2016 (8) TMI 281 - HC - Income Tax

Court affirms validity of tax notice under Sec. 148, emphasizing need for 'reason to believe'.

The court upheld the legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961, finding that the authority had formed a ... Reopening of assessment - information has been received by DGIT (Inv.) branch of Ahmedabad about bogus purchases - Held that:- two survey operations were carried out by the competent authority, Kolkata in case of Vikrant Kayan and Arvind Kayan and the information which has been gathered is that these Kayans are well known entry operators of Kolkata and have been giving entires of bogus share capital, bogus billing entries pertaining and bogus long term capital gains to various beneficiaries across the country and it has been revealed in the said information that this very assessee i.e. present petitioner is also a beneficiary of such entry operation of Kayans to the extent of ₹ 127.94 lacs (accommodating co. Agnes Bruno Ltd.) pertaining to A.Y.2008-09 and based upon this material, the authority has issued notice under Section 148 of the Act for reopening of assessment as from the material, the authority found that there is a reasonable belief that income of the petitioner – assessee has escaped assessment and therefore, it is justified to reopen the assessment. It is also emerging from the order passed by the authority rejecting the objections submitted by the petitioner dated 21.1.2016 that each and every material submitted by the petitioner has been extensively dealt with and a detailed order came to be passed and the said order is supported by cogent reasons, the decision arrived at to reopen the assessment appears to be just and proper. From the material available, the authority prima facie found that petitioner – assessee is also the beneficiary of those Kayans brothers, who are well known entry operators across the country and to the extent of sizable amount, the petitioner has also been benefited and this part of the income appears to have been escaped assessment in the belief of the authority, the said belief cannot intercepted by exercising extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. Thus from circumstance available and reflected on record, it appears to this Court that the authority has applied its mind and has rightly relied upon the information available before it while exercising the power to reopen the assessment. Thus the background of facts demand reopening of assessment and the authority is justified in issuing notice under Section 148 of the Act and the reasons based upon it are sufficient enough to permit the authority to exercise jurisdiction to reopen the assessment. - Decided against assessee Issues Involved:1. Legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961.2. Validity of the order rejecting the objections submitted by the petitioner against the notice.Detailed Analysis:1. Legality and Validity of the Notice Issued under Section 148 of the Income-Tax Act, 1961:The petitioner challenged the legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961, which was issued on the grounds that the income chargeable to tax had escaped assessment. The petitioner contended that the reasons recorded for the issuance of the notice were not germane to law and lacked independent application of mind by the authority. The petitioner argued that there was no new material or information against them, and the reopening was based on erroneous satisfaction without any cogent material. The petitioner also cited the lack of independent satisfaction by the authority and the reliance on information from DGIT (Investigation), Ahmedabad, without proper verification.In response, the Revenue argued that the Assessing Authority had enough material to substantiate the reopening and form a reasonable belief that income had escaped assessment. The authority received specific information from DGIT (Investigation), Ahmedabad, indicating that the petitioner was a beneficiary of bogus entries provided by known entry operators Vikrant Kayan and Arvind Kayan. The Revenue contended that at the stage of issuing the notice, the Assessing Officer only needed a reasonable belief based on relevant material, not conclusive proof of escapement of income.The court examined whether the reasonable belief formed by the authority was based on some material. The court reproduced the recorded reasons, which indicated that the petitioner was a beneficiary of bogus entries amounting to Rs. 127.94 lakhs. The court found that the authority had applied its mind and relied on the information available, justifying the reopening of the assessment. The court referred to the Apex Court decision in Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which stated that at the initial stage, what is required is a reason to believe, not an established fact of escapement of income.The court also referred to its own recent decision in a group of tax appeals, where it held that reopening based on information from another wing (Excise Department) was permissible. The court concluded that the background of facts demanded reopening of assessment and the authority was justified in issuing the notice under Section 148 of the Act.2. Validity of the Order Rejecting the Objections Submitted by the Petitioner:The petitioner argued that the order rejecting their objections lacked cogent reasons and reflected non-application of mind by the authority. The petitioner contended that the objections were not dealt with properly and the reasons recorded for reopening were erroneous.The court examined the order rejecting the objections and found that each material submitted by the petitioner had been extensively dealt with, and the order was supported by cogent reasons. The court noted that the authority had prima facie found that the petitioner was a beneficiary of the entry operators Vikrant Kayan and Arvind Kayan, and this part of the income appeared to have escaped assessment. The court held that the belief formed by the authority could not be intercepted by exercising extraordinary jurisdiction under Article 226 of the Constitution of India.The court concluded that the authority had applied its mind and relied on valid information to justify the reopening of the assessment. The court dismissed the petition, discharged the notice, and vacated any interim relief granted earlier.