2021 (9) TMI 517 - HC - Income Tax

Reopening of assessment u/s 147 - Unexplained cash credit - penny stock purchases - Eligible reasons to believe - whether failure on part of the petitioner to disclose fully and truly all material facts? - assessment sought to be reopened after the expiry of a period of four years from the end of the relevant year - HELD THAT - Nowhere in the reasons for reopening, it is mentioned that the tangible materials were obtained or received much after the original assessment order was passed. Moreover, the statement of Bhanwarlal Jain recorded on 11th October 2013 has been relied upon, whereas the original assessment, after considering the statement and all other material, was completed on 20th December 2016. We repeatedly asked Mr. Suresh Kumar to identify the fresh tangible material that was available with the department and the date on which it was received to which there was no answer because it is not stated in the reasons for reopening. Therefore, we cannot accept the reason for reopening with regard to the entries regarding these five entities. As regards the penny stock tangible material upon the basis of which the Assessing Officer comes to the reason to believe that income chargeable to tax has escaped assessment can come to him from any source, however, reasons for the reopening has to be only of the AO issuing the notice. No such tangible material is disclosed in the reasons for reopening. AO simply says Kolkata Investigation Wing have analyzed the trade data of identified 84 penny stocks and concluded that most of the purchases in penny stocks on abnormally higher rate are being done by these paper companies and one of those penny stock is Shreenath in which petitioner was found to be involved in trading. This is far too general. We have to agree with petitioner that there is no tangible material for the reopening as stated in the reasons for reopening. AO was aware of the fact that the script of Shreenath was allegedly a penny stock company as it is clear from the annual information report given by the Assessing Officer himself to petitioner alongwith the first notice. Therefore, there is no question of any further information on the same issue being treated as information so as to justify the reopening of the assessment. The expression reason to believe in Section 147 of the Act has been held to mean a cause or justification. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the Assessment Year 2014-2015.
2. Alleged failure by the petitioner to disclose fully and truly all material facts.
3. Whether the reassessment is based on a change of opinion.
4. Presence of fresh tangible material to justify reopening.
5. Non-application of mind by the Assessing Officer and Additional CIT in granting approval for reopening.

Detailed Analysis:

1. Validity of the Notice under Section 148:
The petitioner challenged the notice dated 11th October 2018 under Section 148 of the Income Tax Act, 1961, issued by respondent no.1 to reopen the assessment for the Assessment Year 2014-2015. The petitioner also contested the order dated 28th September 2019, which rejected the objections raised against this notice. The court examined whether the notice and subsequent order were validly issued based on the reasons provided by the Assessing Officer.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The petitioner argued that all necessary details were disclosed during the original assessment proceedings, including particulars of unsecured loans and annual information reports. The court noted that the petitioner had provided comprehensive details about the loans taken from various entities, including PAN numbers, addresses, and income tax returns of the creditors. The CIT (Appeals) had previously accepted these disclosures as satisfactory, shifting the onus to the Assessing Officer to make further inquiries, which were not done.

3. Whether the Reassessment is Based on a Change of Opinion:
The court reiterated that reassessment merely on account of a change of opinion is not permissible. The original assessment order dated 20th December 2016 had considered the same material now being used to justify reopening. The court emphasized that reassessment should be based on "tangible material" and not a mere change of opinion.

4. Presence of Fresh Tangible Material:
The court scrutinized the reasons for reopening provided by respondent no.1. The reasons cited included loans from certain entities controlled by Bhanwarlal Jain and trading in penny stocks. However, the court found that these reasons were based on information already available during the original assessment. The court highlighted that no new tangible material was presented to justify the reopening. The statement of Bhanwarlal Jain, relied upon by the Assessing Officer, was recorded before the original assessment order, and no new information was obtained post the original assessment.

5. Non-application of Mind by the Assessing Officer and Additional CIT:
The court agreed with the petitioner that there was a non-application of mind by both the Assessing Officer and the Additional CIT. The reasons for reopening did not disclose any fresh tangible material, and the approval for reopening was granted without proper scrutiny. The court noted discrepancies in the reasons for reopening, such as incorrect references to applicable sections and the failure to specify the new material received.

Conclusion:
The court held that the impugned notice dated 11th October 2018 and the order dated 28th September 2019 were invalid as they were based on a change of opinion without any fresh tangible material. The court set aside both the notice and the order, thereby disposing of the petition in favor of the petitioner.

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