2021 (5) TMI 695 - 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. Validity of sanction under Section 151 of the Income Tax Act.
2. Factual correctness of the reasons for reopening.
3. Existence of 'reason to believe' that income chargeable to tax has escaped assessment.
4. Nexus/link between the information received and material gathered.
5. Permissibility of reopening for investigation without specific findings of income escape.
6. Reopening based on borrowed satisfaction.

Detailed Analysis:

1. Validity of Sanction under Section 151 of the Income Tax Act:
The petitioner contended that the necessary sanction under Section 151 of the Act was not obtained before issuing the notice. The court noted that the approval was provided to the assessee at the stage of passing the order of disposing of objections, indicating that the authorities had given approval after due application of mind. Thus, the sanction was deemed valid.

2. Factual Correctness of the Reasons for Reopening:
The petitioner argued that the reasons for reopening were factually incorrect. The court examined the reasons recorded by the Assessing Officer (AO) and found that the AO had received specific information about the penny stock transactions and had conducted independent inquiries. Therefore, the reasons were found to be factually correct.

3. Existence of 'Reason to Believe' that Income Chargeable to Tax has Escaped Assessment:
The court emphasized that under Section 147, the AO must have "reason to believe" that income has escaped assessment. The AO's belief was based on information about penny stock transactions and subsequent independent inquiries. The court cited various precedents, including "Central Provinces Manganese Ore Company Ltd." and "Praful Chunilal Patel Vs. M.J. Makwana," to affirm that the AO's belief was justified and not merely based on suspicion.

4. Nexus/Link Between the Information Received and Material Gathered:
The petitioner argued that there was no live link between the information received and the material gathered. The court found that the AO had made specific references to the information received and conducted independent inquiries, establishing a clear link between the information and the belief that income had escaped assessment.

5. Permissibility of Reopening for Investigation Without Specific Findings of Income Escape:
The petitioner contended that reopening was not permissible for mere investigation without specific findings. The court noted that the AO had conducted independent inquiries and formed a belief based on the information received. Therefore, the reopening was not merely for investigation but was based on a justified belief of income escape.

6. Reopening Based on Borrowed Satisfaction:
The petitioner argued that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court found that the AO had independently verified the information and conducted inquiries, thus forming an independent belief. The court rejected the contention of borrowed satisfaction.

Conclusion:
The court concluded that the AO had valid reasons to believe that income had escaped assessment, based on specific information and independent inquiries. The approval under Section 151 was valid, and the reopening was justified. Therefore, the writ applications were dismissed.

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