2018 (12) TMI 1397 - HC - Income Tax

Reopening of assessment - suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty - eligible reasons to believe - Held that - The information supplied by the investigation wing to the Assessing Officer thus formed a prima facie basis to enable Assessing Officer to form a belief of income chargeable tax having escaped assessment. Assessing Officer perused the information supplied by the investigation wing and having formed the belief that income chargeable to tax had escaped assessment, cannot be stated to have acted mechanically. Further, mere fact that assessee had asked for certain information from the Assessing Officer, which at this stage was not supplied, would not invalidate the reasons recorded by the Assessing Officer in issuing the impugned notice. The entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was alongwith report and show cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty. On the basis of such material, the AO also formed a belief that income chargeable to tax had also escaped assessment. AO had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the reopening could not and should not have been declared as invalid, on the ground that he proceeded on the show cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. AO truly had to form a bona fide belief that income had escaped assessment. - Decided against assessee

Issues Involved:
1. Validity of the notice for reopening the assessment.
2. Whether the Assessing Officer had sufficient reason to believe that income had escaped assessment.
3. The requirement of tangible material for reopening the assessment.
4. The necessity for the Assessing Officer to supply requested information to the petitioner.

Issue-wise Detailed Analysis:

1. Validity of the Notice for Reopening the Assessment:
The petitioner challenged the notice of reopening of assessment dated 26th March 2018, arguing that the reasons for reopening were based on information from the investigation wing and did not suggest any escapement of income chargeable to tax. The petitioner contended that the Assessing Officer did not undertake the exercise to quantify the year-wise amount received by the assessee as requested by the investigation wing. The court, however, held that the information supplied by the investigation wing formed a prima facie basis for the Assessing Officer to believe that income chargeable to tax had escaped assessment. The court concluded that the Assessing Officer had recorded proper reasons for issuing the notice and the reopening exercise was valid.

2. Whether the Assessing Officer had Sufficient Reason to Believe that Income had Escaped Assessment:
The court referred to the Supreme Court's judgment in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which clarified that the term "reason to believe" does not require the Assessing Officer to conclusively prove the escapement of income at the stage of issuing the notice. The court emphasized that the Assessing Officer only needs to have a prima facie belief based on relevant material. In this case, the information from the investigation wing about the involvement of Finelink Suppliers Pvt. Ltd. in providing accommodation entries to several beneficiaries, including the petitioner, constituted sufficient material for the Assessing Officer to form the requisite belief.

3. The Requirement of Tangible Material for Reopening the Assessment:
The petitioner argued that the Assessing Officer did not have any tangible material to form a belief that income chargeable to tax had escaped assessment and that the exercise was mechanical. The court, however, found that the information provided by the investigation wing, including bank statements and details of financial transactions, was sufficient tangible material for the Assessing Officer to form a belief of income escapement. The court reiterated that the sufficiency of the reasons or material is not to be judged at the stage of issuing the notice but during the assessment process.

4. The Necessity for the Assessing Officer to Supply Requested Information to the Petitioner:
The petitioner contended that the Assessing Officer did not supply certain requested information, which should invalidate the reasons recorded for issuing the notice. The court held that the mere fact that the petitioner had asked for certain information, which was not supplied at this stage, would not invalidate the reasons recorded by the Assessing Officer. The court emphasized that the validity of the reopening notice is based on the existence of relevant material and the formation of a bona fide belief by the Assessing Officer, not on the provision of requested information.

Conclusion:
The court dismissed the petition, upholding the validity of the notice for reopening the assessment. The court concluded that the Assessing Officer had sufficient reason to believe that income chargeable to tax had escaped assessment based on the information provided by the investigation wing. The court also held that the Assessing Officer had tangible material to form the requisite belief and that the non-supply of requested information at this stage did not invalidate the reopening notice. All contentions on the merits of the petitioner were kept open for examination during the assessment process.

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