2022 (4) TMI 506 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - availability of tangible material - HELD THAT - As in the case on hand, the search assessment was finalized u/s 143(3) read with Section 153A - Thereafter, survey action under section 133A of the Act was conducted by the Investigating Wing, Mumbai in the case of Shri Bijal Ashok Shah, proprietor of M/s. Swastik Corporation. During the course of the survey action, one statement of ijal Ashok Shah was recorded on oath wherein he admitted that he is engaged in the business of providing accommodation entries to the beneficiaries in lieu of commission. Bijal Ashok Shah also disclosed the modus operandi employed by him to provide the entries to the beneficiaries . Bijal Ashok Shah, in his statement, has also named the writ applicant herein as one of the recipients of the accommodation entries. All these facts were not before the Assessing Officer at the time of finalization of the search assessment. It is a settled position of law that the adequacy of the reasons provided by the Assessing Officer fall outside the review powers and remains within the domain of the Assessing Officer at this stage of the proceedings where only a preliminary finding under section 147/148 has been made. Having regard to the materials on record it cannot be said that there is a there is a total non-application of mind on the part of the AO while recording the reasons for reopening of the assessment. It also cannot be said that his conclusion was merely based on the observations and information received from the Investigation Wing. AO could be said to have applied his mind to the same. AO could not be said to have merely concluded without verifying the facts that it is the case of reopening of the assessment. We have examined the belief of the AO to a limited extent to look into whether there was sufficient material available on record for the Assessing Officer to form a reasonable belief and whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. The case on hand is not one where it could be argued that the Assessing Officer, on absolutely vague or unspecific information, initiated the proceedings of reassessment without taking the pains to form his own belief in respect of such materials. Writ application dismissed.

Summary

Issues Involved:
1. Legitimacy of reopening the assessment under Section 148 of the Income Tax Act.
2. Allegation of the assessee not fully and truly disclosing material facts.
3. Validity of the statement from Shri Bijal Ashok Shah as tangible material for reopening assessment.
4. Whether the reopening was based on a change of opinion.
5. Compliance with procedural requirements for reopening the assessment.

Detailed Analysis:

1. Legitimacy of Reopening the Assessment under Section 148:
The primary issue was whether the Assessing Officer (AO) committed any error in issuing the notice under Section 148 of the Income Tax Act for reopening the assessment. The court noted that Section 147 authorizes the reopening of any assessment of a previous year, provided there is information suggesting that income chargeable to tax has escaped assessment, and prior approval from the specified authority is obtained. The court referenced several Supreme Court decisions, emphasizing that the reasons to believe must be based on objective materials and a reasonable view. The court concluded that the AO had tangible material to form a reasonable belief that income had escaped assessment, thus justifying the reopening.

2. Allegation of the Assessee Not Fully and Truly Disclosing Material Facts:
The court examined whether the assessee had fully and truly disclosed all material facts necessary for the assessment. The AO argued that the assessee did not disclose the bogus nature of transactions with M/s. Swastik Corporation, which was later revealed through an investigation. The court highlighted that the duty of disclosing all primary facts lies on the assessee, and once discharged, it is up to the AO to inquire further. The court found that the assessee failed to disclose the true nature of transactions, thus justifying the reopening beyond the four-year period.

3. Validity of the Statement from Shri Bijal Ashok Shah as Tangible Material:
The AO relied on the statement of Shri Bijal Ashok Shah, who admitted to providing accommodation entries without actual transactions. The court noted that such statements, if specific, reliable, and relevant, could form the basis for reopening an assessment. The court found that the statement of Shri Bijal Ashok Shah, corroborated by subsequent investigations, constituted tangible material for the AO to believe that income had escaped assessment.

4. Whether the Reopening was Based on a Change of Opinion:
The court addressed the argument that reopening was based on a change of opinion, which is not permissible. The court referenced the Supreme Court's decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd., which held that reassessment must be based on tangible material and not merely a change of opinion. The court found that the reopening was not based on a change of opinion but on new tangible material (the statement and investigation findings) that was not available during the original assessment.

5. Compliance with Procedural Requirements for Reopening the Assessment:
The court examined whether the procedural requirements for reopening the assessment were followed. The AO had recorded reasons for reopening, obtained necessary approvals, and issued the notice within the prescribed time. The court found that the AO had complied with all procedural requirements, thus validating the reopening process.

Conclusion:
The court concluded that the AO had sufficient tangible material to form a reasonable belief that income had escaped assessment, and the procedural requirements for reopening the assessment were duly followed. The application challenging the reopening of the assessment was rejected.