2021 (5) TMI 970 - HC - Income Tax

Court upholds validity of income tax sanction under Section 151, finds reopening assessment reasons accurate.

BHANUBEN MANSUKHLAL KHIMASHIA Versus THE INCOME TAX OFFICER WARD 3 (1)

BHANUBEN MANSUKHLAL KHIMASHIA Versus THE INCOME TAX OFFICER WARD 3 (1) - TMI Issues Involved:1. Validity of sanction under Section 151 of the Income Tax Act.2. Accuracy and validity of the reasons for reopening the assessment.3. Establishment of 'reason to believe' that income has escaped assessment.4. Connection between received information and gathered material.5. Legitimacy of reopening for investigation without specific findings.6. Reopening based on borrowed satisfaction.Detailed Analysis:1. Validity of Sanction under Section 151 of the Act:The writ applicant challenged the validity of the sanction under Section 151, arguing that it was not obtained before issuing the notice. The court found that the sanction was indeed obtained, and the approval was given after due application of mind. The authorities provided the copy of the approval at the stage of disposing of the objections raised by the assessee, indicating proper procedure was followed.2. Accuracy and Validity of the Reasons for Reopening the Assessment:The applicant contended that the reasons for reopening were factually incorrect and vague. The court examined the reasons recorded by the Assessing Officer (AO), which included information received from the Investigation Wing about the penny stock transaction involving Karma Ispat Limited. The court found that the AO had made independent enquiries and had sufficient cause to believe that the income had escaped assessment.3. Establishment of 'Reason to Believe' that Income has Escaped Assessment:The applicant argued that there was no 'reason to believe' that income chargeable to tax had escaped assessment. The court emphasized that the AO's belief need not be based on final adjudication but on reasonable grounds. The AO had received specific information about the penny stock transactions and had conducted independent enquiries, forming a justified belief that income had escaped assessment.4. Connection between Received Information and Gathered Material:The applicant claimed there was no live nexus between the information received and the material gathered. The court noted that the AO had received detailed information about the penny stock transactions and had conducted further enquiries, establishing a clear link between the material and the belief that income had escaped assessment.5. Legitimacy of Reopening for Investigation without Specific Findings:The applicant contended that reopening was not permissible for mere investigation without specific findings. The court found that the AO had specific information and had conducted independent enquiries, forming a reasonable belief based on the gathered material. The reopening was not merely for investigation but was based on concrete information and findings.6. Reopening Based on Borrowed Satisfaction:The applicant argued that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court rejected this contention, stating that the AO had independently verified the information and formed a belief based on his findings. The AO's satisfaction was not borrowed but based on his analysis and the information received.Conclusion:The court dismissed the writ application, holding that the reopening of the assessment was justified and within the jurisdiction of the AO. The reasons recorded for reopening were found to be valid, and the AO had followed due procedure, including obtaining the necessary sanction under Section 151. The applicant failed to make a case against the reopening of the assessment.