2021 (12) TMI 1140 - HC - Income Tax

Reopening of assessment u/s 147 - Whether the reasons to believe has rational connection with the formation of the belief? - live link between the material connecting the notice of the Assessing Officer and the formation of belief regarding escapement of income - HELD THAT - The reasons as made available to Petitioner merely indicates information received from the DDIT (Investigation), about certain entity entering into suspicious / questionable transactions. The entire information received has been reproduced in the reasons. In the information so reproduced, there is no mention or even a cursory reference to Petitioner. There is no link between the information received from the DDIT and Petitioner. The information / material received is not further linked by any reason to come to the conclusion that Petitioner has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped assessment. Recorded reasons even does not indicate the amount which according to the Assessing Officer has escaped assessment. In our view, this is evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. Moreover, AO alleges that substantial income (specified as above) chargeable to tax has escaped assessment for AY 2014-15 and accordingly notice under Section 148 of the Act for AY 2014-15 has been issued for the purpose of re-assessment. This shows non-application of mind not only by the Assessing Officer but also the sanctioning authority. If both these persons had read the reasons before putting their signatures, they would have found the error in the assessment year. There is nothing new in the reasons provided on 23/10/2019 save and except the assessment year has been corrected to reflect the correct assessment year in the last paragraph; but at the same time, our view expressed earlier that if only the sanctioning authority has read the reasons and applied his mind to the same, it would have indicated the error in the assessment year and that there is absolutely no link or nexus between the information received from DDIT and Petitioner. Therefore, in our view, the notice u/s 148 issued is set aside - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961 for AY 2012-13 based on reasons to believe that income has escaped assessment.
2. Requirement of a rational connection between the material forming the basis for reopening and the belief of income escapement.
3. Lack of nexus between the information received from DDIT and the petitioner leading to a fishing enquiry.

Analysis:
1. The petitioner received a notice under Section 148 of the Income Tax Act, 1961, for AY 2012-13, stating that the income chargeable to tax has escaped assessment. The court examined the reasons recorded and found no material linking the notice to the belief of income escapement. The court emphasized the need for a live link between the material forming the basis for reopening and the belief of income escapement, citing the judgment in the case of Principal Commissioner of Income-tax-5 Vs. Shodiman Investments. The absence of such a connection entitles the assessee to challenge the reopening of assessment.

2. The reasons provided to the petitioner were based on information received from DDIT regarding suspicious transactions by an entity, without any mention or reference to the petitioner. The court noted the lack of linkage between the information and the petitioner, indicating a fishing enquiry rather than a reasonable belief of income escapement. Additionally, the assessing officer's error in mentioning the assessment year as 2014-15 instead of 2012-13 further highlighted the non-application of mind. Despite a correction issued later, the court held that there was no fresh reasoning provided, and the lack of nexus between the information and the petitioner warranted setting aside the notice and order disposing of objections.

3. In conclusion, the court set aside the notice issued under Section 148 and the order disposing of objections, as there was no rational connection between the information received from DDIT and the petitioner. The judgment emphasized the importance of a valid and reasoned basis for reopening assessments to prevent unsettling settled issues and assessments, ensuring a fair and lawful process under the Income Tax Act, 1961.