2022 (5) TMI 1158 - HC - Income Tax

Reopening of assessment u/s 147 - eligibility of reason to believe - adequacy of the reasons provided by AO - HELD THAT - 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 AO at this stage of the proceedings where only a preliminary finding under section 147/148 has been made. It is necessary to reiterate that we are at the stage of the validity of the notice under section 148/147. The inquiry at this stage is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. (See Shri Krishna (P.) Ltd. vs. ITOS 1996 (7) TMI 2 - SUPREME COURT ). Thus it cannot be said that there is a total non-application of mind on the part of the Assessing Officer 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. The Assessing Officer could be said to have applied his mind to the same. The Assessing Officer could not be said to have merely concluded without verifying the facts that it is the case of reopening of the assessment. We do not find merit in the vociferous submission of the learned counsel appearing for the writ applicant that the contents of the reasons recorded by the Assessing Officer for the reopening of the assessment is merely an introduction about the investigations conducted by the Investigation Wing the modus operandi of the entry providers the summing up of inquiry of the Investigation Wing the information received from the Investigation Wing etc. We have examined the belief of the Assessing Officer 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. WA rejected.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the reopening of assessment for the assessment year 2012-13.
3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment.
4. Whether the notice and subsequent proceedings were based on a change of opinion or new tangible material.
5. Compliance with principles of natural justice.

Detailed Analysis:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:
The writ applicant challenged the notice dated 8th March 2019 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2012-13. The original return was filed on 29th March 2013, and the scrutiny assessment under Section 143(3) was completed on 5th February 2015. The Assessing Officer received information from the ADIT (System) on 1st April 2016 regarding the exempt Long Term Capital Gain from the penny scrip M/s. Unisys Softwares and Holding Inds. Ltd. This information led to the belief that the income had escaped assessment, prompting the issuance of the notice under Section 148.

2. Validity of the reopening of assessment for the assessment year 2012-13:
The reopening was based on the information that the assessee had claimed exempt Long Term Capital Gain from the penny scrip M/s. Unisys Softwares, which was allegedly used to provide exempt LTCG/Short Term Capital Loss/Business Loss. The assessee had purchased the shares in January 2010 and sold them in June 2011, leading to a significant capital gain. The Assessing Officer concluded that the transactions were bogus and aimed at claiming exempt income.

3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment:
The assessee argued that all necessary details were disclosed during the original assessment proceedings, including information about the long term capital gain and the sale of shares of M/s. Unisys Softwares. The assessee contended that there was no failure on their part to disclose material facts, and the notice was issued without jurisdiction and was bad in law.

4. Whether the notice and subsequent proceedings were based on a change of opinion or new tangible material:
The objections filed by the assessee were disposed of, stating that the information received from the Investigation Wing constituted new material. The Assessing Officer clarified that the reopening was not based on a change of opinion but on fresh material discovered after the original assessment. The court noted that the sufficiency of the reasons provided by the Assessing Officer falls outside judicial review and remains within the domain of the Assessing Officer at the stage of issuing the notice under Section 148.

5. Compliance with principles of natural justice:
The writ applicant argued that the notice and the order disposing of the objections violated the principles of natural justice. However, the court found that there was no total non-application of mind by the Assessing Officer while recording the reasons for reopening the assessment. The Assessing Officer had applied his mind to the information received and formed a reasonable belief that income had escaped assessment.

Conclusion:
The court held that the basis for a valid reopening of assessment should be the availability of tangible material. The court found that the Assessing Officer had sufficient material to form a reasonable belief that income had escaped assessment. The writ application was rejected, and the notice issued under Section 148 was upheld as valid.

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