2018 (5) TMI 445 - HC - Income Tax

Reopening of assessment - Reasons to believe - Held that - We have found that the reasons recorded by the AO justify the initiation of proceedings under Sections 147 and 148. As the Principal Commissioner agreed with these reasons, it was not necessary for him in his order according sanction to reiterate the reasons furnished by the AO. There is nothing that indicates that he did not apply his mind to the reasons furnished by the AO. Reasons to believe are there. The reasons are based on tangible material. The return and account books of assessee had not undergone scrutiny at the time of assessment. The information is specific and not vague. A reasonable person can form an opinion on the basis of the material. The information received could form the basis of reason to believe that income has escaped assessment and the re-opening is not on mere suspicion. Hence, the assumption of jurisdiction is in accordance with law. - Decided in favour of revenue.

Issues Involved:
1. Validity of notice for re-assessment under Section 148 of the Income Tax Act, 1961.
2. Justification for re-opening the assessment under Section 147 of the Income Tax Act, 1961.
3. Jurisdiction of the Assessing Officer (AO) for issuing the notice.
4. Application of mind by the AO and Principal Commissioner of Income Tax.
5. Borrowed satisfaction and mechanical approval under Section 151 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Notice for Re-assessment under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31.03.2016 for re-assessment and the order dated 07.10.2016 rejecting the objections raised for re-opening. The notice was issued after obtaining necessary satisfaction from the Principal Commissioner of Income Tax, Panchkula. The AO provided reasons for initiating proceedings under Section 147, indicating that the petitioner had shifted-in losses amounting to ?46,56,820/- through his broker, which led to the belief that income had escaped assessment.

2. Justification for Re-opening the Assessment under Section 147 of the Income Tax Act, 1961:
The AO must have reason to believe that income chargeable to tax has escaped assessment. The reasons supplied to the petitioner included information received from the Principal Director of Income Tax (Investigation), Ahmedabad, which revealed that Client Code Modification (CCM) was used as a tool for tax evasion. The AO tabulated the transactions and noted 74 modifications within a period of about nine months, justifying the need to investigate the transactions further.

3. Jurisdiction of the Assessing Officer (AO) for Issuing the Notice:
The petitioner contended that the AO acted on borrowed satisfaction and that the satisfaction recorded by the Principal Commissioner was mechanical. However, the court found that the AO applied his own mind to the information furnished and was satisfied that the material warranted initiation of proceedings under Sections 147 and 148. The AO analyzed the material pertaining to the petitioner and initiated proceedings based on this analysis.

4. Application of Mind by the AO and Principal Commissioner of Income Tax:
The court examined whether the AO independently considered the evidence or merely acted on directions from the Principal Director of Income Tax (Investigation), Ahmedabad. It was found that the AO independently analyzed the material and was satisfied that the income had escaped assessment. The reasons recorded by the AO indicated an application of mind and were not based on mere suspicion or borrowed satisfaction.

5. Borrowed Satisfaction and Mechanical Approval under Section 151 of the Income Tax Act, 1961:
The court rejected the contention that the satisfaction recorded by the Principal Commissioner was mechanical. The Principal Commissioner had duly complied with Section 151 and had not merely signed on the dotted line. The court found that the reasons recorded by the AO were sufficient to justify the initiation of proceedings under Sections 147 and 148.

Conclusion:
The court held that the AO had valid reasons to believe that income had escaped assessment and that the initiation of re-assessment proceedings was justified. The satisfaction recorded by the Principal Commissioner was not mechanical, and the AO had independently applied his mind to the material before issuing the notice. The writ petition was dismissed.

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