2021 (8) TMI 620 - HC - Income Tax

Reopening of assessment u/s 147 - accommodation entry receipts - reasons to believe - 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. Assessing Officer has reason to believe that the petitioner is a beneficiary of accommodation entry and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Kolkata and report thereof. 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, 1961.
2. Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment.
3. Whether the reopening of assessment was based on mere change of opinion.
4. Whether the information received from the Investigation Wing constituted tangible material for reopening the assessment.
5. Whether the reopening was justified beyond the period of four years from the end of the relevant assessment year.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner sought to quash the notice dated 27.03.2019 issued under Section 148 for the Assessment Year 2013-14. The respondent authority issued the notice on the grounds that income chargeable to tax had escaped assessment. The petitioner argued that the amounts received were part of agreements to sell, which were later canceled, and the amounts were returned with interest. The court noted that the reopening of assessment requires the Assessing Officer to have "reason to believe" that income has escaped assessment, which is a subjective satisfaction based on prima facie material.

2. Failure to Disclose Fully and Truly All Material Facts:
The petitioner contended that all necessary details were provided during the original assessment, and the amounts were returned within the same year. However, the respondent argued that the petitioner failed to disclose fully and truly all material facts, as the transactions were found to be accommodation entries from shell companies. The court referenced the Supreme Court's observation 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 conclusive proof at that stage.

3. Reopening Based on Mere Change of Opinion:
The petitioner argued that the reopening was based on a mere change of opinion since the original assessment under section 143(3) did not result in any additions. The respondent countered that the reopening was based on new, tangible material received from the Investigation Wing, which indicated that the transactions were accommodation entries. The court held that acquiring fresh, specific, and reliable information that exposes the falsity of the original assessment justifies reopening, distinguishing it from a mere change of opinion.

4. Information from the Investigation Wing as Tangible Material:
The respondent received information from the DDIT (Inv.), Kolkata, indicating that the petitioner received accommodation entries from shell companies controlled by entry operators. The court noted that the term "reason to believe" suggests a prima facie belief based on some material or information, not established facts. The court found that the detailed investigation reports and statements recorded under section 132(4) provided a rational connection for the belief that income had escaped assessment.

5. Justification for Reopening Beyond Four Years:
The petitioner argued that the reopening was beyond the period of four years from the end of the relevant assessment year without any failure on their part to disclose material facts. The court observed that if the Assessing Officer has reason to believe that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts, reopening is justified even beyond four years. The court found that the petitioner was a beneficiary of accommodation entries and had not fully disclosed all material facts, thus justifying the reopening.

Conclusion:
The court dismissed the petition, upholding the validity of the notice issued under Section 148. The court found that the reopening was based on tangible material received from the Investigation Wing, which indicated that the petitioner had received accommodation entries from shell companies. The court also held that the petitioner failed to disclose fully and truly all material facts necessary for assessment, justifying the reopening beyond the period of four years.

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