2021 (8) TMI 379 - HC - Income Tax

Reopening of assessment u/s 147 - tangible material with the respondent authority for recording satisfaction and reopening the assessment for the year under consideration - HELD THAT - The function of the assessing authority at this stage is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking to the scope of Section 147 as also sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen the assessment. In the case on hand AO has reason to believe that the petitioner company was providing accommodation entries for the shell/paper companies meaning thereby, bogus companies/concerns. The reasons for the formation of the belief by the AO in the instant case, appear to have a rational connection with or relevant bearing on the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. Accordingly, no interference is called for at the hands of this Court in this petition under Article 226 of the Constitution of India. The learned senior advocate for the petitioner has relied upon the decision in GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT . There cannot be any other view than what is taken in the said decision, however, in the case on hand, when the department has not considered the objections raised by the petitioner for the reason that the petitioner company has failed to disclose fully and truly all the material facts necessary for his assessment for the year under consideration and when the AO has reason to believe that income chargeable to tax has escaped assessment, we are of the view that the above decision would be of no avail to the petitioner.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1967.
2. Jurisdiction of the respondent authority to reopen the assessment.
3. Whether the reopening was based on tangible material or borrowed satisfaction.
4. Whether the income chargeable to tax had escaped assessment.
5. Compliance with the procedural requirements for reopening the assessment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1967:
The petitioner, Anderson Biomed Private Limited, challenged the notice dated 30.03.2019 issued under Section 148 of the Income Tax Act, 1967, for the Assessment Year 2012-13, arguing that the notice was issued based on transactions that occurred in the previous year (Assessment Year 2011-12). The petitioner contended that the transactions with the broker company, AA Plus Shares Brokers Pvt. Ltd., were reflected in the financial statements for the year ending 31.03.2011, and the amount was repaid in the subsequent financial year. The petitioner argued that reopening the assessment for the year under consideration was erroneous since no new income was received in that year.

2. Jurisdiction of the Respondent Authority to Reopen the Assessment:
The petitioner argued that the respondent authority lacked jurisdiction to reopen the assessment as the transactions in question pertained to the previous assessment year. The petitioner highlighted that the outstanding liability was cleared in the Assessment Year 2012-13 and not received as income. The petitioner relied on the decision of the Apex Court in GKN Driveshafts (India) Ltd. v. ITO, arguing that reopening the assessment without new material or information was impermissible.

3. Whether the Reopening Was Based on Tangible Material or Borrowed Satisfaction:
The respondent authority, in its affidavit-in-reply, submitted that the reopening was based on tangible material found during an inquiry by the Deputy Director of Income Tax (Inv.), Unit-1(3), Ahmedabad. The inquiry revealed that the broker company, controlled by Shri Jignesh Shah, was involved in providing accommodation entries. The respondent authority argued that the petitioner had taken accommodation entries to the tune of ?2,07,92,029/- from the broker company. The respondent contended that the reopening was justified based on the information obtained from the investigation and the statements recorded from the concerned persons.

4. Whether the Income Chargeable to Tax Had Escaped Assessment:
The respondent authority argued that the petitioner had failed to disclose fully and truly all material facts necessary for the assessment. The respondent highlighted that the financial details of the broker company obtained from the RoC database did not show any liability as on 31.03.2011, contradicting the petitioner's claim. The respondent contended that the transactions were in the nature of accommodation entries and had escaped assessment. The court, referring to the observations made in previous judgments, noted that the formation of belief by the Assessing Officer at the stage of initiation of action under Section 147 is within the realm of subjective satisfaction and does not require established facts of escapement of income.

5. Compliance with the Procedural Requirements for Reopening the Assessment:
The court observed that the Assessing Officer had reason to believe that the income chargeable to tax had escaped assessment based on the information received from the Investigation Wing and subsequent inquiries. The court noted that the term "reason to believe" suggests a prima facie belief derived from some material or information, not established or conclusive facts. The court found that the Assessing Officer had verified the case record and drawn satisfaction that the income to the tune of ?2,07,92,029/- had escaped assessment. The court also noted that the search and seizure under Section 132 of the IT Act revealed that Shri Jignesh Shah was managing multiple companies providing accommodation entries, further justifying the reopening of the assessment.

Conclusion:
The court dismissed the petition, holding that the reopening of the assessment was justified based on the tangible material and inquiries conducted by the respondent authority. The court found that the Assessing Officer had reason to believe that the income chargeable to tax had escaped assessment, and the procedural requirements for reopening the assessment were duly complied with. The court emphasized that the function of the assessing authority at this stage is to administer the statute and form a reason to believe, not to establish the fact of escapement of income conclusively.

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