2021 (3) TMI 736 - HC - Income Tax

Court affirms validity of Income Tax Act notice for assessment reopening, emphasizing 'reason to believe' standard.

The court upheld the legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961, to reopen the assessment for the year ... Reopening of assessment u/s 147 - reasons to believe - HELD THAT:- It is settled law that Section 147 of the Act authorizes and permit the Assessing Officer to assess or reassess income chargeable to tax, if he has reason to believe that the income for any assessment year has escaped assessment. The expression 'reason to believe' has been explained by the Apex Court in the case of CIT Vs. Rajesh Jhaveri Stock Broker [2007 (5) TMI 197 - SUPREME COURT] - It was held that the expression 'reason to believe' cannot be read to mean that Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. It is an undisputed fact that the return of income of the assessee was processed under Section 143(1) of the Act and was accepted without any scrutiny and no assessment stipulated under Section 2(40) of the Act was made. The record indicates that notices under Section 143(2) and 142(1) dated 28.09.2018 and 22.11.2018 respectively had been served upon the assessee and the assessee did not have responded to the notices and failed to furnish necessary information called for by the revenue. As carefully examined the reasons for reopening we find that the information received by the concerned department was specific, clear and unambiguous, so far the involvement of the assessee is concerned. The Assessing officer has observed that the main business of Harshaben Gosai and Kundan Mudaliar was to provide accommodation entries through bogus billing without actual delivery of goods and the assessee company was one of the beneficiaries amongst the other companies whose names were given by the Kundal Mudaliar. Assessing Officer further observed that the name of assessee company was also found in the bank statement of Mahavir Enterprise. Assessing Officer has further observed that the assessee company has received payment from PM & Co. and made the payment of ₹ 9628150/- to J.K. Enterprise and the name of these two entities were also found in the bank statement of Mahavir Enterprise. Assessing Officer after receiving the information had verified the details of the assessee and called for information under Section 133(6) of the Act and also obtained bank statement of all concerned and finally observed that the transactions made with two entities through bank channels having direct link with Mahavir Enterprise as money has routed through the bank account of Mahavir Enterprise and Harshaben Gosai being a Proprietor of the Firm managed to provide accommodation entries through bogus billing and the sales and purchase shown in the books of assessee are bogus and the assessee has received the benefit of bogus entry and the income earned from this accommodation entries has escaped assessment. Assessing Officer himself was satisfied with regard to the information received and other material available with him and came to conclusion that the transactions reflected in the bank statement as well as in the books of accounts were false and bogus and two entities as well as assessee having direct link with the Mahavir Enterprise and routed the money in tune of ₹ 3,12,77,640/-. Having regard to the material on record, we are of the view that the Assessing Officer has initiated the proceedings not only on the information received from the concerned department but based upon his independent satisfaction and other available material to form a belief with regard to the escape assessment of income. Assessing Officer is justified in reopening the assessment of the assessee and it could not be said to have that the impugned notice under Section 148 of the Act is without jurisdiction and contrary to Section 147 of the Act and/or bad in law - Decided against assessee. Issues Involved:1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Application of mind by the Assessing Officer before forming a belief that income has escaped assessment.3. Validity of the approval under Section 151 of the Income Tax Act, 1961.Detailed Analysis:1. Legality and Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:The writ applicant challenged the notice dated 20.03.2018 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the year 2011-2012. The basis for reopening was the information received from ITO Ward No. 6(1)(5), Ahmedabad, indicating that the assessee company was a beneficiary of accommodation entries provided by PM & Company and J.K. Enterprise, resulting in an income of Rs. 3,12,77,640/- escaping assessment. The court noted that the return of income for the assessee was processed under Section 143(1) of the Act without scrutiny, and no assessment was made under Section 2(40) of the Act. Notices under Sections 143(2) and 142(1) were served, but the assessee did not respond.2. Application of Mind by the Assessing Officer Before Forming a Belief That Income Has Escaped Assessment:The court examined whether the Assessing Officer had independently applied his mind or merely relied on the information received. The court found that the information received was specific and clear regarding the involvement of the assessee. The Assessing Officer verified the details, called for information under Section 133(6), and obtained bank statements, concluding that the transactions were bogus. The court held that the Assessing Officer had formed a belief based on tangible material, satisfying the requirement of 'reason to believe' under Section 147 of the Act. The court referred to several judgments, including CIT Vs. Rajesh Jhaveri Stock Broker and Kelvinator, emphasizing that the formation of belief is within the realm of the Assessing Officer's subjective satisfaction.3. Validity of the Approval Under Section 151 of the Income Tax Act, 1961:The writ applicant contended that the approval under Section 151 was accorded mechanically without satisfaction. However, the court found no evidence indicating that the authority had mechanically accorded the sanction. The court noted that the sanction order was not placed by the assessee and there is no provision in the Act to provide a copy of the approval along with the reasons recorded. The court also examined the order disposing of the objections and found that the objections were extensively dealt with by the authority in a reasoned and speaking order.Conclusion:The court concluded that the Assessing Officer was justified in reopening the assessment based on the information received and his independent satisfaction. The court held that there was material to prima facie conclude that the assessee was a beneficiary of accommodation entries, and there was a live link between the material suggesting escapement of income and the information received. The court dismissed the writ application, holding that the impugned notice under Section 148 was not without jurisdiction, contrary to Section 147 of the Act, or bad in law.