2021 (8) TMI 918 - HC - Income Tax

Reopening of assessment u/s 147 - Bogus LTCG - As per AO assessee taken accommodation entry for claiming bogus capital gain - HELD THAT - 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. It further appears that, no procedural lapse and/or deviation from procedure prescribed in reopening and the reasons recorded do not lack validity as necessary approvals from the competent authority appears to have been received. 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 petitioner is a beneficiary of accommodation entry and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Ahmedabad 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 under Section 148 of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer.
3. Alleged change of opinion for reopening assessment.
4. Adequacy of tangible material for reopening.
5. Failure to disclose fully and truly all material facts.
6. Procedural lapses and approvals under Section 151 of the Act.
7. Sufficiency of reasons for belief of income escapement.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The petitioner sought to quash the notice dated 18.03.2020 under Section 148 of the Act for the Assessment Year 2013-14, arguing that it was issued without proper application of mind and based on vague information. The court examined whether the Assessing Officer had a "reason to believe" that income had escaped assessment. The court found that the notice was issued based on substantial new material and detailed investigation reports, which provided a rational connection to the belief of income escapement. Therefore, the notice was held to be valid.

2. Application of Mind by the Assessing Officer:
The petitioner argued that there was no application of mind by the Assessing Officer, as the notice was based on a list that did not include the petitioner’s name. The court observed that the Assessing Officer had considered detailed information from the Investigation Wing, including statements under Section 131 of the Act and analysis of trading patterns. The court concluded that the Assessing Officer had applied his mind to the material before reopening the assessment.

3. Alleged Change of Opinion for Reopening Assessment:
The petitioner contended that the reopening was based on a mere change of opinion. The court referred to the Supreme Court's rulings, which state that reopening is permissible if there is fresh information that exposes the falsity of the original assessment. The court found that the reopening was based on new, specific, and reliable information obtained from the Investigation Wing, which indicated that the petitioner was a beneficiary of accommodation entries. Thus, the reopening was not merely a change of opinion.

4. Adequacy of Tangible Material for Reopening:
The petitioner argued that the reopening lacked tangible material. The court reviewed the reasons recorded for reopening, which included detailed findings from the Investigation Wing about bogus Long Term Capital Gains (LTCG) and synchronized trading. The court concluded that there was sufficient tangible material to justify the reopening of the assessment.

5. Failure to Disclose Fully and Truly All Material Facts:
The petitioner claimed that all material facts were disclosed during the original assessment. The court noted that the Investigation Wing's findings showed that the petitioner had failed to disclose the true nature of the transactions, which were found to be accommodation entries. Therefore, the court held that there was a failure to fully and truly disclose all material facts necessary for assessment.

6. Procedural Lapses and Approvals under Section 151 of the Act:
The petitioner contended that there was no approval under Section 151 of the Act on record. The court found that all procedural requirements, including necessary approvals from the competent authority, were duly followed. Therefore, the proceedings were not vitiated by procedural lapses.

7. Sufficiency of Reasons for Belief of Income Escapement:
The court emphasized that at the stage of issuing a notice under Section 148, the Assessing Officer needs only a "reason to believe" that income has escaped assessment, not conclusive proof. The court found that the reasons recorded for reopening were based on detailed and credible information, which provided a rational basis for the belief that income had escaped assessment. Thus, the sufficiency of the reasons was upheld.

Conclusion:
The court dismissed the petition, holding that the notice under Section 148 was valid and issued based on substantial new material and proper application of mind by the Assessing Officer. The reopening was not merely a change of opinion but was supported by tangible material indicating that the petitioner had failed to disclose fully and truly all material facts. All procedural requirements, including approvals under Section 151, were duly followed.

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