2021 (11) TMI 57 - HC - Income Tax

Reopening of assessment u/s 147 - undisclosed activity of money lending and borrowing - reasons that based on statements recorded of partners of M/s Evergreen Enterprises and employees - issuance of notice is that information was received from the Dy. Director of Income Tax Mumbai that a search and survey action u/s 132 was carried out in the case M/s Evergreen Enterprises and based on the statement recorded of the partner and documentary evidences found in the search of the premises of M/s Evergreen Enterprises unearthed an undisclosed activity of money lending and borrowing in unaccounted cash being operated at the premises of M/s Evergreen Enterprises - HELD THAT - There is absolutely no mention as to how either the partners of M/s Evergreen Enterprises or the employees of Ms/ Evergreen Enterprises or this Bharat Sanghavi is connected to petitioner. Mr. Suresh Kumar relied upon the affidavit in reply to submit that Bharat Sanghavi was an employee of petitioner and, therefore, the reasons have been correctly recorded and the Assessing Officer has reason to believe that income had escaped assessment. As noted earlier, the reasons for reopening of assessment has to be tested / examined only on the basis of the reasons recorded and those reasons cannot be improved upon and/or submissions much less substituted by an affidavit and/or oral submission. In the reasons for the reopening, the Assessing Officer does not state anywhere that Bharat Sanghavi was an employee of petitioner. In the reasons for reopening, the Assessing Officer does not even disclose when the search and survey action u/s 132 was carried out in the case of M/s Evergreen Enterprises, whether it was before the assessment order dated 30th December 2016 in the case of petitioner was passed or afterwards. The reasons for reopening is absolutely silent as to how the search and survey action on M/s Evergreen Enterprises or the statement referred or relied upon in the reasons have any connection with petitioner.

Summary

Issues:
Impugning a notice and assessment order on grounds of lack of reasons for income escaping assessment, jurisdiction under Section 147(a) of the Income Tax Act, sufficiency of reasons for reopening assessment, power of Assessing Officer after lapse of four years, requirements for reasons recorded for issuance of notice under Section 148, and connection between the information received and the assessee.

Analysis:
1. The petitioner challenged a notice and assessment order alleging insufficient reasons for income escaping assessment. The court noted that under Section 147(a) of the Income Tax Act, two conditions must be satisfied for jurisdiction: belief that income escaped assessment and failure to fully disclose material facts. However, under the substituted Section 147, only the first condition is necessary to reopen assessment.

2. Referring to the Aronic Commercials Ltd. case, the court emphasized that reasons for reopening assessment must be based on the reasons recorded at the time of issuing the notice. The Assessing Officer alone must determine the reasons, and tangible material for reopening can come from any source, but the reasons must be solely of the Assessing Officer issuing the notice.

3. The court clarified that after four years, the Assessing Officer cannot review a concluded assessment without disclosing the tangible material for income escapement and failure to fully disclose facts. The reasons for reopening must be clear, unambiguous, and based on evidence, with a vital link between reasons and evidence to prevent arbitrary reopening.

4. The court analyzed the reasons for issuance of notice in this case, finding a lack of connection between the information received and the petitioner. The reasons did not establish how the information from M/s Evergreen Enterprises related to the petitioner, leading to the conclusion that the notice and order were issued without jurisdiction and were quashed.

5. The court highlighted that the Assessing Officer cannot act on assumptions or incomplete reasons for reopening assessments, emphasizing the importance of clear, self-explanatory reasons based on evidence. The judgment concluded by quashing the notice and order, along with any consequent notice or demand, with no order as to costs.