2021 (6) TMI 103 - HC - Income Tax

Reopening of assessment u/s 147 - undisclosed LTCG - whether the revenue is justified in reopening the assessment for the year under consideration? - HELD THAT - Facts mentioned in the affidavit by the revenue could not term as new ground or new reasons to supplement the reasons recorded by the AO. Therefore, the contention raised by the learned counsel for the writ applicant that, by way of affidavit in reply, the revenue has improved the reasons recorded, has no any merit and cannot be accepted to hold that, the exercise to reopen the assessment is without jurisdiction. AO failed to record an independent finding as to how the income has escaped assessment - AO himself was satisfied with regard to the information and other material on record, he formed an opinion that, the income has escaped assessment. Therefore, when the information was specific with regard to transactions of penny stock entered into by the assessee with the Karma Ispat Ltd., and the AO had applied his independent mind to the information and upon due satisfaction, led to form an opinion that, the amount of claim of LTCG claimed by the assessee is chargeable to tax has escaped assessment, which facts suggests that, there is live link between the material which suggested escapement of income and information of belief. Under the circumstances, we are satisfied that, there was enough material before the AO to initiate proceedings under Section 147 of the Act. We do not agree with the contention that, merely on the information, the AO has recorded the reasons and on the basis of borrowed satisfaction, he formed an opinion with respect to the income chargeable to tax has escaped assessment. Valid sanction as raised by the learned counsel for the writ applicant - We take the notice of the fact that, the copy of the approval has been provided to the assessee at the stage of passing the order of disposing the objections raised by the assessee. Therefore, it is evident that, in the instant case, the authorities concerned have given approval after due application of mind and expressed their satisfaction with regard to the reasons recoded for reopening of the assessment. No hesitation to hold that it could not be said to have that there was no material or grounds before the AO and the assumption of jurisdiction on the part of the AO under Section 147 of the Act to reopen the assessment by issuing impugned notice under Section 147 of the Act is without authority of law, which render the notice unsustainable. Therefore, the assessee failed to make out a case.

Issues Involved:
1. Validity of the sanction under Section 151 of the Income Tax Act.
2. Accuracy of the reasons for reopening the assessment.
3. Existence of 'reason to believe' that income chargeable to tax has escaped assessment.
4. Presence of a live nexus/link between the information received and material gathered.
5. Permissibility of reopening for proving/fishing inquiry or investigation.
6. Whether reopening is based on borrowed satisfaction.

Issue-wise Detailed Analysis:

1. Validity of the sanction under Section 151 of the Act:
The writ applicant contended that the necessary sanction under Section 151 of the Act was not obtained before issuing the notice for reopening the assessment. However, the court found that the approval was duly provided to the assessee at the stage of passing the order of disposing of the objections. It was evident that the concerned authorities gave approval after due application of mind and expressed their satisfaction regarding the reasons recorded for reopening the assessment.

2. Accuracy of the reasons for reopening the assessment:
The writ applicant argued that the reasons for reopening were factually incorrect. The court examined the reasons recorded by the Assessing Officer (AO), which included information received from the Investigation Wing about the assessee's transactions in penny stocks. The AO noted that the assessee sold 3400 shares of Karma Ispat Limited, earning long-term capital gains, which were treated as penny stock transactions. The court found that the AO had made independent inquiries and gathered sufficient information to form a belief that income had escaped assessment.

3. Existence of 'reason to believe' that income chargeable to tax has escaped assessment:
The court reiterated that the AO must have reasons to believe that any income chargeable to tax has escaped assessment. In this case, the AO received information about the assessee's transactions in penny stocks, conducted inquiries, and formed a belief that the income had escaped assessment. The court emphasized that at the stage of issuing the notice, the AO is not required to have final evidence but only a reason to believe that income has escaped assessment. The court found that the AO had sufficient cause and justification to form such a belief.

4. Presence of a live nexus/link between the information received and material gathered:
The writ applicant argued that there was no live nexus between the information received and the material gathered. The court examined the reasons recorded and the affidavit in reply filed by the revenue, which clarified the information received from the Investigation Wing and the AO's independent inquiries. The court found that there was a live link between the material suggesting escapement of income and the information forming the basis of the AO's belief.

5. Permissibility of reopening for proving/fishing inquiry or investigation:
The writ applicant contended that reopening was not permissible for proving or fishing inquiry without specific findings of income escaping assessment. The court found that the AO had conducted independent inquiries and gathered sufficient information to form a belief that income had escaped assessment. The court emphasized that the AO's formation of belief is an administrative decision and does not require final adjudication of the matter at the stage of issuing the notice.

6. Whether reopening is based on borrowed satisfaction:
The writ applicant argued that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court examined the reasons recorded and the affidavit in reply, finding that the AO had independently applied his mind to the information and materials gathered. The court concluded that the AO was satisfied with the information and formed an opinion that income had escaped assessment.

Conclusion:
The court dismissed the writ application, holding that the revenue was justified in reopening the assessment. The court found that the AO had sufficient material and reasons to believe that income chargeable to tax had escaped assessment. The court emphasized that the AO's formation of belief is an administrative decision and does not require final adjudication at the stage of issuing the notice. The court also found that the necessary sanction under Section 151 was duly obtained, and there was a live link between the information received and the material gathered. Therefore, the reopening of the assessment was upheld, and the writ application was dismissed.

← Previous Next →