2022 (12) TMI 1287 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - accommodation entry receipts - HELD THAT - On perusal of the reasons recorded, the assessment is sought to be reopened for verification of the facts which are already on record as to whether the amount received by the assessee and reflected in the regular books of accounts pertains to any accommodation entry or not. It is not in dispute that the assessee returned that amount within a short span of two months. Therefore, it appears that under the guise of reopening the assessment, AO wants to have a roving inquiry. Under the circumstances, it cannot be said that AO had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. In case of Inductotherm (India) (P.) Ltd. v. M. Gopalan, Deputy CIT 2012 (9) TMI 16 - GUJARAT HIGH COURT the Division Bench of this Court observed that for a mere verification of the claim, the power of reopening of assessment could not be exercised and the AO cannot seek to undertake a fishing or a roving inquiry and seek to verify the facts which are already on record, as if it were a scrutiny assessment. Thus from reasons recorded to reopen the assessment, we are of the opinion that under the guise of reopening the assessment, the AO wants to have a roving inquiry. In absence of any tangible material to form an opinion that the income chargeable to tax has escaped assessment and in absence of any satisfaction recorded by the Assessing Officer by merely relying upon the information received from the Office of DCIT Central Circle 2(2), Mumbai, the impugned action of reopening the assessment while exercising power under section 148 of the Act cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening assessment.
2. Whether the Assessing Officer had "reason to believe" that income had escaped assessment.
3. Allegation of accommodation entries and its impact on reopening the assessment.
4. Compliance with procedural requirements for reopening assessment beyond four years.
5. Whether the reopening was based on independent satisfaction or borrowed satisfaction.
6. The legality of reopening for verification or roving inquiry.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening assessment:
The petitioner challenged the notice dated 27.03.2018 under section 148 of the Income Tax Act, 1961, issued for reopening the assessment for the Assessment Year 2011-2012. The petitioner contended that the notice was issued beyond the prescribed time limit and lacked a valid reason to believe that income had escaped assessment.

2. Whether the Assessing Officer had "reason to believe" that income had escaped assessment:
The Assessing Officer received information from the DCIT Central Circle 2(2), Mumbai, indicating that the petitioner had obtained three accommodation entries of Rs. 70 lakh each, totaling Rs. 2.1 Crore on 02.02.2011. This led the Assessing Officer to believe that the income chargeable to tax had escaped assessment. However, the petitioner argued that the Assessing Officer's reason to believe was not based on tangible material and was merely a suspicion.

3. Allegation of accommodation entries and its impact on reopening the assessment:
The Assessing Officer alleged that the funds received by the petitioner were accommodation entries and not genuine transactions. The petitioner countered this by stating that the funds were repaid within the same year, and the details of the bank transactions were disclosed in the original return of income. The court found that the petitioner had disclosed all relevant facts necessary for the assessment, including bank details and interest income.

4. Compliance with procedural requirements for reopening assessment beyond four years:
The court noted that for reopening an assessment beyond four years, it is necessary to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, the court found that the petitioner had disclosed all relevant details, and there was no failure on their part.

5. Whether the reopening was based on independent satisfaction or borrowed satisfaction:
The petitioner argued that the reopening was based on borrowed satisfaction from the information received from the DCIT Central Circle 2(2), Mumbai, and not on the Assessing Officer's independent satisfaction. The court observed that the Assessing Officer had relied on the information received without independently verifying the facts, which is against the statutory requirement of independent satisfaction.

6. The legality of reopening for verification or roving inquiry:
The court held that the reopening of the assessment for mere verification of facts already on record amounts to a roving inquiry, which is not permissible. The court cited previous judgments stating that reopening for verification purposes is not justified and that the Assessing Officer must have tangible material to form an opinion that income has escaped assessment.

Conclusion:
The court concluded that the impugned notice under section 148 of the Act was not tenable in law. The reopening of the assessment was based on borrowed satisfaction without any independent verification by the Assessing Officer. The court quashed the notice and the consequential orders, stating that the reopening was merely for a roving inquiry and lacked tangible material to justify the belief that income had escaped assessment. The rule was made absolute, and no order as to costs was issued.

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