2022 (3) TMI 1361 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - assessee is one of the beneficiaries of bogus accommodation entries - ACIT has expressed the view that the assessee has introduced her own undisclosed income in her books of account by way of accommodation entries by showing artificial transactions to make the same valid transactions, though it is simply a planning to introduce unexplained money into books of account - HELD THAT - A perusal of the reasons recorded by the assessing officer shows that after considering the report of the Assistant Director of Income Tax (Inv.), AO has conducted an investigation and has gone through the income tax return and other related documents of the assessee and has observed that the assessee is a beneficiary of receiving bogus accommodation entries and it is only thereafter that he has recorded that he has reason to believe that the income has escaped assessment in respect of the assessee. When pursuant to an information received from the Assistant Director of Income Tax (Inv.), Unit-3 (3), Kolkata, the assessing officer has conducted an investigation, has gone through the income tax return and other related documents of the assessee and has observed that the assessee is a beneficiary of receiving bogus accommodation entries and he has found a reason to believe that the income has escaped assessment in respect of the assessee, we do not find any force in the submission made on behalf of the petitioner that the assessing officer has acted on a report of the Assistant Director of Income Tax (Inv.), Unit-3 (3), Kolkata and he has not recorded his own reasons to believe, and thus the same is rejected. When we examine the facts of the present case keeping into view the scope of power of judicial review while scrutinizing a notice issued under Section 148 of the Act as explained in Raymond woolen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT and Phool Chand Bajarang Lal 1993 (7) TMI 1 - SUPREME COURT , we find that the notice under Section 148 of the Act has been issued by the assessing officer after conducting an investigation and going through the income tax return and other related documents of the assessee and after giving reason to believe that the income has escaped assessment in respect of the assessee. We are satisfied that there is prima facie material available on record before the assessing officer for issuing a notice for reassessment and the notice under Section 148 - order passed by the Assessing Officer rejecting the petitioner s objections against issuance of the notice, does not suffer from any such illegality as to warrant interference by this Court in exercise of its Writ Jurisdiction, - Decided against assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of the reassessment proceedings initiated under Sections 147 and 148 of the Income Tax Act.
3. Examination of the "reason to believe" by the Assessing Officer.
4. Allegation of change of opinion by the Assessing Officer.
5. Jurisdiction of the Assessing Officer to reopen the assessment based on information from another authority.

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of a notice dated 31.03.2021 issued by the Assistant Commissioner of Income Tax (ACIT) under Section 148 of the Income Tax Act, 1961, proposing to assess/reassess the income/loss for the assessment year 2015-16. The notice was issued on the grounds that the ACIT had reasons to believe that the petitioner's income chargeable to tax had escaped assessment. The court referred to the Supreme Court's pronouncements in Raymond Woollen Mills Ltd. v. ITO, emphasizing that at the stage of notice, the court only needs to see if there is prima facie material for reopening the case, without delving into the sufficiency or correctness of the material.

2. Legitimacy of the reassessment proceedings initiated under Sections 147 and 148 of the Income Tax Act:
The petitioner argued that the reassessment proceedings were unjustified as the Income Tax Officer-3 (5), Lakhimpur Kheri, had previously inquired into the petitioner's transactions and accepted her submissions, dropping further proceedings. However, the court noted that the earlier order did not bear any number, date, or official seal, raising doubts about its genuineness. Moreover, the court clarified that the issuance of a notice under Section 148 is permissible if the requisite conditions exist, irrespective of earlier inquiries.

3. Examination of the "reason to believe" by the Assessing Officer:
The ACIT's reason for issuing the notice was based on an investigation revealing that M/s KCGP Share Broking Service Pvt. Ltd. provided bogus accommodation entries to various beneficiaries, including the petitioner. The ACIT believed that the petitioner had introduced her undisclosed income into her books of account through artificial transactions. The court highlighted that the "reason to believe" must be based on prima facie material, as established in previous Supreme Court judgments.

4. Allegation of change of opinion by the Assessing Officer:
The petitioner contended that the reassessment amounted to a change of opinion, which is not permissible. The court referred to the Supreme Court's explanation in CIT v. Techspan India (P) Ltd., stating that a change of opinion implies a previously formed opinion, which was not the case here. The court found that the Assessing Officer had not formed any opinion regarding the reasons for the notice under Section 148 before issuing it, thus rejecting the petitioner's argument of change of opinion.

5. Jurisdiction of the Assessing Officer to reopen the assessment based on information from another authority:
The petitioner argued that the Assessing Officer acted on the report of the Assistant Director of Income Tax (Inv.), Unit-3(3), Kolkata, and not on his own "reasons to believe." The court examined the reasons recorded by the Assessing Officer and found that he had conducted his own investigation and reviewed the petitioner's income tax return and related documents before forming his belief. The court cited the Supreme Court's decision in Phool Chand Bajrang Lal v. ITO, which allows reopening of assessment based on subsequent reliable information, provided the Assessing Officer forms his own belief.

Conclusion:
The court concluded that the notice under Section 148 and the reassessment proceedings were valid as there was prima facie material for the Assessing Officer to believe that the petitioner's income had escaped assessment. The court dismissed the writ petition, finding no illegality in the order rejecting the petitioner's objections against the notice. The parties were ordered to bear their own costs.

← Previous Next →