2025 (7) TMI 1758 - HC - Income Tax

HC upholds reassessment under Sections 147/148 for escaped income based on valid reasons and procedural compliance

The HC upheld the reopening of assessment under Sections 147/148, finding that the AO had recorded a valid reason to believe income had escaped assessment ... Reopening of assessment - Reasons to believe - “tangible material”- information received was on the basis of the data prepared by DIT(Investigation), Kolkata - assessee company raised capital to the tune of Rs. 1,51,00,000/- by allotment of shares with allotment face value of Rs. 10 and premium of Rs. 90/-. As per the information received, most of the allottee companies are paper companies which exists on paper with no genuine business of their own. HELD THAT:- In the present proceedings, the returns which were stated to have been filed before the assessing officer and copies of which are enclosed to the petition does not reflect the breakup of the share capital distributed and/or the allottees of the share holders. This is generally not available in the balance-sheet or the other accompanying financial statements furnished unless these are specifically called for. The income tax being a self-assessment tax, ordinarily whatever returns are filed by the assessee, the same are generally accepted unless the same are not filed as per the proper procedure prescribed. On the basis of financial markers which the Central Processing Unit of the Department considers it necessary cases are picked up for scrutiny assessment. Nevertheless while it is available to the assessee to submit the relevant documents and financial papers through to its disclosures making a true and full disclosure, the question regarding truthfulness and falsehood of transactions reflected in the return can only be examined during original assessment and not at a later stage subsequent thereto has been held by the Apex Court in Central Provinces Manganese Ore Co. Ltd. [1991 (8) TMI 4 - SUPREME COURT] to be too broad and general in nature and would thus be violence to the legislative intent of the plain phraseology of Section 147(A) and Section 148 and is against the settled law. The purpose and intent of the provisions have to be looked into. One of the purposes of Section 147 appears to be to ensure that a person cannot getaway by willfully making a false and untrue statement at the time of original assessment and when falsity comes to the notice of the assessing officer then the assessee cannot be permitted to turn around and say that “you accepted my lie, now your hands are tied and you cannot do nothing”. It would be travesty of justice to allow the assessee that latitude. Precondition for incoming powers under Sections 147/148 is the belief of the assessing officer that there are materials for the belief that income had escaped assessment. This belief must be taken down in writing and there must be tangible materials which have a live link for entertaining such a belief. Once these preconditions are satisfied then the assessing officer can proceed under Sections 147/148 of the Act. The reasons must also be supplied to the assesse. Under such circumstances, the contention of the petitioner that once the returns have been filed and have been accepted and the same cannot be re-opened at any stage would be contrary to the very provision of Section 147 more particularly after the amendment with effect from 01.04.1989 whereby the scope of re-opening on assessment by the AO stood widened giving powers to the assessing officer to re-open assessment if the assessing officer has reason to believe that income for any assessment year has escaped assessment. The only requirement is that of recording of such reasons as well as taking the statutory precautions for sanction by higher authority and furnishing a copy of the reasons recorded by the Assessing Officer to the assessee. All these steps have been duly undertaken by the Revenue. s have been discussed in the forgoing paragraphs, the reply filed by the assessee also does not disclose any material prima facie come to a conclusion that the reason to believe enabling the assessing officer to proceed for re-opening of the assessment under Section 147 is found to be prima facie uncalled for or unwarranted. In that view of the matter the contentions raised by the petitioner stands rejected. In view of the discussions and conclusions arrived at by this Court in the foregoing paragraphs, the Judgments referred to by the learned counsel for the petitioner need not be discussed. In the absence of any statutory remedy, writ proceedings are maintainable where the objections raised by the assessee have been rejected by the assessing officer. ISSUES: Whether the issuance of notice under Section 148 of the Income Tax Act, 1961 is validly based on 'reason to believe' that income chargeable to tax has escaped assessment under Section 147.Whether the 'reasons recorded' for reopening assessment must disclose a 'live link' and 'tangible material' connecting the information relied upon to the escapement of income.Whether information received from the Directorate of Investigation, Kolkata, without independent enquiry by the Assessing Officer, can constitute tangible material