2017 (12) TMI 1625 - HC - Income Tax

Validity of Income Tax reassessment upheld under Section 148

Ankit Agrochem (P.) Ltd. Versus Joint Commissioner of Income-tax, Range-1, Bikaner,

The court upheld the legality of the notice issued under Section 148 of the Income Tax Act, 1961, and the validity of the reassessment proceedings ... Reopening of assessment - addition u/s 68 - Held that:- On examination of certain information received from the Directorate of Investigation, Kolkata which had carried the investigation in the case of the 9 entities, details whereof has been set out in the reasons recorded, it was ascertained that those 9 entities are the companies with no real business and are only engaged in business of providing accommodation entries of bogus nature to beneficiary concerns which was further confirmed by the directors/dummy directors/key persons of the said entities in their respective statements. Thus, on the basis of the material on record, AO opined that the appellant company has received and utilised the share application money received from bogus sources lacking genuineness, creditworthiness, genuine identity, which fall within the purview of Section 68 of the Act. In the instant case where the return filed by the assessee was not subjected to scrutiny assessment, the belief formed by the AO after due examination of the material on record that the income of the assessee chargeable to tax during the relevant assessment year has escaped assessment cannot be said to be arbitrary or irrational or there exists no rational and intelligible nexus between the reasons and the belief. It is true that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the AO regarding the escapement of the income but then, while recording the reasons for belief formed, the AO is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the AO had cause or justification to know or suppose that income had escaped assessment [vide Rajesh Jhaveri Stock Brockers (P.) Ltd.'s case (2007 (5) TMI 197 - SUPREME COURT)]. It is also well settled the sufficiency and adequacy of the reasons which have led to formation of a belief by the AO that the income has escaped the assessment cannot be examined by the court. Issues Involved:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.2. Validity of the reassessment proceedings initiated by the Assessing Officer (AO).3. Requirement of the AO to dispose of objections by a speaking order.4. Adequacy of the reasons recorded by the AO for initiating reassessment proceedings.5. Jurisdiction of the AO under Section 147 read with Section 148 of the Income Tax Act, 1961.6. Whether the reassessment proceedings were initiated on mere change of opinion.Detailed Analysis:1. Legality of the Notice Issued under Section 148 of the Income Tax Act, 1961:The appellant challenged the legality of the notice dated 20.2.17 issued by the AO under Section 148 of the Income Tax Act, 1961, for the assessment year 2013-14. The notice was issued proposing to assess/reassess the appellant's income. The appellant contended that the AO did not provide an effective opportunity to file objections and did not supply the documents forming the basis for the notice, thus questioning the assumption of jurisdiction under Section 147 read with Section 148 of the Act.2. Validity of the Reassessment Proceedings Initiated by the AO:The appellant argued that the reassessment proceedings were initiated without a valid basis and that the AO did not spell out how the information/material available led to the belief that income had escaped assessment. The appellant further contended that there was no live link or close nexus between the material before the AO and the belief formed, thus failing to satisfy the mandatory pre-conditions for exercising jurisdiction under Section 147 of the Act.3. Requirement of the AO to Dispose of Objections by a Speaking Order:The appellant relied on the decision of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO, asserting that it was the AO's bounden duty to dispose of the objections filed by the appellant before proceeding with the assessment, by a speaking order. The appellant claimed that none of the objections raised were dealt with by the AO, and the documents forming the basis for initiating reassessment proceedings were not supplied, denying an effective opportunity to file objections.4. Adequacy of the Reasons Recorded by the AO for Initiating Reassessment Proceedings:The respondent's counsel submitted that during the assessment proceedings for the year 2014-15, it was revealed that the assessee received share application money from various entities engaged in providing accommodation entries of bogus nature. The AO recorded reasons based on information from the Directorate of Investigation, Kolkata, and concluded that the share application money lacked genuineness, creditworthiness, and genuine identity, falling within the purview of Section 68 of the Act.5. Jurisdiction of the AO under Section 147 read with Section 148 of the Income Tax Act, 1961:The court observed that under Section 147 of the Act, the AO is empowered to initiate reassessment proceedings if he has reason to believe that any income chargeable to tax has escaped assessment. The AO must record reasons for initiating reassessment proceedings, and the belief must be reasonable and based on material on record. The court emphasized that there must exist a rational and intelligible nexus between the reasons and the belief.6. Whether the Reassessment Proceedings were Initiated on Mere Change of Opinion:The court noted that the return filed by the assessee for A.Y. 2013-14 was processed under Section 143(1) of the Act, where the return is not subjected to scrutiny assessment. As per the Supreme Court's decision in Rajesh Jhaveri Stock Brokers (P.) Ltd., there being no assessment under Section 143(1), the question of change of opinion does not arise. The court concluded that the belief formed by the AO that the income of the assessee chargeable to tax had escaped assessment was not arbitrary or irrational.Conclusion:The court held that the reasons recorded by the AO for issuing the notice under Section 148 of the Act and the belief that the income had escaped assessment were justified. The reassessment proceedings initiated by the AO were not based on mere change of opinion and were valid. The court dismissed the special appeal, upholding the order of the learned Single Judge.