2021 (3) TMI 55 - HC - Income Tax

Reopening of assessment u/s 147 - material before the assessing Officer to reopen the assessment or not ? - borrowed satisfaction or independent application of mind by AO - HELD THAT - AO has initiated the proceedings not only on the basis of the information received from the concerned Department, but based upon his independent satisfaction and other available materials to form a belief with regard to the escaped assessment of income. The reasons recorded further establish that, the prop. of R S enterprise is the husband of Smt. Harshaben Gosai having financial transactions with the R.S Enterprise and Marshal Enterprise and all these entities including JK enterprise and P M Co. have no business activities and were managed to provide accommodation entries and routed the money through bank transactions showing the transactions as sale and purchase issuing bogus invoices without actual delivery of goods. There was live link or direct nexus between the material which suggested the escapement of income and information on the basis of which, it could be said that, the income has escaped assessment. Assessing Officer has acted on specific information and after collecting the available material as referred to above has opened his mind through reasons and formed a belief that, the income has escaped assessment. It is settled law that, at the stage of Section 148 of the Act, what is required is reason to believe , but not the established fact of escapement of income. Thus it cannot be said that there was no material before the assessing Officer to reopen the assessment and he proceeded mechanically based on the information received from the Income Tax Department, Ahmedabad. The information of Smt. Bhavnaben Gosai has some relevance with the transactions reflected in the bank account of the assessee. Therefore, it cannot be said that, the Assessing Officer has mechanically relied on the third party information and the proceedings being initiated for verification and inquiry. Proceeding has been initiated after four years and the sanction accorded by the authority as contemplated under Section 151 of the Act is not legal and valid - The sanction order has n ot been placed on record by the assessee. The intimation letter cannot be termed as approval given by the authority. Therefore, in absence of any other evidence indicating that, the authority concerned has mechanically accorded the sanction as contemplated under Section 151 of the Act, the contention raised by the writ applicant cannot be accepted. As examined the order of disposing the objections by the authority. By going through the said order, we find that, the objections submitted by the assessee has been extensively dealt with and detailed order came to be passed. Therefore, the decision arrived at by the authority to reopen the assessment is just and proper. Thus it cannot be said that, the impugned notice issued under Section 148 of the Act is without jurisdiction and contrary to Section 147 of the Act and/or bad in law. - Decided in favour of revenue.

Summary

Issues Involved:
1. Legality and jurisdiction of the notice for reopening assessment under Section 148 of the Income Tax Act, 1961.
2. Independent application of mind by the Assessing Officer.
3. Validity of reasons for reopening based on suspicion and verification.
4. Discrepancies in the figures mentioned for reassessment.
5. Evidentiary value of third-party statements.
6. Validity of sanction for issuance of notice under Section 151 of the Act.

Issue-wise Detailed Analysis:

1. Legality and Jurisdiction of the Notice:
The writ applicant challenged the notice of reopening the assessment dated 19.03.2019 under Section 148 of the Income Tax Act, 1961, for A.Y 2012-13, claiming it was illegal and without jurisdiction as the conditions under Section 147 were not met. The court noted that the return of income for the year was filed on 29.09.2012 and processed without scrutiny under Section 143(1). The reopening was based on information received from the ITO, indicating high-value financial transactions without actual business activities, suggesting the income had escaped assessment.

2. Independent Application of Mind by the Assessing Officer:
The writ applicant contended that the Assessing Officer did not independently apply his mind and relied on borrowed satisfaction from the information received. The court examined the reasons recorded and found that the Assessing Officer had verified the details and bank statements of the entities involved, concluding that the transactions were bogus and the income had escaped assessment. The court held that the Assessing Officer had formed an independent belief based on the material available.

3. Validity of Reasons for Reopening Based on Suspicion and Verification:
The applicant argued that the reasons for reopening were recorded for investigation and verification purposes, which is impermissible. The court referred to various judgments, emphasizing that at the stage of issuing a notice under Section 148, what is required is a "reason to believe" that income has escaped assessment, not conclusive proof. The court concluded that the reasons recorded by the Assessing Officer were sufficient to form a belief of escapement of income.

4. Discrepancies in the Figures Mentioned for Reassessment:
The applicant pointed out discrepancies in the figures mentioned in the reasons for reassessment, particularly regarding transactions with J.K Enterprise. The court noted that the Assessing Officer had verified the bank statements and found that the entities involved had no actual business activities, providing accommodation entries through bogus billing. The court found no merit in the applicant's contention regarding discrepancies.

5. Evidentiary Value of Third-Party Statements:
The applicant argued that the statements of Smt. Harshaben Rasikbhai Gosai and Mr. Kundan Mudaliar had no evidentiary value as the assessee had no business relations with them. The court observed that the Assessing Officer had verified the information and found that the transactions were bogus, and the entities involved provided accommodation entries. The court held that the Assessing Officer's belief was based on relevant material and not solely on third-party statements.

6. Validity of Sanction for Issuance of Notice under Section 151:
The applicant contended that the sanction for issuing the notice was given without satisfaction and in a mechanical manner. The court examined the record and found no evidence indicating that the sanction was accorded mechanically. The court held that the sanction was valid and the contention raised by the applicant was without basis.

Conclusion:
The court dismissed the writ application, holding that the notice issued under Section 148 was not without jurisdiction and was based on sufficient material. The Assessing Officer had formed an independent belief that income had escaped assessment, and the sanction for issuing the notice was valid. The objections raised by the applicant were extensively dealt with and properly disposed of by the authority.