2021 (5) TMI 970 - HC - Income Tax

Reopening of assessment u/s 147 - penny stock transactions - information received from ITO (CIB-1), Mumbai at DIT (I CI, Mumbai) that as per the penny stock transaction data assessee had sold 3300 shares of Karma Ispat Limited and earned long term capital gain - 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 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. Independent finding as to how the income has escaped assessment - AO as satisfied with regard to the information and other material on record, 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 Karma Ispat 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 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. Accuracy and validity of the reasons for reopening the assessment.
3. Establishment of "reason to believe" that income has escaped assessment.
4. Connection between received information and gathered material.
5. Legitimacy of reopening for investigation without specific findings.
6. Reopening based on borrowed satisfaction.

Detailed Analysis:

1. Validity of Sanction under Section 151 of the Act:
The writ applicant challenged the validity of the sanction under Section 151, arguing that it was not obtained before issuing the notice. The court found that the sanction was indeed obtained, and the approval was given after due application of mind. The authorities provided the copy of the approval at the stage of disposing of the objections raised by the assessee, indicating proper procedure was followed.

2. Accuracy and Validity of the Reasons for Reopening the Assessment:
The applicant contended that the reasons for reopening were factually incorrect and vague. The court examined the reasons recorded by the Assessing Officer (AO), which included information received from the Investigation Wing about the penny stock transaction involving Karma Ispat Limited. The court found that the AO had made independent enquiries and had sufficient cause to believe that the income had escaped assessment.

3. Establishment of "Reason to Believe" that Income has Escaped Assessment:
The applicant argued that there was no "reason to believe" that income chargeable to tax had escaped assessment. The court emphasized that the AO's belief need not be based on final adjudication but on reasonable grounds. The AO had received specific information about the penny stock transactions and had conducted independent enquiries, forming a justified belief that income had escaped assessment.

4. Connection between Received Information and Gathered Material:
The applicant claimed there was no live nexus between the information received and the material gathered. The court noted that the AO had received detailed information about the penny stock transactions and had conducted further enquiries, establishing a clear link between the material and the belief that income had escaped assessment.

5. Legitimacy of Reopening for Investigation without Specific Findings:
The applicant contended that reopening was not permissible for mere investigation without specific findings. The court found that the AO had specific information and had conducted independent enquiries, forming a reasonable belief based on the gathered material. The reopening was not merely for investigation but was based on concrete information and findings.

6. Reopening Based on Borrowed Satisfaction:
The applicant argued that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court rejected this contention, stating that the AO had independently verified the information and formed a belief based on his findings. The AO's satisfaction was not borrowed but based on his analysis and the information received.

Conclusion:
The court dismissed the writ application, holding that the reopening of the assessment was justified and within the jurisdiction of the AO. The reasons recorded for reopening were found to be valid, and the AO had followed due procedure, including obtaining the necessary sanction under Section 151. The applicant failed to make a case against the reopening of the assessment.

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