2016 (8) TMI 280 - HC - Income Tax

Reopening of assessment - reasons to believe - information received from the DGIT, Investigation Branch - Held that - We are of the opinion that when the Authority is armed with the tangible material in the form of specific information received by the Investigation Wing, Ahmedabad is throughly justified in issuing a notice for reassessment. It is revealed from the said additional material available on hand a reasonable belief is formed by the Assessing Authority that income of the petitioner has escaped assessment and therefore, once the reasonable belief is formulated by the Authority on the basis of cogent tangible material, the Authority is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion, we are of the opinion that function of the assessing authority at this stage is to administer the statute and what is required at this stage is a reason to believe and not establish fact of escapement of income and therefore, looking to the scope of Section 147 as also Sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen assessment. From the reasons which are recorded, it clearly emerges that the petitioner is the beneficiary of those entries by Kayan brothers, who are well known entry operators across the country and this fact has been unearthed on account of the information received by DGIT Investigation Branch and therefore, it cannot be said in any way that even if four years have been passed, it is not open for the Authority to reopen the assessment. In the present case, there was independent application of mind on behalf of the assessing authority in arriving at the conclusion that income had escaped assessment and therefore, the contentions raised by the petitioner are devoid of merits. Dealing with the contentions of the petitioner that the information received from DGIT, Investigation Branch, Ahmedabad, can never be said to be additional information. We are of the opinion that the information which has been received is on 26.3.2015 from the DGIT, Investigation Branch, Ahmedabad, whereby it has been revealed that present petitioner is also the beneficiaries of those Kayan brothers, who are in the activity of entry operation throughout the country and therefore, it cannot be said that this is not justifiable material to form a reason to belief by the Authority and therefore, this being a case, the Authority is justified in issuing notice under Section 148 of the Act to reopen the assessment and therefore, the challenge contained in the petition being devoid of merits, same deserves to be dismissed. - Decided against assessee.

Summary

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961.
2. Validity of the order disposing of the objections filed by the petitioner against the notice under Section 148.

Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148 of the Income-Tax Act, 1961:

The petitioner, a limited company engaged in manufacturing winding machines, challenged the notice issued under Section 148, claiming it was based on a mere change of opinion. The petitioner had fully disclosed all material facts necessary for assessment, and the original scrutiny assessment was completed after detailed inquiries. The petitioner argued that reopening the assessment without new tangible material was unjustified and based on non-application of mind by the assessing authority. The petitioner cited the case of Calcutta Discount Co. Ltd. v/s. ITO to support their argument that reopening within four years requires substantial new information.

In response, the revenue's counsel argued that the reopening was justified based on specific information received from the DGIT (Investigation), Ahmedabad, indicating that the petitioner was a beneficiary of bogus transactions amounting to ?210.43 lakhs. The information was considered substantial and led to a reasonable belief that income had escaped assessment. The court noted that the reasons recorded for reopening were based on new material not available during the original assessment, thus justifying the reopening.

The court held that the information received from the DGIT (Investigation) was substantive enough to form a reasonable belief that income had escaped assessment. The reopening was within the four-year period, and the assessing officer's decision was not a mere change of opinion but based on new, tangible material. The court cited the case of Assistant Commissioner of Income-Tax v/s. Rajesh Jhaveri Stock Markets Pvt. Ltd., which clarified that at the stage of issuing a notice under Section 148, the assessing officer only needs a reason to believe, not conclusive proof of income escapement.

2. Validity of the Order Disposing of the Objections Filed by the Petitioner:

The petitioner contended that the order disposing of their objections was based on non-application of mind and did not properly address the issues raised. The petitioner argued that the assessing officer failed to verify the impugned transaction and relied on extraneous information.

The court, however, found that the assessing officer had properly applied their mind and recorded specific reasons for reopening the assessment. The court emphasized that the assessing officer's role at the stage of issuing the notice under Section 148 is to form a reasonable belief based on available material, not to arrive at a final conclusion. The court referred to several precedents, including the case of Central Provinces Manganese Ore Co. Ltd. v/s. Income Tax Officer, Nagpur, which upheld the validity of reopening based on information from other government departments.

The court concluded that the order disposing of the objections was valid as the assessing officer had acted within the scope of their authority and based their decision on substantial new material. The court dismissed the petition, stating that there was no merit in the petitioner's contentions and that the reopening of the assessment was justified.

Conclusion:

The court upheld the legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961, and the order disposing of the petitioner's objections. The reopening of the assessment was based on substantial new material received from the DGIT (Investigation), Ahmedabad, and was not a mere change of opinion. The court emphasized that the assessing officer's decision was within the bounds of their authority and based on a reasonable belief formed from new, tangible material. The petition was dismissed, and the interim relief granted earlier was vacated.