2021 (5) TMI 693 - HC - Income Tax

Reopening of assessment u/s 147 - penny stock transaction made by assessee - HELD THAT - Assessing officer 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. 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. 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.

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. Existence of a 'reason to believe' that income chargeable to tax has escaped assessment.
4. Nexus between the information received and the material gathered.
5. Permissibility of reopening for inquiry or investigation without specific findings.
6. Allegation of reopening based on borrowed satisfaction.

Detailed Analysis:

1. Validity of the Sanction under Section 151 of the Act:
The petitioner argued that the required sanction under Section 151 of the Income Tax Act was not obtained before issuing the notice for reopening the assessment. However, it was found that the necessary approval was obtained from the Principal Commissioner of Income Tax, as required by the provisions of Section 151 of the Act. The court noted that the copy of the approval was provided to the assessee at the stage of passing the order disposing of the objections, indicating due application of mind by the authorities concerned.

2. Accuracy of the Reasons for Reopening the Assessment:
The petitioner contended that the reasons for reopening were factually incorrect and vague. The Assessing Officer had received information from the Investigation Wing that the petitioner had engaged in penny stock transactions with Tuni Textiles Ltd., which were suspected to be dubious and aimed at laundering money under the guise of long-term capital gains (LTCG). The court found that the Assessing Officer had made independent inquiries and gathered sufficient information to form a belief that income had escaped assessment due to these transactions.

3. Existence of a '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 reasonable grounds to believe that income had escaped assessment based on the information received and the inquiries conducted. It was emphasized that at the stage of issuing the notice, the court cannot investigate the adequacy or sufficiency of the reasons, only whether the belief was reasonable.

4. Nexus between the Information Received and the Material Gathered:
The petitioner claimed that there was no live nexus between the information received and the material gathered. The court found that there was a clear link between the information about the penny stock transactions and the belief that income had escaped assessment. The Assessing Officer had referred to the price manipulation of Tuni Textiles Ltd. shares and the dubious nature of the transactions, which justified the reopening of the assessment.

5. Permissibility of Reopening for Inquiry or Investigation without Specific Findings:
The petitioner argued that reopening was not permissible for proving or conducting a fishing inquiry without specific findings of income escaping assessment. The court held that the Assessing Officer had sufficient cause and justification to believe that income had escaped assessment based on the information and inquiries conducted. The reopening was not merely for inquiry or investigation but was based on a reasonable belief formed from the gathered material.

6. Allegation of 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 applied his mind independently to the information received and had formed a belief based on the material before him. The court rejected the argument that the reopening was based on borrowed satisfaction.

Conclusion:
The court concluded that the Assessing Officer had sufficient material and reasonable grounds to believe that income had escaped assessment. The reopening of the assessment was justified, and the writ application was dismissed. The court upheld the validity of the sanction under Section 151 and found that the reasons for reopening were accurate and based on a reasonable belief. The nexus between the information received and the material gathered was established, and the reopening was not merely for inquiry or investigation but was based on a justified belief of income escaping assessment.

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