2022 (3) TMI 81 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - borrowed satisfaction - non independent application of mind - A O disallowed the expenses claimed by the petitioner Company and at the same time, was added to be total income of the assessee treating the same has incurred for non business purpose - whether AO was justified in issuing the impugned notices dated 30.03.2021/31.03.201 in reopening the assessment in exercise of powers conferred u/s 147 merely on the basis of information required from Investigation Wing and that too, based on search and survey carried out at premises of 3rd party? - HELD THAT - Reasons for reopening of the assessment in the case of petitioner Company for annual assessment year 2014-15/2015-16 by the Assessing Officer is based on the borrowed satisfaction and the Assessing Officer has not applied his independent mind to arrive at the conclusion that there was failure on the part of the assessee to disclose fully and truly all material facts. In fact, the Assessing Officer is under obligation to arrive at such conclusion that the assessee has failed to disclose all material facts and has to form independent opinion resulting into reason to believe with regard to escapement of income chargeable to tax in case of the petitioner. Department has tried to improvise by referring to the original file of the Department to emphasize that there is tangible material on record to show that the petitioner Company has made purchase transaction and has availed accommodation entry by way of bogus sales / purchases / fictitious loans etc. with Disman Group of Company. In our opinion, in absence of specific details as regards particulars of nature of transaction basic details of information, clarity with regard to name of person with whom such transaction has been entered into, goes to the very root of the matter. The sole object of providing reasons for reopening of the assessment is to prima facie supply the relevant material to the assessee to meet with his case and at the same time, it reflects the basic ingredients of reason to believe for Assessing Officer to assume the jurisdiction under Section 147 and 148 - such non-recording of specific details lead us to belief that without proper application of mind, the Assessing Officer has solely and mechanically relying upon the information received from Investigation Wing, has issued impugned notice. Thus we are not convinced with the manner in which satisfaction is arrived at by the respondent, as recorded in the reasons supplied to the petitioner Company, for assuming jurisdiction to reopen the assessment of relevant A.Y. 2014-15/2015-16. Thus condition precedent for resorting to the reopening of assessment under Section 147 of the Act are not satisfied in the present case. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 147 of the Income Tax Act.
2. Validity of the reasons to believe for reopening the assessment.
3. Requirement of independent application of mind by the Assessing Officer.
4. Adequacy and specificity of the information provided for reopening the assessment.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer under Section 147 of the Income Tax Act:
The petitioner invoked the extraordinary writ jurisdiction under Article 226 of the Constitution of India, challenging the reopening of the income tax assessment for A.Y. 2014-15 and A.Y. 2015-16. The court examined whether the Assessing Officer was justified in issuing the impugned notices for reopening the assessment under Section 147 of the Income Tax Act. The court emphasized that the power to reopen a completed assessment under Section 147 is contingent upon the Assessing Officer having a "reason to believe" that income chargeable to tax has escaped assessment. This belief must be based on the Assessing Officer's independent and reasonable satisfaction, not on borrowed or dictated satisfaction from another authority.

2. Validity of the reasons to believe for reopening the assessment:
The court scrutinized the reasons recorded by the Assessing Officer, which primarily relied on information received from the Investigation Wing. The reasons cited high-value transactions and accommodation entries by way of bogus sales, purchases, and fictitious loans amounting to ?26,42,027/-. However, the court found that the reasons were vague and lacked specific details, such as the name of the person involved in the transactions or the nature of the transactions. The court reiterated that the reasons must be self-evident and clearly demonstrate the link between the information received and the belief that income has escaped assessment.

3. Requirement of independent application of mind by the Assessing Officer:
The court highlighted that the Assessing Officer must independently apply his mind to the material on record and form his own opinion regarding the escapement of income. The court found that the Assessing Officer had mechanically relied on the information from the Investigation Wing without conducting an independent analysis. The court referenced the principles established in previous judgments, emphasizing that the Assessing Officer's satisfaction must be independent and not merely a repetition of the Investigation Wing's report.

4. Adequacy and specificity of the information provided for reopening the assessment:
The court noted that the information provided by the Assessing Officer was insufficient and lacked critical details necessary to justify the reopening of the assessment. The court stressed that the reasons for reopening must include tangible material and specific details that form the basis for the belief that income has escaped assessment. The absence of such details indicated that the Assessing Officer had not properly applied his mind and had relied on vague and general information.

Conclusion:
The court concluded that the conditions precedent for reopening the assessment under Section 147 were not satisfied. The court found that the Assessing Officer had not independently applied his mind and had relied on vague and insufficient information. Consequently, the court quashed and set aside the impugned notices dated 31.03.2021 and 30.03.2021, allowing the writ applications in favor of the petitioner.

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