2024 (1) TMI 273 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - allegation of accommodation entry receipts - whether there was enough actionable material available with the AO to trigger reassessment proceedings against the petitioner? - HELD THAT - If the correspondence placed before us by the respondents/revenue is taken into account i.e., the letters dated 12.03.2013 and 09.12.2013, one would have to assume that despite the AO having in his possession certain inputs, he did not deem it fit to enquire further into the matter as they perhaps in his wisdom did not constitute an actionable material. In the ordinary course the AO would have issued notices to TGFL and Surendra Kumar Jain for obtaining their responses vis- -vis the inputs made available to him. If such a step had been taken then necessarily the responses, if any, given by Surendra Kumar Jain or any other authorised representative of TGFL would have to be put to the petitioner and/or its authorise representative. Clearly, nothing of the sort was done by the AO. At this stage, there is complete opacity with regard to the material furnished to the AO. There is no clarity as to whether the single sheet of paper, which only records the transaction in issue, was furnished to the AO. If it was, the AO perhaps came to conclusion that it was not sufficient to allege that the petitioner, in particular, had taken accommodation entry from Surendra Kumar Jain. A perusal of the reasons to believe framed by the AO is suggestive of the fact that he had not applied his own mind to the material, if any, placed before him. He appears to have simply gone by the information contained in the letter dated 16.03.2018. As a matter of fact, the AO for some strange reason did not refer to the letter dated 12.03.2013 which was enclosed with the said communication. Curiously, the reasons to believe did not refer to the most crucial documents i.e., the letters dated 12.03.2013 and 09.12.2013 which allege that the accommodation entry was received by the petitioner. We are of the view that the reassessment proceedings were triggered without the AO applying his own mind and articulating his reasons as to why he believed that the material available with him was indicative of the fact that the income which was otherwise chargeable to tax had escaped assessment. As correctly submitted, in law reasons to suspect are markedly different in quality and texture from reasons to believe. As demonstrated above, this was not a case of no enquiry. Enquiry was made by the AO concerning the subject loan which culminated in disallowance of interest while framing the order under Section 143(3) of the Act. Impugned notice u/s 148 of the Act was issued based on borrowed satisfaction; bereft of independent application of mind. Thus the impugned notice and order cannot be sustained. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of the order dated 24.10.2018 rejecting the petitioner's objections to the reasons to believe.

Summary:

Issue 1: Validity of the Notice Dated 29.03.2018
The petitioner challenged the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year (AY) 2011-12. The petitioner had already undergone a scrutiny assessment for the same AY, wherein detailed responses and relevant materials were submitted regarding an unsecured loan of Rs. 2,00,00,000/- from Transnational Growth Fund Limited (TGFL). The Assessing Officer (AO) had previously disallowed interest on the unsecured loans but did not question the loan itself. Despite having prior communications from the Director of Income Tax (Investigation) suggesting accommodation entries, no reassessment was initiated until the notice dated 29.03.2018, which was based on a communication dated 16.03.2018. The court found that the AO did not apply his own mind and acted on borrowed satisfaction without independent assessment of the material provided.

Issue 2: Legitimacy of the Order Dated 24.10.2018
The petitioner also contested the order dated 24.10.2018, which rejected their objections to the reasons to believe. The court observed that the AO failed to demonstrate a live nexus between the material available and the conclusion that income had escaped assessment. The AO had not conducted an independent inquiry into the material provided by the DDIT (Investigation) and relied on outdated information without new tangible material. The reassessment proceedings were initiated without proper application of mind, and the reasons to believe were found to be mere reasons to suspect, which is insufficient for valid reassessment.

Conclusion:
The court concluded that the reassessment proceedings were invalid as they were based on borrowed satisfaction and lacked independent application of mind by the AO. Consequently, the impugned notice dated 29.03.2018 and the order dated 24.10.2018 were set aside. The writ petition was disposed of accordingly.