2019 (1) TMI 1483 - HC - Income Tax

Reopening of assessment - accommodation entries dealing - record element of income chargeable to tax having escaped assessment - Held that - The very premise of Assessing Officer to form a belief that income chargeable had escaped assessment is completely invalid. As per the information received by the Assessing Officer and to which the assessee raised its no dispute the assessee had as an Asset Reconstruction Company dealt with Avance. Avance was a borrower of Allahabad Bank. The assessee purchased NPA from Allahabad Bank. By way of recovery Avance paid a sum of 2.70 crores to the assessee. Whatever be the nature of existence of Avance its dealings with other individual entities and dealings of said S.C.Shah we simply fail to appreciate how the AO in the present case asserts that in case of the assessee income chargeable to tax has escaped assessment. Even going by the information at the command of the Assessing Officer the assessee having purchased the NPA from Allahabad Bank received the payment of 2.70 crores from Avance. This has nothing to do with the alleged dubious dealings of Avance at the instance of S.C.Shah. In clear terms the very formation of the belief by the Assessing Officer that income chargeable to tax in the hands of the assessee had escaped assessment lacks validity. The department as well as the counsel for the revenue have tried to improve upon the reasons stated by the Assessing Officer by suggesting that it would be necessary to verify whether such income was offered to tax by the assessee or whether the Trustee for whom assessee claims would have received the income had offered the same to tax. None of these elements find place in the reasons recorded by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice of reopening of assessment for the assessment year 2011-12 based on alleged escapement of income chargeable to tax.

Analysis:
The petitioner, an Asset Reconstruction Company, filed a return of income for the assessment year 2011-12, which was assessed under Section 143(3) of the Income Tax Act in 2014. Subsequently, the Assessing Officer issued a notice of reopening of assessment in 2018, beyond the four-year period from the end of the assessment year. The reasons for reopening included dealings with a company engaged in providing bogus accommodation entries, suggesting an escapement of income chargeable to tax amounting to ?2.70 crores. The petitioner objected to the notice, which was rejected by the Assessing Officer, leading to the petition challenging the reopening.

Upon examination, the court found the premise of the Assessing Officer's belief that income had escaped assessment to be invalid. The Assessing Officer's assertion was based on the petitioner's dealings with a company involved in dubious activities, but the court highlighted that the petitioner's transaction involved the purchase of Non-Performing Assets from a bank, and the payment received was unrelated to the alleged dubious dealings. The court emphasized that the reasons recorded for reopening should form a valid basis, and any additional elements should not be introduced later. Citing precedent, the court emphasized that the notice of reopening should be judged solely on the reasons recorded by the Assessing Officer.

In conclusion, the court set aside the impugned notice of reopening, stating that the reasons provided did not establish a valid link to the belief that the petitioner's income had escaped assessment. The court disposed of the petition in favor of the petitioner, highlighting the necessity for the reasons recorded by the Assessing Officer to form a sound basis for reopening assessments under the Income Tax Act.