2021 (3) TMI 1013 - HC - Income Tax

Court upholds validity of notice under Income Tax Act Section 148 for Assessment Year 2012-13

The court upheld the validity of the notice issued under Section 148 of the Income Tax Act to reopen the assessment for the Assessment Year 2012-13. It ... Reopening of assessment u/s 147 - return was accepted without scrutiny under Section 143(1) - assessee has entered into a bogus / accommodation entry transaction - HELD THAT:- Since there was no scrutiny assessment, the Assessing Officer had no occasion to form any opinion on any of the issues arising out of the return filed by assessee. The concept of change of opinion would, therefore, have no application. It is equally well settled that at the stage of re-opening of the assessment, the court would not minutely examine the possible additions which the Assessing Officer wishes to make. The scrutiny at that stage would be limited to examine whether the Assessing Officer had formed a valid belief on the basis of the material available with him that the income chargeable to tax had escaped assessment. In the present case, the Assessing Officer has considered the material on record which would prima facie suggest that the assessee had sold number of shares of a company which was found to be indulging in providing bogus claim of long term and short term capital gain. The company was prima facie found to be a shell company. The assessee had claimed exempt of long term capital gain by way of sale of shares of such company. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment, which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the same facts and material which was available with the I.T.O. at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of the subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the “true” and “full” facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the transaction, but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe that the income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific. Validity of the sanction - Entire proposal along with the necessary details and the reasons recorded by the Income Tax Officer were placed before the Joint CIT and Principal CIT, who, upon perusal of the same, in their own hands, recored their satisfaction that it was a fit case for issuance of notice under Section 148 of the Act. - Decide against assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Whether the Assessing Officer (AO) had valid reasons to believe that income had escaped assessment.3. Whether the AO proceeded on borrowed satisfaction without independent inquiry.4. Validity of the sanction granted under Section 151 of the Income Tax Act.Detailed Analysis:1. Validity of the Notice Issued Under Section 148:The writ applicant challenged the notice issued under Section 148 dated 29.03.2019, which aimed to reopen the assessment for the Assessment Year (A.Y.) 2012-13. The applicant contended that there was no material to conclude that income had escaped assessment and that the AO proceeded entirely based on information supplied by the Ahmedabad Investigation Wing, without making any independent inquiry. The court examined whether the notice should be quashed and set aside.2. Reasons to Believe Income Had Escaped Assessment:The court noted that the return filed by the assessee was accepted without scrutiny under Section 143(1) of the Income Tax Act. The AO had no occasion to form any opinion on the issues arising from the return filed by the assessee. The court emphasized that at the reopening stage, it would not minutely examine the possible additions the AO wishes to make. The scrutiny at this stage is limited to examining whether the AO had formed a valid belief based on the material available that income chargeable to tax had escaped assessment. The court referred to the Supreme Court's observations in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., which clarified that the AO's belief must be based on cause or justification, not on established facts.3. Borrowed Satisfaction and Independent Inquiry:The court observed that the AO received information from the Ahmedabad Investigation Wing, supported by documentary evidence, revealing that Jignesh Shah was an accommodation entry provider. The search resulted in the seizure of unaccounted cash and incriminating evidence, indicating that the assessee had obtained accommodation entries of Rs. 25,00,000 from certain companies through bank transfers during F.Y. 2011-12. The court held that this was a case of acquiring fresh, specific, and reliable information exposing the falsity of the assessee's statements at the time of the original assessment. The AO's failure to make an independent inquiry at the time of the original assessment did not preclude him from reopening the assessment based on subsequent information.4. Validity of Sanction Under Section 151:The court examined the proposal for reopening the assessment, which included the reasons recorded by the Income Tax Officer and the necessary details. The Joint CIT and Principal CIT, upon perusal, recorded their satisfaction that it was a fit case for issuance of notice under Section 148. The court referred to its previous judgment in Lalita Ashwin Jain vs. Income Tax Officer, emphasizing that brief reasons by the Joint Commissioner are sufficient if application of mind is demonstrable from the material on record. The court found that the necessary details and reasons were placed before the authorities, who recorded their satisfaction, thus complying with the provisions of the Act.Conclusion:The court concluded that the AO had valid reasons to believe that income had escaped assessment and that the reopening of the assessment was justified based on fresh, specific, and reliable information. The sanction granted under Section 151 was also found to be valid. Consequently, the writ application was rejected.Judgment:The writ application and the connected writ application were both rejected.