2024 (12) TMI 257 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Reasons to believe - allegation of accommodation entry availed by the petitioner assessee - as argued reasons recorded by the AO are based upon the borrowed satisfaction and there is no prima facie opinion formed for escapement of income - HELD THAT - It appears that the AO has recorded the reasons based upon the information made available to him without application of mind. On perusal of the reasons recorded, it is apparent that the AO has not referred to the nature of accommodation entry availed by the petitioner from Jignesh Shah and Sanjay Shah for AY 2016-17 is concerned. Merely recording the facts from the information made available to the effect that the petitioner was beneficiary who has availed the accommodation entry cannot be said to be a reason having nexus with the material made available to the Assessing Officer for opening of the assessment. In case of Mehrunnisa Mohamed Fazal Maniar 2021 (3) TMI 1013 - GUJARAT HIGH COURT and Backbone Projects Ltd. 2021 (8) TMI 382 - GUJARAT HIGH COURT as well as Kantibhai Dharamshibhai Narola 2021 (2) TMI 102 - GUJARAT HIGH COURT the information was available with the Assessing Officer from the concern controlled by Jigesh Shah and Sanjay Shah from which the assessee was beneficiary of accommodation entry. It therefore, appears that in the facts of the case, the reasons recorded by the AO are absolutely vague based upon the borrowed satisfaction and without application of mind. With regard to the alleged accommodation entry from Mahavir Sales Corporation amount as reflected in the reasons recorded for both the Assessment Years which clearly shows that there is non application of mind on the part of the Assessing Officer to reopen the assessment on the basis of such information. It is also pertinent to note that the petitioner-Assessee has requested forming the basis of the reasons recorded, however, the same was never provided. On the contrary, in the order disposing of the objections, the Assessing Officer has recorded that the petitioner availed the accommodation entry from Mahavir Sales Corporation which was denied by the petitioner in the objections Considering the material available on record in form of reasons recorded, we cannot travel beyond the same for the settled legal position that the AO is required to confine to the reasons recorded for reopening and he is not authorized to refer to any other reason or fact even if it can be otherwise inferred or gathered from the record for the purpose of the validity of the assumption of the jurisdiction u/s 147 of the Act. Decided in favour of assessee.

Issues Involved:

1. Validity of the notices issued under Section 148 of the Income Tax Act, 1961 for the Assessment Years 2016-17 and 2017-18.
2. Allegation of accommodation entries availed by the petitioner.
3. Application of mind by the Assessing Officer in recording reasons for reopening the assessment.
4. Provision of relevant documents and satisfaction note to the petitioner by the Assessing Officer.
5. Assumption of jurisdiction under Section 147 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Notices Issued Under Section 148:

The petitioner challenged the validity and legality of the notices dated 30th March 2021, issued under Section 148 of the Income Tax Act, 1961, for the Assessment Years 2016-17 and 2017-18. The court examined whether the reasons recorded for reopening the assessments were based on accurate facts and whether the Assessing Officer had valid grounds to issue such notices. The court found that the reasons recorded by the Assessing Officer were vague, based on borrowed satisfaction, and lacked application of mind. The notices were quashed as they did not have a prima facie nexus with the material available to the Assessing Officer.

2. Allegation of Accommodation Entries:

The petitioner was alleged to have availed accommodation entries from entities controlled by certain individuals. For Assessment Year 2016-17, the petitioner was alleged to have received entries from Jignesh Shah and Sanjay Shah, and for both Assessment Years, from M/s. Mahavir Sales Corporation. The petitioner denied any transactions with these entities. The court noted that the same amount of Rs. 99,77,271/- was alleged for both years, indicating non-application of mind by the Assessing Officer. The court emphasized that mere allegations without prima facie material linking the petitioner to the transactions cannot justify reopening the assessments.

3. Application of Mind by the Assessing Officer:

The court scrutinized whether the Assessing Officer applied his mind independently while recording reasons for reopening the assessments. It was observed that the reasons were based on information from the insight portal and lacked independent satisfaction. The court reiterated that the Assessing Officer must form his own belief that income has escaped assessment, rather than relying solely on external information.

4. Provision of Relevant Documents and Satisfaction Note:

The petitioner requested the Assessing Officer to provide a copy of the satisfaction note and documents relied upon for issuing the notices. The Assessing Officer failed to provide these details, which the court found to be a procedural lapse. The court highlighted the necessity for the Assessing Officer to furnish such information to the assessee, ensuring transparency and fairness in the reassessment process.

5. Assumption of Jurisdiction Under Section 147:

The court examined the legal principles governing the reopening of assessments under Section 147. It emphasized that the Assessing Officer must have a reason to believe that income has escaped assessment, based on tangible material. The reasons recorded must demonstrate a clear link between the information and the belief that income has escaped assessment. In this case, the court found that the reasons lacked such a link, rendering the assumption of jurisdiction invalid.

Conclusion:

The court concluded that the impugned notices dated 30th March 2021, for the Assessment Years 2016-17 and 2017-18, were invalid due to the lack of application of mind, reliance on borrowed satisfaction, and failure to provide necessary documents to the petitioner. The petitions were allowed, and the notices were quashed, with no order as to costs.

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