for reopening assessment.Whether the Assessing Officer's belief under Section 147 can be based on mere suspicion, gossip, or rumor, or must be founded on objective and relevant material.Whether the Assessing Officer must specify in the reasons recorded the material facts not disclosed fully and truly by the assessee to justify reopening beyond four years.Whether the Assessing Officer can introduce new facts in the order rejecting objections that were not part of the reasons recorded for issuance of notice under Section 148.Whether writ petitions challenging notice under Section 148 are maintainable despite availability of alternative remedies such as appeal against reassessment order.Whether the disclosure in the Balance Sheet and returns filed by the assessee constitutes full and true disclosure of all material facts necessary for assessment.Whether the Assessing Officer's power under Section 147 can be exercised to conduct a roving or fishing enquiry. RULINGS / HOLDINGS: The issuance of notice under Section 148 was valid as the Assessing Officer had 'reason to believe' based on information received from the Directorate of Investigation, Kolkata, that the assessee's income of Rs. 1,51,00,000/- chargeable to tax had escaped assessment within the meaning of Section 147.The 'reasons recorded' must be read as recorded without addition, deletion or substitution, and must disclose a 'live link' and 'tangible material' connecting the information to the escapement of income; in this case, the reasons recorded based on data from DIT(Inv), Kolkata, were sufficient to form such belief.Information received from the Directorate of Investigation, Kolkata, including sworn statements by an accommodation entry provider, constituted tangible material sufficient to form a reason to believe, even if no independent enquiry was conducted by the Assessing Officer before issuance of notice.The 'reason to believe' must be an honest and reasonable belief based on objective and relevant material, not mere suspicion or rumor; here, the Assessing Officer's belief was based on concrete information and was within the realm of subjective satisfaction.Where reopening is beyond four years, the Assessing Officer must record reasons indicating failure by the assessee to disclose fully and truly all material facts; however, post-amendment (from 01.04.1989), the scope is wider and does not mandatorily require such failure to be stated if there is tangible material indicating escapement of income.The Assessing Officer cannot introduce new facts in the order rejecting objections that were not part of the reasons recorded for issuance of notice under Section 148; reasons must be read as recorded.Writ petitions challenging notices under Section 148 are maintainable when there is no specific statutory remedy against orders rejecting objections to reopening, notwithstanding availability of appeal against reassessment orders.Disclosure in the Balance Sheet and returns filed by the assessee amounts to full and true disclosure of all material facts necessary for assessment; however, if subsequent tangible material indicates escapement, reopening is permissible.The Assessing Officer cannot use Section 147 powers to conduct a roving or fishing enquiry; however, where tangible material exists, reopening is justified. RATIONALE: The Court applied the statutory provisions of Sections 133C, 147, 148, 149, and 151 of the Income Tax Act, 1961, including amendments effective from 01.04.1989 and later insertions such as Explanation 2(ca) to Section 147.The Court relied on settled legal principles that 'reason to believe' requires cause or justification based on objective materials, not mere subjective satisfaction or change of opinion, as explained in apex court precedents.The Court emphasized that information from prescribed authorities under Section 133C, such as the Directorate of Investigation, constitutes tangible material for the Assessing Officer to form reason to believe under Section 147.The Court recognized that the Assessing Officer's power to reopen assessments post-amendment is wider and not confined to cases of failure to disclose fully and truly all material facts, but includes cases where information or documents from prescribed authorities indicate escapement of income.The Court noted that the Assessing Officer must record reasons in writing before issuing notice under Section 148, and these reasons are subject to judicial scrutiny to ensure they are not arbitrary or irrelevant.The Court referred to authoritative precedents holding that the sufficiency of reasons is not subject to judicial review, but the existence of relevant material is examinable.The Court acknowledged the principle that reopening cannot be used as a tool for roving or fishing enquiries beyond the scope of tangible material available.Regarding maintainability of writ petitions, the Court acknowledged the absence of specific statutory remedy against rejection of objections to reopening notices, allowing writ jurisdiction in such circumstances.The Court adopted the interpretation of 'information' as instruction or knowledge derived from an external source concerning facts or law bearing on assessment, as clarified by the Supreme Court.