Notice under Income Tax Act Section 148 quashed for 2010-11 assessment year. Assessing Officer lacked authority.

Amar Jewellers Limited Versus Deputy Commissioner of Income Tax

Amar Jewellers Limited Versus Deputy Commissioner of Income Tax - [2018] 405 ITR 561 (Guj) Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment year 2010-11.

Analysis:
1. The petitioner challenged the notice dated 31.3.2017 issued under section 148 of the Income Tax Act, seeking to reopen the assessment for the year 2010-11. The petitioner contended that the notice was issued beyond the four-year period from the end of the relevant assessment year and without any failure to disclose material facts, rendering the jurisdiction of the Assessing Officer under section 147 of the Act invalid. The petitioner argued that the reasons for reopening the assessment were based on a misconception of facts, as the income from trading gold had been offered for taxation, and all taxes had been duly paid. The petitioner emphasized that the reasons for reopening lacked valid grounds and failed to establish any income escapement, making the notice illegal.

2. On the other hand, the respondent argued that there was sufficient material for the Assessing Officer to form a belief that income chargeable to tax had escaped assessment. The respondent contended that the reasons recorded for reopening the assessment indicated a failure on the part of the assessee to fully and truly disclose income, justifying the reopening beyond the four-year period. The respondent maintained that as long as there was tangible material supporting the belief of income escapement, the challenge to the reopening would fail.

3. The reasons recorded for reopening the assessment highlighted suspicious financial transactions involving high-value credits and withdrawals, leading to the discovery of an entity, M/s Shreeji Trading Company, linked to accommodation entries. The Assessing Officer believed that the petitioner had received a significant sum from this entity, which was deemed bogus due to its association with individuals involved in accommodation entries. However, a critical examination of the information provided to the Assessing Officer revealed a lack of direct evidence linking Shreeji Trading Company to the individuals involved in accommodation entries, undermining the basis for assuming income escapement.

4. The court scrutinized the reasons for reopening and the information received by the Assessing Officer, which indicated a connection between Shreeji Trading Company and Jay Corporation, without establishing a direct link to the individuals admitting to accommodation entries. The court emphasized that the reasons for reopening were premised on a factually incorrect assumption that Shreeji Trading Company was managed by the individuals involved in accommodation entries. Due to the absence of any substantial evidence linking the entity to the individuals, the court concluded that the belief of income escapement was unfounded, rendering the notice unsustainable.

5. Consequently, the court allowed the petition, quashing and setting aside the impugned notice dated 31.3.2017 issued under section 148 of the Act for the assessment year 2010-11. The court held that the Assessing Officer lacked the authority of law to reopen the assessment based on erroneous grounds, thereby declaring the notice as invalid.