2016 (12) TMI 672 - HC - Income Tax

Validity of reopening of assessment - absence of the words failure to disclose fully and truly all material particulars in to the recording of the reasons - Held that - The reasons recorded as whole, it is evident that there is, prima facie, failure of the assessee to disclose fully and truly all material particulars necessary for Assessment. The material received from the Principal Director of Income Tax (Investigation), Ahmedabad was material which was not disclosed during the regular assessment proceedings. Therefore, the impugned notice is not hit by the first proviso to Section 147 of the Act. The mere absence of the words failure to disclose fully and truly all material particulars in to the recording of the reasons, is not fatal to the impugned notice, if on a reading of the reasons as a whole one could conclude that there has been a failure on the part of the Assessee to disclose fully and truly all material particulars during the regular Assessment Proceedings. Therefore, we find no substance in the above submission. The letter dated 28th March, 2016 addressed by the Principal Commissioner of Income Tax (enclosing the communication dated 8th March, 2016 from the Principal Director of Income Tax (Investigation), Ahmedabad), only states reopening of cases for Financial Year 2008-09 is getting barred by limitation of time on 31st March, 2016 and therefore to give top priority to these cases for necessary action. This observation cannot lead to the conclusion that the Assessing Officer is acting on directions of his superior. All that the above observation means is that the Assessing Officer should expeditiously examine the facts, and if necessary, act before 31st March, 2016. It is not a direction to the Assessing Officer to issue a reopening notice Analysis of data i.e. material available can only lead to a prima facie view of income chargeable to tax has escaped assessment. If the data (material) received is not analyzed then the grievance is that there is no link between the material received and conclusion reached. Therefore, the analysis of data (material) would alone determine whether, prima facie, income chargeable to tax has escaped assessment. Therefore, we do not find any merit in the above objections.we are satisfied that the Assessing Officer on the basis of reasons recorded to issue impugned notice dated 30th March, 2016, had reasonable belief to come to the conclusion that income chargeable to tax has escaped assessment. - Decided against assessee

Summary

Issues:
Challenge to notice under Section 148 of Income Tax Act, 1961 for reopening Assessment Year 2009-10 based on client code modification leading to tax evasion.

Analysis:
1. Reopening of Assessment: The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the Assessment for the year 2009-10. The reasons for reopening were based on client code modifications by brokers leading to tax evasion. The petitioner objected to the notice beyond the four-year limit and lack of material supporting the claim.

2. Reasons for Reopening: The reasons for the notice highlighted client code modifications by brokers, flagged by SEBI due to potential market manipulation. The communication from the Principal Director of Income Tax (Investigation) contained data suggesting tax evasion through client code modifications. The Assessing Officer relied on this information to form a reasonable belief that income had escaped assessment.

3. Jurisdictional Challenge: The petitioner contended that the notice lacked jurisdiction as there was no failure to disclose material facts, and the Assessing Officer did not apply independent judgment but acted on superior authority's directions. However, the court found that the reasons recorded indicated a failure to fully disclose material particulars during the regular assessment, justifying the reopening.

4. Analysis of Data: The court emphasized that the analysis of data received is crucial in determining if income has escaped assessment. The material provided a prima facie view of tax evasion through client code modifications, supporting the Assessing Officer's decision to issue the notice.

5. Court's Decision: The court dismissed the writ petition, upholding the Assessing Officer's reasonable belief that income chargeable to tax had escaped assessment. The petitioner could address the issue during assessment proceedings, but the court found no grounds to interfere with the reassessment process.

In conclusion, the court upheld the validity of the notice for reopening the assessment year based on client code modifications leading to potential tax evasion, emphasizing the importance of analyzing data to establish income escaping assessment.