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 2011-2012. It found that the Assessing Officer had validly formed a belief that income had escaped assessment based on tangible material, satisfying the requirement of "reason to believe" under Section 147 of the Act. The court also determined that the approval under Section 151 was not accorded mechanically and that the objections raised were adequately addressed. Consequently, the court dismissed the writ application, affirming the justification for reopening the assessment.

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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.

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