2018 (2) TMI 1292 - HC - Income Tax

Court validates assessment reopening for 2010-2011 based on new income details.

Jayant Security And Finance Ltd. Versus Assistant Commissioner of Income Tax Officer Circle 1 (1) (2)

The court upheld the validity of the notice for reopening the assessment for the Assessment Year 2010-2011. It was determined that the Assessing Officer ... Reopening of assessment - notice issued beyond the period of four years - change of opinion - advances receipt by assessee being undisclosed - independent application of mind by assessee - Held that:- The reasons recorded show that the Assessing Officer had received information from the Investigating Wing in connection with advances of ₹ 10.25 Crores [rounded off] received by the assessee from M/s. East West Finvest India Limited during the FY 2009-10 which is relevant to AY 2010-11. M/s. East West Finvest India Limited works as an entry operator and earns bogus funds to provide advances to various persons. Out of the loan of ₹ 10.25 Crores received by the assessee from M/s. East West Finvest India Limited, repayment of ₹ 1.45 Crores was made. Interest of ₹ 3.89 lakhs was also paid. AO further noted that as per information, M/s. East West Finvest India Limited was a paper concern and the advances/loans received by the assessee from such concern were bogus loans and the entire transactions were bogus and sham transactions. That, on the basis of such materials on record that he formed a belief that the assessee had not made true and full disclosures and the income chargeable to tax as therefore escaped assessment. The reasons thus recorded do not proceed only on the information supplied by the Investigating Wing. The Assessing Officer having applied his mind and processed such information, formed his belief that the income chargeable to tax has escaped assessment. Neither the application of mind, nor the formation of belief that income chargeable to tax has escaped assessment on the basis of information available at the disposal of Assessing Officer, have to be expressed in any rigid format in the reasons recorded. Hence, as these two essential requirements can be gathered from the reasons recored, the notice for reopening cannot fail on such basis The opinion would be formed on the basis of disclosures. When disclosures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. In the present case, as noted, Assessing Officer received additional information after the original assessment was over, on the basis of which he formed a belief that the entire transaction was a sham transaction. What is required is the reason to believe that income chargeable to tax as escaped assessment. Sufficiency of the materials in the hand of the Assessing Officer which enabled him to form such a belief would not be examined - Decided against assessee. Issues Involved:1. Validity of the notice for reopening the assessment.2. Whether the Assessing Officer (AO) applied his mind independently or merely acted on information from the Investigation Wing.3. Whether the reopening is based on a change of opinion.4. Whether the assessee disclosed all material facts fully and truly.Issue-wise Detailed Analysis:1. Validity of the notice for reopening the assessment:The petitioner challenged the notice of reopening the assessment dated 31st March 2017 for the Assessment Year (AY) 2010-2011. The AO issued the notice based on information received from the DCIT-1, Bhilaspur, indicating that the petitioner received advances of Rs. 10.25 Crores from M/s. East West Finvest India Limited, which were considered bogus. The AO believed that the petitioner failed to disclose all material facts fully and truly, leading to the escapement of income, thus justifying the reopening under Section 147 of the Income-tax Act.2. Whether the Assessing Officer (AO) applied his mind independently or merely acted on information from the Investigation Wing:The petitioner argued that the AO did not apply his mind and merely acted on the information provided by the Investigation Wing. However, the court observed that the AO had processed the information and formed his belief that the income chargeable to tax had escaped assessment. The court referenced the case of Dishman Pharmaceuticals & Chemicals Limited vs. Deputy Commissioner of Income-Tax [OSD], which established that the AO's application of mind and formation of belief do not need to be expressed in a rigid format. The AO's actions met the essential requirements, validating the notice for reopening.3. Whether the reopening is based on a change of opinion:The petitioner contended that the reopening was based on a change of opinion since the AO had already scrutinized the loans during the original assessment. The court noted that the AO received additional information after the original assessment, indicating that the transactions were sham and bogus. The court cited the case of Yogendrakumar Gupta, where it was held that if new and specific information is received, the AO can form a belief that income has escaped assessment, even if the issue was examined during the original assessment. Thus, the reopening was not considered a change of opinion.4. Whether the assessee disclosed all material facts fully and truly:The petitioner claimed that all material facts were disclosed in the return, and there was no failure on their part. The court, however, found that the AO had reasons to believe that the transactions were bogus based on the new information. The court referenced the case of Principal Commissioner of Income-tax, Rajkot v. Gokul Ceramics, which held that the AO could reopen the assessment if new material suggested that the assessee did not make full and true disclosures. The court concluded that the AO had sufficient material to form a belief that the income chargeable to tax had escaped assessment.Conclusion:The court dismissed the writ petition, upholding the validity of the notice for reopening the assessment. The court emphasized that the AO had applied his mind and formed a bona fide belief based on new information, and the reopening was not merely a change of opinion. The court also noted that the sufficiency of the material on which the AO formed his belief is not open to judicial review at this stage. All contentions on merits were kept open for further proceedings.