2017 (6) TMI 605 - HC - Income Tax

Reopening of assessment - scrutiny assessment concluded - reasons to believe - tangible material - figures of sale of teakwood trees for year consideration were not genuine if, at all, exaggerated - as trees were planted some 8 to 10 years back and the agricultural operations were carried out under the personal supervision of the partners themselves, thus it was for the re-opening - Held that - The reasons recorded during inquiry reveal that three entities to whom the sale was supposed to have been made belong to Shri Saket Jain, a Chartered Accountant. All the entities had a common address at Ashram Road, Ahmedabad. It was noticed that Shri Sunil Agrawal was unable to adduce necessary evidences to prove that the sales figures of the teakwood were genuine. Assessing Officer further noted that on account of such discrepancies, Shri Sunil Agrawal had voluntarily disclosed unaccounted income from such sales as part of total disclosure of ₹ 23.5 crore broken into the hands of separate entities with respect to year under consideration. The reasons referred to the refusal of Shri Sunil Agrawal to comment on the genuineness of the sale of teakwood for Assessment Year 2009-2010 stating that during such period ownership of the firm and the partners were different. It was recorded that there is a similarity of pattern in sale of teakwood during a year under survey i.e. 2013-2014 and the year under consideration i.e. 2009-2010. It was on the basis of such material that the Assessing Officer formed a belief that the assessee had failed to disclose true and full facts necessary for assessment. It can thus be seen that the Assessing Officer had recorded elaborate reasons to prima facie demonstrate that the figures of sale of teakwood trees for year consideration were not genuine if, at all, exaggerated. This would have direct link to the failure on the part of the assessee to disclose true and full necessary facts. It is by now well settled that for re-opening of the assessment, Assessing Officer had to form a bonafide belief that the income chargeable to tax has escaped the assessment. Such belief would be on the basis of such tangible material. However, this sufficiency of reasons would not be a subject matter of minute judicial scrutiny. As long as material exists on record and a bonafide belief has been found by the Assessing Officer, the Court would maintain a healthy restrain. It is also well settled that in cases of sham transactions, the assessee cannot avoid the re-opening on the ground that earlier the issue was scrutinized In the case of Pal Jain v. Income-Tax Officer and Another 2004 (3) TMI 59 - PUNJAB AND HARYANA HIGH COURT wherein found that upon availability of subsequent material the very transaction which was subject matter of the original assessment was found to be bogus transaction and it was therefore observed that mere disclosure of transaction at the time of original assessment proceedings cannot be said to be a disclosure of the true and full facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. Decided against assessee.

Summary

Issues Involved:
1. Legality of the notice for reopening the assessment.
2. Examination of the sufficiency of reasons for reopening.
3. Validity of reopening based on new information and subsequent inquiry.

Issue-wise Detailed Analysis:

1. Legality of the notice for reopening the assessment:
The petitioner challenged the notice dated 7.2.2014 issued by the Assessing Officer for reopening the assessment for the assessment year 2009-2010. The petitioner, a partnership firm engaged in agricultural operations, had declared agricultural income of ?7.83 crore as exempt under Section 10(1) of the Income Tax Act, 1961. The original assessment was completed on 8.12.2011, accepting the return as filed. The reopening was based on the discovery during a survey operation of discrepancies in the agricultural income claimed by the firm.

2. Examination of the sufficiency of reasons for reopening:
The Assessing Officer issued the notice for reopening based on several reasons, including the ownership of agricultural land by the partners in their individual capacities, the introduction of exempt income into the firm's accounts, and the diversion of this income to the partners' accounts. The reopening was also prompted by findings during a survey on the Raghuvir Group of companies, revealing that the sales of teak trees claimed by the firm were to entities managed by a Chartered Accountant, Mr. Sanket Jain, with no substantial evidence supporting the genuineness of these transactions. The Assessing Officer believed that the income was not genuinely derived from agricultural operations but represented undisclosed income.

3. Validity of reopening based on new information and subsequent inquiry:
The petitioner argued that the reopening was based on a mere change of opinion and lacked tangible material. They contended that the original assessment was completed after a thorough scrutiny of the documents, including the details of the sale of wood. The petitioner relied on the Supreme Court's decision in Commissioner of Income-Tax v. Kelvinator of India Ltd. to argue that reopening based on a change of opinion is impermissible. However, the court noted that the Assessing Officer had recorded elaborate reasons, including the findings from the survey operation, which provided a tangible basis for the belief that the income chargeable to tax had escaped assessment. The court emphasized that the sufficiency of reasons for reopening is not subject to minute judicial scrutiny as long as there is a bonafide belief based on tangible material.

Conclusion:
The court dismissed the writ petition, stating that the Assessing Officer had recorded proper reasons for reopening the assessment. The reasons suggested that the assessee's claim of earning income through agricultural operations was false, and the reopening was based on new information and subsequent inquiry. The court maintained that the sufficiency of reasons for reopening is not for the court to judge, as long as the reasons are based on tangible material and a bonafide belief. The interim relief was vacated, and the rule was discharged.