The petitioner contended that the reasons for reopening were factually incorrect. The court examined the reasons recorded by the Assessing Officer, which included information from the ITO (CIB1), Mumbai, about the sale of 30,000 shares of Tuni Textiles Ltd. for ?25,72,500/-, identified as penny stock transactions. 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. Thus, the contention of incorrect reasons was not accepted.

3. Absence of 'reason to believe' that income chargeable to tax has escaped assessment:
The petitioner argued that there was no 'reason to believe' that income chargeable to tax had escaped assessment. The court held that the Assessing Officer had sufficient cause or justification to believe that income had escaped assessment based on the information and inquiries conducted. The court emphasized that at the stage of issuing the notice, the adequacy or sufficiency of the reasons could not be investigated. The Assessing Officer's belief was based on the information received and his independent inquiries, which was sufficient to meet the requirement of 'reason to believe.'

4. Lack of live nexus between the information received and material gathered:
The petitioner contended that there was no live nexus between the information received and the material gathered. The court found that the information received from the ITO (CIB1), Mumbai, regarding penny stock transactions and the subsequent independent inquiries by the Assessing Officer provided a live link between the material suggesting escapement of income and the formation of belief. Therefore, the court rejected the contention of lack of live nexus.

5. Reopening for fishing inquiry or investigation without specific findings of income escape:
The petitioner argued that the reopening was for a fishing inquiry or investigation without specific findings of income escape. The court held that the Assessing Officer had formed a belief based on specific information and independent inquiries that the income had escaped assessment. The court emphasized that the Assessing Officer's formation of belief was an administrative decision, not a judicial one, and it was sufficient if there was cause or justification to believe that income had escaped assessment. Thus, the contention of reopening for a fishing inquiry was dismissed.

6. Reopening based on borrowed satisfaction:
The petitioner 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 made independent inquiries and applied his mind to the information received before forming a belief that income had escaped assessment. The court held that the Assessing Officer's belief was not based on borrowed satisfaction but on his independent assessment of the information and materials gathered. Therefore, the contention of reopening based on borrowed satisfaction was rejected.

Conclusion:
The court concluded that there was sufficient material before the Assessing Officer to initiate proceedings under Section 147 of the Act. The reasons recorded for reopening the assessment were found to be valid, and the Assessing Officer had applied his independent mind to the information received. The court dismissed the writ application, holding that the reopening of the assessment was justified and within the jurisdiction of the Assessing Officer. The petitioner's contentions were found to be without merit, and the impugned notice was upheld.