2021 (5) TMI 840 - HC - Income Tax

Reopening of assessment u/s 147 - whether the revenue is justified in reopening the assessment for the year under consideration? - HELD 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. 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. AO failed to record an independent finding as to how the income has escaped assessment - Under such facts and circumstances, it is vehemently contended that, the Assessing Officer while recording the reasons for reopening the assessment did not have any valid reasons to believe that, the income earned by the assessee by way of long term capital gain has escaped assessment. A bare perusal of the reasons recorded and further clarification of the information made by the revenue by way of affidavit in reply would make it clear that, the company Tuni Textile Ltd., was used in providing bogus accommodation entries of long term capital gain by certain entities like broker etc. AO himself 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 Textile Ltd., and AO 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 u/s 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.

Summary

Issues Involved:
1. Validity of 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. Connection between the information received and the material gathered.
5. Permissibility of reopening for inquiry or investigation without specific findings.
6. Reopening based on borrowed satisfaction.

Detailed Analysis:

1. Validity of Sanction under Section 151 of the Act:
The petitioner contended that the necessary sanction from the competent authority under Section 151 of the Income Tax Act was not obtained before issuing the notice. However, the court found that the approval was provided to the assessee at the stage of passing the order disposing of the objections, indicating that the authorities concerned had given approval after due application of mind and expressed satisfaction with the reasons recorded for reopening the assessment.

2. Accuracy of the Reasons for Reopening the Assessment:
The petitioner argued that the reasons for reopening were factually incorrect. The court examined the reasons recorded by the Assessing Officer, which included information received from the Investigation Wing about the sale of 20,000 shares of Tuni Textiles Ltd. for ?40,37,009/-, deemed to be penny stock transactions. The court found that the Assessing Officer had made independent inquiries and formed a belief that the income had escaped assessment based on the information and materials gathered.

3. Existence of a 'Reason to Believe' that Income Chargeable to Tax has Escaped Assessment:
The petitioner claimed there was no 'reason to believe' that income chargeable to tax had escaped assessment. The court noted that Section 147 of the Act empowers the Assessing Officer to reassess income if there is reason to believe it has escaped assessment. In this case, the court found that the Assessing Officer had cause or justification to believe that income had escaped assessment, as the transactions were identified as penny stock transactions, and the price rise was not supported by financial fundamentals.

4. Connection Between the Information Received and the Material Gathered:
The petitioner argued there was no live nexus between the information received and the material gathered. The court found that the Assessing Officer had made reference to the information received from the investigation wing and conducted independent inquiries, leading to the belief that the income had escaped assessment. The court concluded there was a live link between the material suggesting escapement of income and the information leading to the belief.

5. Permissibility of Reopening for Inquiry or Investigation Without Specific Findings:
The petitioner contended that reopening was not permissible for proving or fishing inquiry without specific findings of income escaping assessment. The court held that at the stage of issuing the notice, the adequacy or sufficiency of the reasons could not be investigated. The Assessing Officer had justified the reopening based on the information and materials gathered, indicating that the income had escaped assessment.

6. Reopening Based on Borrowed Satisfaction:
The petitioner argued 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 to the information received and conducted independent inquiries before forming the belief that income had escaped assessment. The court rejected the contention that the reopening was based on borrowed satisfaction.

Conclusion:
The court dismissed the writ application, holding that the Assessing Officer had sufficient material and grounds to initiate proceedings under Section 147 of the Act. The court found that the reopening of the assessment was justified and within the authority of law, and the petitioner failed to make out a case.