2022 (12) TMI 1287 - HC - Income Tax

Invalid notice under Income Tax Act; reopening assessment quashed. Assessing Officer lacked tangible material, relied on external info.

VIJAY RAMANLAL SANGHVI Versus THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRLCE 2 (1) (2)

VIJAY RAMANLAL SANGHVI Versus THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRLCE 2 (1) (2) - [2023] 457 ITR 791 (Guj) Issues Involved:1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening assessment.2. Whether the Assessing Officer had 'reason to believe' that income had escaped assessment.3. Allegation of accommodation entries and its impact on reopening the assessment.4. Compliance with procedural requirements for reopening assessment beyond four years.5. Whether the reopening was based on independent satisfaction or borrowed satisfaction.6. The legality of reopening for verification or roving inquiry.Issue-wise Detailed Analysis:1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening assessment:The petitioner challenged the notice dated 27.03.2018 under section 148 of the Income Tax Act, 1961, issued for reopening the assessment for the Assessment Year 2011-2012. The petitioner contended that the notice was issued beyond the prescribed time limit and lacked a valid reason to believe that income had escaped assessment.2. Whether the Assessing Officer had 'reason to believe' that income had escaped assessment:The Assessing Officer received information from the DCIT Central Circle 2(2), Mumbai, indicating that the petitioner had obtained three accommodation entries of Rs. 70 lakh each, totaling Rs. 2.1 Crore on 02.02.2011. This led the Assessing Officer to believe that the income chargeable to tax had escaped assessment. However, the petitioner argued that the Assessing Officer's reason to believe was not based on tangible material and was merely a suspicion.3. Allegation of accommodation entries and its impact on reopening the assessment:The Assessing Officer alleged that the funds received by the petitioner were accommodation entries and not genuine transactions. The petitioner countered this by stating that the funds were repaid within the same year, and the details of the bank transactions were disclosed in the original return of income. The court found that the petitioner had disclosed all relevant facts necessary for the assessment, including bank details and interest income.4. Compliance with procedural requirements for reopening assessment beyond four years:The court noted that for reopening an assessment beyond four years, it is necessary to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, the court found that the petitioner had disclosed all relevant details, and there was no failure on their part.5. Whether the reopening was based on independent satisfaction or borrowed satisfaction:The petitioner argued that the reopening was based on borrowed satisfaction from the information received from the DCIT Central Circle 2(2), Mumbai, and not on the Assessing Officer's independent satisfaction. The court observed that the Assessing Officer had relied on the information received without independently verifying the facts, which is against the statutory requirement of independent satisfaction.6. The legality of reopening for verification or roving inquiry:The court held that the reopening of the assessment for mere verification of facts already on record amounts to a roving inquiry, which is not permissible. The court cited previous judgments stating that reopening for verification purposes is not justified and that the Assessing Officer must have tangible material to form an opinion that income has escaped assessment.Conclusion:The court concluded that the impugned notice under section 148 of the Act was not tenable in law. The reopening of the assessment was based on borrowed satisfaction without any independent verification by the Assessing Officer. The court quashed the notice and the consequential orders, stating that the reopening was merely for a roving inquiry and lacked tangible material to justify the belief that income had escaped assessment. The rule was made absolute, and no order as to costs was issued.