2021 (2) TMI 752 - HC - Income Tax

Reopening of assessment u/s 147 - independent application of mind or not? - AO relied upon information received from the Investigation Wing, Surat, while recording the reasons for reopening of the assessment - undisclosed bank account of the writ applicant - HELD THAT - Authority concerned had relied on the primary information of the undisclosed account and after independent inquiry and upon verification of the return of income and other documents, recorded his satisfaction and formed a reasonable belief that, the income of the writ applicant has escaped assessment and therefore, the reasons recorded for reopening of the assessment as referred to above, we are of the view that, the Assessing Officer was justified to reopen the assessment. The income of return for the year under consideration, was not taken on further scrutiny as provided under Section 143(3) and the same was accepted under Section 141 of the Act. It is required to be noted that, Section 139 of the Act impose an obligation on the assessee to furnish voluntarily a return of his total income and further makes it obligatory to disclose all material facts necessary for his assessment for that year fully and truly. It was the duty of the assessee to bring to the notice of the respondent with regard to transactions made in the bank account which were relevant for the assessment for that year. Merely submission or production of books of accounts or other documents is not sufficient. It is profitable to refer the explanation 1 of Section 147 of the Act, which explains that, the production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of foregoing proviso. Thus we hold that, details available in the books of account for balance sheet or profit or loss account cannot absolve the assessee from his disclosure obligation under Section 147 of the Act as in the instant case, without any scrutiny, the original return was process under Section 143(1) of the Act. It cannot be said that there was no material before the Assessing Officer to reopen the assessment and he proceeded mechanically based on the sole information received from the Investigation Wing and the impugned notice is without jurisdiction and contrary to Section 147 - Decided against assessee.

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of the assessment was justified based on the information from the Investigation Wing and the Assessing Officer's independent inquiry.
3. Whether the writ applicant disclosed all material facts necessary for the assessment year 2014-15.
4. Compliance with the provisions of Sections 147 and 148 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148:
The writ applicant challenged the notice dated 26.03.2018 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 2014-15. The applicant argued that the notice was bad in law and against the provisions of the statute, asserting that the Assessing Officer relied solely on information from the Investigation Wing without independent verification.

2. Justification for Reopening the Assessment:
The court examined whether the Assessing Officer had sufficient reason to believe that income had escaped assessment. The Assessing Officer recorded that the writ applicant's undisclosed bank account with Prime Cooperative Bank Ltd. had credit entries totaling ?85,11,543, which were not reflected in the income tax return. The court noted that the Assessing Officer had conducted an independent inquiry and verified the return of income and other documents before forming the belief that income had escaped assessment. The court held that the Assessing Officer was justified in reopening the assessment based on the information and independent verification.

3. Disclosure of Material Facts by the Writ Applicant:
The writ applicant contended that all material facts, including the bank statements, were disclosed in the income tax return filed on 26.03.2015. The applicant argued that there was no duty to disclose a closed bank account, as there was no specific column for such disclosure in the ITR. However, the court emphasized that it was the duty of the assessee to disclose all material facts necessary for assessment, including transactions made in the bank account. The court referred to Explanation 1 of Section 147, which states that merely producing account books or other evidence does not amount to full and true disclosure.

4. Compliance with Sections 147 and 148:
The court reviewed the provisions of Sections 147 and 148, which deal with income escaping assessment and the issuance of notice for reassessment. The court noted that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment and that such belief was based on material evidence. The court referred to the case of Assistant CIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which explained that at the stage of issuing notice, the question is whether there was relevant material on which a reasonable person could form the belief that income had escaped assessment.

Conclusion:
The court concluded that the Assessing Officer had sufficient material to justify reopening the assessment and that the writ applicant had not fully disclosed all material facts necessary for the assessment. The court dismissed the writ application, holding that the notice issued under Section 148 was valid and that the reopening of the assessment was justified. The interim relief was vacated, and no order as to costs was made.

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