2022 (8) TMI 964 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - HELD THAT - Non-application of mind on the part of the AO while recording the reasons for reopening of the assessment. It also cannot be said that his conclusion was merely based on the observations and information received from the Investigation Wing. AO could be said to have applied his mind to the same. AO could not be said to have merely concluded without verifying the facts that it is the case of reopening of the assessment. We do not find merit in the vociferous submission of the learned counsel appearing for the writ applicant that the contents of the reasons recorded by the AO for the reopening of the assessment is merely an introduction about the investigations conducted by the Investigation Wing, the modus operandi of the entry provided, the summing up of inquiry of the Investigation Wing, the information received from the Investigation Wing etc. We have examined the belief of the AO to a limited extent to look into whether there was sufficient material available on record for the AO to form a reasonable belief and whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. The case on hand is not one where it could be argued that the AO, on absolutely vague or unspecific information, initiated the proceedings of reassessment without taking the pains to form his own belief in respect of such materials.

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with Instruction No.1/2011 issued by the Income Tax Board.
3. Adequacy and application of mind by the Assessing Officer in forming a belief for reopening the assessment.

Detailed Analysis:

1. Legality and Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The writ applicant challenged the legality and validity of the notice dated 27.03.2018 issued under Section 148 of the Income Tax Act, 1961, for the A.Y. 2011-12. The reasons for reopening included undisclosed transactions involving payments and receipts in cash that were not reflected in the assessee's books of accounts. Specifically, there was a payment of Rs.1.14 crore and a receipt of Rs.1.50 crore that were not disclosed. The court found that the reopening was based on tangible information obtained during a survey under Section 133A, which was not available during the original assessment proceedings. The court held that the reopening was not a case of fishing or roving inquiry or change of opinion, and thus, the notice under Section 148 was valid.

2. Compliance with Instruction No.1/2011 Issued by the Income Tax Board:
The petitioner argued that the reopening notice should be quashed based on Instruction No.1/2011, which mandates that cases involving certain monetary limits should be handled by officers of specific ranks. The court noted that these instructions pertain to the assignment of cases for assessment purposes and not to proceedings initiated under Section 148. The court also referenced the Madras High Court's decision in C. Krishnan, which clarified that such instructions are not mandatory. Therefore, the court found that reliance on Instruction No.1/2011 was misplaced and did not invalidate the notice under Section 148.

3. Adequacy and Application of Mind by the Assessing Officer in Forming a Belief for Reopening the Assessment:
The court examined whether the Assessing Officer had applied his mind and whether there was sufficient material to form a reasonable belief that income had escaped assessment. The court emphasized that the adequacy of reasons provided by the Assessing Officer falls outside judicial review and remains within the domain of the Assessing Officer. The court found that the Assessing Officer had not merely relied on the information from the Investigation Wing but had also applied his mind to the facts and materials available. The court concluded that there was no non-application of mind and that the reasons for reopening were based on sufficient material.

Conclusion:
The court rejected the writ application, upholding the validity of the notice issued under Section 148 of the Income Tax Act, 1961. The court found that the reopening was based on tangible information obtained during a survey, and the reliance on Instruction No.1/2011 was misplaced. The court also held that the Assessing Officer had applied his mind and formed a reasonable belief based on sufficient material, thus validating the reopening of the assessment.

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