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2021 (5) TMI 969 - HC - Income TaxReopening of assessment u/s 147 - penny stock purchases - new ground v/s new reasons - information in respect of the penny stock transaction made by assessee - HELD THAT - Though the reopening of the assessment after expiry of four years from the end of the relevant assessment year, it is not necessary for the AO to show that, there was any failure to disclose fully or truly all material facts necessary for the assessment. When return is processed under Section 143 (1) of the Act and intimation sent to the assessee, it is not an assessment . Therefore, when reopening is sought of an assessment, the initial return was processed u/s 143(1) of the Act, the AO can form reason to believe that income has escaped assessment by examining the return and/or the documents accompanying the return. It is not necessary in such case for the AO to come across some fresh tangible material to form reason to believe that the income has escaped assessment. 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 AO. 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. Whether AO failed to record an independent finding as to how the income has escaped assessment? - 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 Textiles Ltd., and the 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 AO to initiate proceedings under Section 147 of the Act. We do not agree with the contention that, merely on the information, the AO 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 AO and the assumption of jurisdiction on the part of the AO 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 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 investigative purposes without specific findings. 6. Allegation of reopening based on borrowed satisfaction. Detailed Analysis: 1. Validity of Sanction under Section 151 of the Act: The petitioner argued that the reopening of the assessment lacked a valid sanction as required under Section 151 of the Income Tax Act. The court noted that the necessary approval had been obtained from the Principal Commissioner of Income Tax before issuing the notice under Section 148. The approval was provided to the petitioner at the stage of disposing of the objections, indicating that the authorities had applied their mind and were satisfied with the reasons for reopening the assessment. Therefore, the court found no merit in the argument regarding the invalid sanction. 2. Accuracy of the Reasons for Reopening the Assessment: The petitioner contended that the reasons for reopening were factually incorrect. The court examined the reasons recorded by the Assessing Officer (AO), which included information about penny stock transactions involving Tuni Textiles Ltd. The AO had observed price manipulation in the shares, suggesting that the petitioner had availed accommodation entries for long-term capital gains (LTCG). The court found that the reasons recorded were based on specific information and inquiries made by the AO, thus dismissing the argument of inaccuracy. 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 had escaped assessment. The court highlighted that under Section 147, the AO can reopen an assessment if there is a reason to believe that income has escaped assessment. In this case, the AO had gathered information from the AIMS module and conducted independent inquiries, forming a belief that the income had escaped assessment due to dubious penny stock transactions. The court concluded that the AO had a valid reason to believe that income had escaped assessment. 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 noted that the AO had received specific information about penny stock transactions and had conducted inquiries to gather relevant details. The AO's belief that the income had escaped assessment was based on this information and the observed price manipulation in the shares of Tuni Textiles Ltd. The court found that there was a sufficient link between the information and the material gathered, justifying the reopening of the assessment. 5. Permissibility of Reopening for Investigative Purposes Without Specific Findings: The petitioner argued that reopening the assessment for investigative purposes without specific findings was impermissible. The court clarified that at the stage of issuing the notice, the AO is not required to have final evidence but only a reason to believe that income has escaped assessment. The AO's belief was based on the information and inquiries conducted, which indicated that the petitioner had engaged in dubious penny stock transactions. The court held that the AO's decision to reopen the assessment was justified and permissible under the law. 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 AO. The court examined the reasons recorded by the AO and found that the AO had conducted independent inquiries and applied his mind to the information received. The AO had formed his own belief that income had escaped assessment based on the gathered material. The court dismissed the argument of borrowed satisfaction, affirming that the AO had independently assessed the situation. Conclusion: The court concluded that the AO had valid reasons to believe that income had escaped assessment and had followed the due process in obtaining the necessary sanction under Section 151. The reasons for reopening were based on specific information and inquiries, establishing a sufficient nexus between the information and the material gathered. The court dismissed the petition, upholding the validity of the notice for reopening the assessment. The writ application was dismissed, and no order as to costs was made.
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