2021 (6) TMI 262 - HC - Income Tax

Reopening of assessment u/s 147 - penny stock transaction - Eligibility of reasons to believe - HELD THAT - AO himself was satisfied with regard to the information and other material 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 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. Valid sanction u/s 151 - 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 the sanction under Section 151 of the Income Tax Act.
2. Accuracy of the reasons for reopening the assessment.
3. Existence of "reason to believe" that income chargeable to tax has escaped assessment.
4. Connection between the information received and material gathered.
5. Legitimacy of reopening for investigation without specific findings.
6. Allegation of borrowed satisfaction in the reopening process.

Detailed Analysis:

1. Validity of the Sanction under Section 151 of the Act:
The writ applicant contended that the sanction required under Section 151 of the Act before issuing the notice was not obtained by the Assessing Officer (AO). However, the court noted that the necessary approval had been provided to the assessee at the stage of passing the order disposing of the objections. 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 reasons for reopening included details about the assessee's transactions with Karma Ispat Limited, which were identified as penny stock transactions. The AO believed that the income chargeable to tax had escaped assessment based on information received from the Investigation Wing. The court found that the AO had made independent inquiries and applied his mind to the information, forming a belief that the income had escaped assessment.

3. Existence of "Reason to Believe" that Income Chargeable to Tax has Escaped Assessment:
The court emphasized that Section 147 of the Act empowers the AO to assess or reassess income if he has reasons to believe that any income chargeable to tax has escaped assessment. The AO's belief was based on information about the penny stock transactions and subsequent inquiries. The court held that the AO had cause or justification to believe that the income had escaped assessment, satisfying the requirement for reopening under Section 147.

4. Connection between the Information Received and Material Gathered:
The court noted that the AO had received specific information from the Investigation Wing about the assessee's transactions in penny stocks. The AO made independent inquiries and verified the data, forming an opinion that the income had escaped assessment. The court found that there was a live link between the material suggesting escapement of income and the information received, justifying the reopening of the assessment.

5. Legitimacy of Reopening for Investigation without Specific Findings:
The writ applicant argued that reopening was not permissible for mere investigation without specific findings of escaped income. However, the court held that at the stage of issuing the notice, the AO is not required to have final adjudication of the matter. The AO's belief that income had escaped assessment was based on reasonable grounds, and the court cannot investigate the adequacy or sufficiency of the reasons at this stage.

6. Allegation of Borrowed Satisfaction in the Reopening Process:
The writ applicant contended that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court, however, found that the AO had independently applied his mind to the information and materials gathered, forming a belief that the income had escaped assessment. The court rejected the contention that the AO's satisfaction was borrowed.

Conclusion:
The court concluded that the AO had sufficient material and grounds to initiate proceedings under Section 147 of the Act. The reopening of the assessment was justified, and the writ application was dismissed. The court emphasized that the AO had independently applied his mind and formed a belief that the income had escaped assessment, satisfying the requirements for reopening under the Act.

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