2021 (8) TMI 1016 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - HELD THAT - There is direct nexus / live link between the material coming to the notice of the Assessing Officer and that, for formation of his belief that there has been escapement of the income of the assessee from assessment in the year under consideration because of his failure to disclose fully and truly all material facts as from the inquiry/investigation by the Investigation Wing of the respondent, some tangible material was found to substantiate the fact that the assessee was the provider of accommodation entries and that, the income from commission, ranging from 0.5% to 1% was not disclosed and thereby, the income chargeable to tax has escaped assessment for the year under consideration. As emerges from the record, the petitioner has filed RoI for the A.Y. 2012-13 disclosing income despite showing a huge turnover in the audited books of account - a detailed investigation is carried out by the Investigation Wing of the respondent and the outcome of the same is referred to herein above, which prima facie substantiates the case of the respondent - we are of the considered opinion that formation of belief by the AO that the income chargeable to tax has escaped assessment, based upon material derived during inquiry/investigation, appears to be justified. A perusal of the same revealed that they are mainly based on the aspects of change of opinion and reason to believe. There cannot be any dispute with regard to the ratio laid down in the same, however, as discussed herein above, the petition has failed so far as such aspects are concerned and accordingly, we deem it proper not to delve deep into them as would be of no avail to the petitioner.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Examination of the petitioner's disclosure of material facts.
3. Validity of the reasons for reopening the assessment.
4. Adequacy of the tangible material for reopening the assessment.
5. Consideration of the petitioner's objections and their dismissal.
6. Examination of the approval for reopening the assessment.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 27.03.2019, issued under Section 148 of the Income Tax Act, 1961, proposing to reopen the assessment for the Assessment Year 2012-13. The petitioner contended that there was no tangible material found by the department and that the notice was based on a mere change of opinion by the Assessing Officer.

2. Examination of the Petitioner's Disclosure of Material Facts:
The petitioner argued that all material facts were fully and truly disclosed during the original scrutiny assessment, including the statement of income with annexures. The respondent, however, contended that the petitioner did not fully and truly disclose all material facts relevant for the assessment, particularly regarding the huge turnover and the nature of transactions conducted by the petitioner.

3. Validity of the Reasons for Reopening the Assessment:
The respondent argued that the reopening was based on credible information from the Investigation Wing, revealing that the petitioner was involved in providing accommodation entries to the Anil Group without actual delivery of goods. The petitioner’s Power of Attorney holder admitted that the petitioner did not carry out any genuine business activities and that the transactions were merely paper transactions.

4. Adequacy of the Tangible Material for Reopening the Assessment:
The Court noted that the Assessing Officer had tangible material, including statements and documents, indicating that the petitioner was involved in providing accommodation entries and earning commission, which was not disclosed in the return of income. The Court held that there was a direct nexus between the material and the formation of the belief that income had escaped assessment.

5. Consideration of the Petitioner's Objections and Their Dismissal:
The petitioner’s objections to the reasons for reopening were considered and rejected by the respondent. The Court found that the objections were addressed in detail and that the reasons recorded for reopening were based on tangible material and due application of mind by the Assessing Officer.

6. Examination of the Approval for Reopening the Assessment:
The respondent contended that the necessary approval for reopening the assessment was obtained from the Principal Commissioner of Income Tax-3, Ahmedabad, after carefully perusing the reasons recorded by the Assessing Officer. The Court found that the approval was valid and that the contention of the petitioner regarding the lack of valid sanction was devoid of merits.

Conclusion:
The Court dismissed the petition, holding that the formation of belief by the Assessing Officer that the income chargeable to tax had escaped assessment was justified based on the material derived during the inquiry/investigation. The Court found that the reopening of the assessment was not a mere change of opinion but was based on tangible material indicating that the petitioner had not fully and truly disclosed all material facts necessary for the assessment. The notice issued under Section 148 of the Income Tax Act, 1961, was upheld, and the objections raised by the petitioner were found to be without merit.

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