2021 (8) TMI 486 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Addition u/s 68 - HELD THAT - AO has found that the petitioner company has not fully and truly disclosed all material facts necessary for assessment for the reason that the petitioner has concealed the facts to channelize the unaccounted funds into assessee company. Therefore, there is clear failure on the part of the assessee to fully and truly disclose all the facts necessary for assessment proceeding under section 143(3) of the Act. Thus, we are of the considered view that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment because such exercise of reopening has been made only after due inquiries and recording of statements of concerned persons, as referred to herein above, and on having found prima facie material, impugned notice is issued to the petitioner. 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. AO has reason to believe that the income chargeable to tax has escaped assessment and the basis for formation of such belief is several inquiries and the investigation by the Investigation Wing. The reasons for the formation of the belief by the Assessing Officer 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 - Decided against assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1967 for reopening the assessment.
2. Whether the reopening of assessment was based on a mere change of opinion.
3. Whether the petitioner fully and truly disclosed all material facts necessary for assessment.
4. Compliance with procedural requirements for reopening the assessment, including obtaining proper sanction.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1967, seeking to quash and set aside the notice dated 30.03.2019 for the Assessment Year 2012-13. The petitioner argued that the notice was issued without any tangible material and was merely a change of opinion. The respondent contended that the notice was issued based on information from the Investigation Wing, revealing that the petitioner was the beneficiary of accommodation entries amounting to ?1,06,16,632/-, which had escaped assessment.

2. Reopening Based on Mere Change of Opinion:
The petitioner argued that the reopening of the assessment was based on a mere change of opinion since the details of the transactions were already examined during the original assessment under Section 143(3) of the Act. The petitioner had disclosed all necessary details, including sales to M/s. Harsh Enterprise, which were duly reflected in the Audited Annual Accounts. The respondent countered that the reopening was not based on a change of opinion but on new information indicating that M/s. Harsh Enterprise was involved in providing accommodation entries, and the petitioner was a beneficiary of such entries.

3. Full and True Disclosure of Material Facts:
The petitioner maintained that all material facts necessary for assessment were fully and truly disclosed during the original assessment. The respondent argued that the petitioner failed to disclose the true nature of the transactions, as the sales to M/s. Harsh Enterprise were not genuine but merely accommodation entries. The Investigation Wing's inquiry revealed that cash was routed through various entities to M/s. Harsh Enterprise, which then transferred funds to other parties, including the petitioner.

4. Procedural Compliance for Reopening Assessment:
The petitioner contended that the sanction required under Section 151 of the Act for issuing the notice under Section 148 was not obtained properly. The respondent asserted that the notice was issued after obtaining the necessary approval from the Principal Commissioner of Income-Tax, and there was no procedural lapse. The court observed that the reasons for reopening were recorded after due consideration of the information received from the Investigation Wing and the case records available with the respondent.

Court's Observations and Conclusion:
The court referred to various precedents to emphasize that the formation of belief by the Assessing Officer at the stage of initiating action under Section 147 is within the realm of subjective satisfaction. The court noted that new information received from the Investigation Wing indicated that the transactions were not genuine, and the petitioner was a beneficiary of accommodation entries. The court held that the reopening of the assessment was justified as it was based on tangible material and not merely a change of opinion. The court also found that the procedural requirements for reopening the assessment were duly followed, including obtaining the necessary sanction.

Judgment:
The petition was dismissed, and the notice issued under Section 148 was upheld. The court concluded that there was reason to believe that the income chargeable to tax had escaped assessment, and the reopening of the assessment was valid. The court emphasized that the sufficiency or correctness of the material at the stage of issuing the notice is not to be scrutinized, and it is open to the assessee to prove the assumptions erroneous during the assessment proceedings.

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