2021 (5) TMI 694 - HC - Income Tax

Reopening of assessment u/s 147 - penny stock transaction by the assessee - new ground v/s new reasons - 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 Karma Ispat 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.

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

Detailed Analysis:

1. Lack/absence of valid sanction under Section 151 of the Income Tax Act:
The petitioner argued that the necessary sanction from the competent authority under Section 151 of the Act was not obtained before issuing the notice. However, the court found that the approval had been provided to the assessee at the stage of passing the order disposing of the objections raised by the assessee. Therefore, it was evident that the authorities concerned had given approval after due application of mind and expressed their satisfaction with the reasons recorded for reopening the assessment.

2. Factual correctness of the reasons for reopening the assessment:
The petitioner contended that the reasons for reopening were factually incorrect. The court examined the recorded reasons and found that the assessing officer had received specific information about the petitioner’s transactions in penny stocks, which were allegedly used to provide bogus accommodation entries of long-term capital gain. The court concluded that the reasons recorded were based on credible information and independent inquiries by the assessing officer.

3. Existence of 'reason to believe' that the 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 noted that the assessing officer had received information from the Investigation Wing about dubious transactions in penny stocks and had independently verified the data. The court held that the assessing officer had sufficient cause or justification to form a belief that income had escaped assessment, which is a valid ground for reopening under Section 147 of the Act.

4. Presence of a live nexus/link 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 assessing officer had independently applied his mind to the information received and verified the transactions. The court held that there was a live link between the material suggesting escapement of income and the formation of belief by the assessing officer.

5. Permissibility of reopening for proving and/or fishing inquiry or investigation without specific findings:
The petitioner argued that reopening was not permissible for proving or fishing inquiry without specific findings of income escapement. The court held that at the stage of issuing the notice, the adequacy or sufficiency of the reasons cannot be investigated. The court found that the assessing officer had valid reasons to believe that income had escaped assessment based on specific information and independent verification.

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 conducted independent inquiries and verified the information before forming the belief that income had escaped assessment. The court held that the reopening was not based on borrowed satisfaction but on the assessing officer’s independent application of mind.

Conclusion:
The court dismissed the writ application, holding that the reopening of the assessment was justified and the impugned notice under Section 147 of the Act was valid. The court found that the assessing officer had valid reasons to believe that income had escaped assessment, based on credible information and independent verification. The court also held that the necessary sanction under Section 151 of the Act was duly obtained, and there was no merit in the petitioner’s contentions.

← Previous Next →