2021 (7) TMI 312 - HC - Income Tax

Reopening of assessment u/s 147 - respondent had received the information from the office of DDIT (Inv.) Unit-1(3), Ahmedabad that the petitioner - company was identified as one of the beneficiaries of the accommodation entries unearthed during the course of search proceedings - seizure of unaccounted cash along with the incriminating digital as well as documentary evidences - HELD THAT - AO had received specific information from the said investigating wings outlining the systemic evasion of taxes by the petitioner and others, and had therefore reason to believe that the petitioner had sold scrips to Veronica Production Limited / Dhvanil Chemicals Ltd., which were penny stock during financial year 2011-12. Such satisfaction arrived at by the AO being subjective in nature and based on the fresh material for coming to the prima facie conclusion that the petitioner had failed to disclose fully and truly all material facts necessary for his assessment for the A.Y. 2012-13, it could not be said that the respondent had initiated the proceedings under section 147 of the Act on the basis of incorrect facts or on the basis of borrowed belief of the Investigation Wings at Ahmedabad and Mumbai, as sought to be submitted by the learned advocate Mr. R.K. Patel for the petitioner. The Court also does not agree with the submission made by the learned advocate Mr. Patel that the respondent could not have reopened the assessment of the petitioner under section 147/148 of the said Act after the scrutiny assessment having been undertaken by the Assessing Officer under section 143(3) of the said Act for the A.Y. 2012-13. AO having arrived at his subjective satisfaction based on additional fresh material placed before him that the petitioner had not fully and truly disclosed all the material facts necessary for his assessment for the relevant assessment year and prima facie his income chargeable to tax had escaped assessment, he was fully justified in initiating the proceedings under section 147/148 In this case, the Assessing Officer has recorded the reasons in detail and the objections raised by the petitioner have also been dealt with by him in detail vide the impugned order. It may further be noted that no such contention that the Principal Commissioner had granted sanction without application of mind or without assigning any reason, was taken up by the petitioner before the respondent authority in the objections filed by him, nonetheless the respondent has mentioned in the impugned order that his satisfaction was duly approved by the CIT-4, Ahmedabad vide his letter / approval dated 30.03.2019. Again in response to the said contention raised in the petition, the respondent has contended in his affidavit-in- reply that the case of the petitioner was reopened after obtaining the sanction from the Pr. CIT-4, Ahmedabad as required by section 151 of the said Act and that the Pr. CIT had approved the notice after appreciating the facts and after duly applying his mind. The petitioner has chosen not to controvert the said submission in the affidavit-in-rejoinder filed by him. There is also no merit in the submission of Mr. Patel that the petitioner was assessed under section 115JB and that the assessee was already paying more tax under section 115JB than the income tax liability arising under the normal provisions of the Act. As rightly observed by the respondent in the impugned order disposing of the objections, whether the income chargeable to tax has escaped assessment or not, could not be considered at this stage and no conclusive opinion could be rendered at this point of time when the assessment / reassessment has not even started. - Decided against assessee.

Issues Involved:
1. Validity of the notice under Section 148 of the Income-Tax Act, 1961.
2. Justification for reopening the assessment under Section 147 of the Income-Tax Act, 1961.
3. Allegations of accommodation entries and bogus transactions.
4. Compliance with procedural requirements, including Section 151 of the Income-Tax Act, 1961.
5. Assessment under Section 115JB versus normal provisions.

Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income-Tax Act, 1961:
The petitioner challenged the notice dated 30.03.2019 issued under Section 148 of the Income-Tax Act, 1961, on the grounds that it was based on incorrect facts. The court examined whether the Assessing Officer had a reason to believe that income had escaped assessment and whether such belief was based on relevant material. It was held that the notice was valid as the Assessing Officer had received specific information from the Investigation Wing, which justified the reopening of the assessment.

2. Justification for Reopening the Assessment under Section 147 of the Income-Tax Act, 1961:
The court reiterated that two conditions must be satisfied for reopening an assessment under Section 147 after four years: (i) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) such escapement was due to the assessee's failure to disclose fully and truly all material facts. The court found that the Assessing Officer had received fresh material indicating that the petitioner had engaged in transactions involving penny stocks, which were used for bogus LTCG and contrived losses. This provided a valid reason for reopening the assessment.

3. Allegations of Accommodation Entries and Bogus Transactions:
The court noted that the petitioner was identified as a beneficiary of accommodation entries during search proceedings conducted on Sanjay Shah and Jignesh Shah, and Naresh Jain and his associates. The investigation revealed that the petitioner had engaged in transactions with companies used for bogus LTCG and contrived losses. The court held that the Assessing Officer's belief that the petitioner had not fully and truly disclosed all material facts was justified based on the fresh material received.

4. Compliance with Procedural Requirements, Including Section 151 of the Income-Tax Act, 1961:
The petitioner argued that the Principal Commissioner had granted sanction under Section 151 without application of mind. The court found that the Assessing Officer had recorded detailed reasons for reopening the assessment, and the Principal Commissioner had duly approved the notice after applying his mind. The court rejected the petitioner's contention and held that the procedural requirements were duly complied with.

5. Assessment under Section 115JB versus Normal Provisions:
The petitioner contended that the tax paid under Section 115JB was more than the tax liability under normal provisions, and hence, there was no escapement of income. The court observed that the issue of whether income chargeable to tax had escaped assessment could not be conclusively determined at the stage of issuing the notice. The court held that this contention could not be considered at this juncture.

Conclusion:
The court dismissed the petition, holding that the reopening of the assessment was justified based on fresh material indicating that the petitioner had engaged in bogus transactions and accommodation entries. The procedural requirements, including the sanction under Section 151, were duly complied with, and the Assessing Officer had valid reasons to believe that income had escaped assessment. The petition was devoid of merits, and the notice issued under Section 148 was upheld.

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