2014 (6) TMI 118 - HC - Income Tax

Court upholds validity of assessment reopening notice under Section 148

Lalita Ashwin Jain Versus Income-tax Officer

The court upheld the validity of the notice for reopening the assessment under Section 148 of the Income-tax Act for the assessment year 2006-07. It found ... Validity of notice of reopening of assessment u/s 148 of the Act – Share trading business – Failure in disclosing facts - Held that:- The AO on the basis of the material provided by the investigating wing, particularly the statement recorded under section 131(1)(a) notices the falsehood in the disclosure made by the assessee at the time of original assessment – the AO had rightly assumed the jurisdiction of initiating the reassessment proceedings – AO on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier, he surely cannot be said to have changed his opinion on the same facts – Relying upon Sri Krishna P. Ltd. v. ITO reported in [1996 (7) TMI 2 - SUPREME Court] - what amounts to 'full' and 'true' facts, the SC was of the view that the Income-tax Officer can issue notice u/s 148 of the Act, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason to believe is intended to be a check, a limitation, upon his power to reopen the assessment - where the information furnished is found to be false, there could not be possibly any objection to the notice u/s 148 - Till completion of scrutiny assessment, the information provided mentioned clearly that investments made by the petitioner were from the funds of the companies and, therefore, there was no question of treating them as bogus - subsequently when on an investigation, after completion of assessment under sub-section (3) of section 143, the same is found to be bogus, notice u/s 148 of the Act deserves to be held valid - To a limited extent, the court has looked into the conclusion arrived at by the AO in examining whether there was any material available on the record for the AO to form a requisite belief and whether such material had any rational link with the income that escaped assessment and from such scrutiny, no inference is called for. Proceedings of reassessment initiated by the AO on the basis of subsequent information which is found to be relevant and specific and when the AO after recording the reasons for formation of his belief that in the original assessment, the assessee failed to disclose fully and truly facts - the income chargeable to tax escaped assessment has correctly exercised the jurisdiction provided u/s 147 of the Act – Decided against Assessee. Issues Involved:1. Validity of the notice for reopening the assessment under Section 148 of the Income-tax Act, 1961.2. Alleged non-disclosure of material facts by the assessee.3. Whether the reopening of the assessment constitutes a change of opinion.4. Adequacy of the reasons recorded for reopening the assessment.5. Compliance with procedural requirements, including the approval of the Commissioner.Detailed Analysis:1. Validity of the Notice for Reopening the Assessment:The court examined the validity of the notice issued under Section 148 of the Income-tax Act for the assessment year 2006-07, issued on March 28, 2013. The notice was challenged on the grounds that it was issued beyond the four-year period stipulated under the Act. The court held that reopening beyond four years is permissible only if the income chargeable to tax has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the Assessing Officer had reasons to believe that income had escaped assessment due to non-disclosure of material facts by the assessee.2. Alleged Non-Disclosure of Material Facts:The court noted that the assessee was engaged in share trading and had disclosed investments in three companies. However, the Assessing Officer found that the companies were bogus and that the investments were not recorded in the assessee's books of account. The court observed that the statement recorded under Section 131(1A) of the Act from the assessee's husband indicated that the transactions were undertaken in the names of family members and that the companies providing the funding were not genuine. The court held that this constituted a failure to disclose fully and truly all material facts necessary for the assessment.3. Whether the Reopening Constitutes a Change of Opinion:The court addressed the assessee's contention that the reopening was based on a change of opinion, which is impermissible under the law. The court referred to the Supreme Court's decision in Phool Chand Bajrang Lal v. ITO, which held that acquiring fresh, specific, and reliable information relating to a concluded assessment that exposes the falsity of the assessee's statements is different from drawing a fresh inference from the same facts. The court concluded that the reopening was based on fresh information that the companies were bogus and that the transactions were not genuine, and therefore, it did not constitute a mere change of opinion.4. Adequacy of the Reasons Recorded for Reopening the Assessment:The court examined whether the reasons recorded by the Assessing Officer were adequate and had a rational connection with the belief that income had escaped assessment. The reasons included the finding that the companies funding the investments were bogus and that the transactions were not recorded in the books of account. The court held that the reasons recorded were sufficient and had a rational connection with the belief that income had escaped assessment.5. Compliance with Procedural Requirements, Including the Approval of the Commissioner:The court considered whether the procedural requirements, including the approval of the Commissioner, were met. The court noted that the approval of the Commissioner was obtained as required under Section 151 of the Act. The court also addressed the contention that the Commissioner's approval was mechanical, noting that the reasons recorded by the Assessing Officer were placed before the Commissioner, who then granted approval. The court held that the procedural requirements were duly complied with.Conclusion:The court dismissed the petition, holding that the reopening of the assessment was valid. The court found that the Assessing Officer had reasons to believe that income had escaped assessment due to non-disclosure of material facts, and the procedural requirements for reopening the assessment were met. The court emphasized that the reassessment proceedings should be decided uninfluenced by the observations made in the judgment.