2022 (4) TMI 1191 - HC - Income Tax

Validity of Reopening of assessment u/s 148 - Proof of genuine reasonable belief that income had escaped - large scale transactions carried out by the assessee thereby adjusting the loss shown out of such derivative transactions with a view to adjust such loss with other business income - whether assessing officer had any fresh information for the purpose of issuing notice U/Sec. 148 of the I. T. Act for re-opening of the assessment order for the assessment year 2016-2017 in support of the case of the assessing officer that the income of the petitioner had escapped in the assessment order or not ? - HELD THAT - The issue under consideration of the office had not been examined by the assessing officer while passing the assessment order. The transactions entered into by the assessee were non genuine and were carried out with a view to avoid paying tax. The assessee had set off the loss incurred from F O Trading against profit booked from normal business activity. This is a text book case of tax avoidance. In the said communication it was further stated that, the information was being forwarded to the Pr. commissioner of Income Tax-1, Aurangabad as per the minutes of the Annual Conference of DIT and as proved by the Chairman DBDT, New Delhi, with a request to direct the jurisdictional assessing officer to take necessary remedial action in the case of the assessee for the assessment year 2015-2016 and for the assessment year 20162017. The said office had verified only two transactions of trading in script on test check basis. The jurisdictional assessing officer to be requested to verify all the transactions entered into by the assessee for determining the total tax liability of the assessee. A perusal of the record indicates that, based on the said information received from the Income Tax Officer (I C), Aurangabad giving details, assessing officer issued notice U/Sec. 148 of the I. T. Act and for the reasons recorded by the assessing officer, a reference was made to the information received from Income Tax Officer (I C), Aurangabad from insight portal. Based on the said information and after application of mind, the assessing officer recorded the reasons that as the case was selected for limited scrutiny issue, initially no additions were made. It appears that on the information available on record, assessing officer is of reasonable belief that the petitioner had entered into a sham transaction to obtain loss for the purpose of set off of his taxable income. In our view, there is no substance in the submissions made by Mr. Chandak, the learned counsel for the petitioner that, there was no application of mind on the part of the assessing officer while issuing notice U/Sec. 148 of the I. T. Act. A perusal of the reasons recorded by the assessing officer, which were disclosed to the petitioner and were brought to the notice of the Joint Commissioner of Income Tax for seeking approval U/Sec 151 of the I. T. Act demonstrates that various reasons were recorded by the assessing officer based on the information received from the Income Tax Officer (I CI) Aurangabad through insight portal after passing of the original assessment order dated 23rd December, 2018. Assessing officer has not issued notice U/Sec. 148 of the I. T. Act only based on the information received from the Income Tax Officer (I CI), Aurangabad, but had applied his mind and formed his opinion that there was reason to believe that the income had escapped assessment. In our view the opinion formed by the assessing officer being based on the new information available to the assessing officer after passing of the original assessment order alleging large scale transactions carried out by the assessee thereby adjusting the loss shown out of such derivative transactions with a view to adjust such loss with other business income, but also on the personal belief based on the enquiry made by the assessing officer. This Court is not thus required to enter into the arena of merit or correctness of such reasonable belief of the assessing officer for the purpose of reopening of the assessment. The petitioner will have full opportunity before the assessing officer to prove his case and to disprove that the belief of assessing officer for the purpose of reopening of the assessment was not just and proper. WP dismissed.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings under Section 147 of the Income Tax Act, 1961 were based on a change of opinion.
3. Whether the Joint Commissioner of Income Tax applied his mind while granting sanction under Section 151 of the Income Tax Act, 1961.
4. Whether the reassessment proceedings were initiated based on tangible material or mere suspicion.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31st March 2021 issued by the respondent under Section 148 of the Income Tax Act, 1961, for reassessment of the Assessment Year 2016-2017. The petitioner argued that the notice was issued without any fresh tangible material and was based on a mere change of opinion. The court examined the reasons recorded by the assessing officer for issuing the notice and found that the reasons were based on new information received from the Income Tax Officer (I&C), Aurangabad, through the insight portal. This information indicated that the petitioner had engaged in sham transactions to book substantial losses with the intention of reducing taxable income. The court held that the notice issued under Section 148 was valid as it was based on specific information and not merely on a change of opinion.

2. Whether the Reassessment Proceedings Under Section 147 were Based on a Change of Opinion:
The petitioner contended that the reassessment proceedings were initiated based on a change of opinion, which is not permissible. The court noted that the original assessment for the Assessment Year 2016-2017 was completed under CASS for a limited purpose, and the assessing officer did not fully scrutinize the derivative transactions. The new information received indicated that the petitioner had entered into non-genuine transactions to book losses. The court held that the reassessment proceedings were not based on a change of opinion but on fresh information that came to light after the original assessment.

3. Whether the Joint Commissioner of Income Tax Applied His Mind While Granting Sanction Under Section 151:
The petitioner argued that the Joint Commissioner of Income Tax mechanically granted sanction under Section 151 without applying his mind. The court examined the approval granted by the Joint Commissioner and found that he had considered the reasons recorded by the assessing officer and the details of the undisclosed transactions. The Joint Commissioner expressed satisfaction that it was a fit case for issuing a notice under Section 148. The court concluded that there was no non-application of mind by the Joint Commissioner while granting sanction.

4. Whether the Reassessment Proceedings Were Initiated Based on Tangible Material or Mere Suspicion:
The petitioner claimed that the reassessment proceedings were initiated without any tangible material and were based on suspicion. The court reviewed the reasons recorded by the assessing officer, which were based on specific information received from the Income Tax Officer (I&C), Aurangabad. This information indicated that the petitioner had engaged in sham transactions to book losses. The court held that the reassessment proceedings were initiated based on credible information and tangible material, not mere suspicion.

Conclusion:
The court dismissed the writ petition, holding that the notice issued under Section 148 was valid, the reassessment proceedings were not based on a change of opinion, the Joint Commissioner of Income Tax had applied his mind while granting sanction under Section 151, and the reassessment proceedings were initiated based on tangible material. The petitioner was given the opportunity to prove his case before the assessing officer during the reassessment proceedings. The court emphasized that the opinion expressed by the assessing officer under Section 148 was a prima facie view for further inquiry, which could be challenged by the petitioner during the reassessment process. The request for continuation of ad-interim protection was also rejected.

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