2019 (3) TMI 582 - HC - Income Tax

Reopening of assessment u/s 147 - eligible reasons for reopening u/s 148 - information received from DDIT (Inv) alleging that M/s Nivyah Infrastructure & Telecom Services Ltd is a penny stock listed on the Bombay Stock Exchange and that the petitioner had dealt with the same leading to escapement of income - borrowed satisfaction - non independent application of mind by AO - Held that - Reopening of an assessment has to be done by an AO on his own satisfaction. It is not open to an Assessing Officer issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that reopening notice is to be issued. On receipt of information, the least that is expected of the Assessing Officer is to examine the same in the context of the facts of this case and satisfy himself whether the information received does prima facie lead to a reasonable belief that income chargeable to tax has escaped assessment. In this case, the reasons indicate that the Assessing Officer has not carried out such exercise and accepted the report of the Deputy Collector of Income Tax (Investigation) Mumbai to conclude that the petitioner had dealt with Nivyah Infrastructure and Telecom Services Ltd during the previous year relevant to the assessment year 2011-12. Admittedly, there was no company by name M/s Nivyah Infrastructure & Telecom Services Ltd in existence during that year for consideration. This clearly shows that the Assessing Officer acted on the satisfaction of the Deputy Collector of Income Tax (Investigation) that income chargeable to tax has escaped assessment - the impugned notice is issued beyond the period of four years from the end of the relevant assessment year in a case, where the assessment was completed under section 143 (3) - AO would have to examine the information received in the context of the facts on record. If such an exercise were to be done, it is likely that the Assessing Officer would have come to the conclusion that there was no failure to disclose truly and fully all material facts necessary for assessment. Thus, hit by the proviso to section 147 - AO has not applied his mind to the information received in the context of the facts on record. The impugned notice is bad-in-law - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment for A.Y. 2011-12 based on information received from DDIT (Inv) Unit 8 regarding alleged involvement in penny stock manipulation by M/s Nivyah Infrastructure & Telecom Services Ltd.

Analysis:
The petition challenges a notice issued by the Assessing Officer under section 148 of the Income Tax Act, 1961, seeking to reopen assessment for A.Y. 2011-12 based on information received from DDIT (Inv) Unit 8 regarding alleged manipulation involving M/s Nivyah Infrastructure & Telecom Services Ltd. The petitioner had originally declared an income of ?12.52 lacs, which was later enhanced to ?20.14 lacs after scrutiny assessment. The impugned notice was issued beyond the four-year period from the end of the relevant assessment year, requiring separate sanction from the Pr. Commissioner of Income Tax. The petitioner objected to the notice, arguing that they had not dealt with M/s Nivyah Infrastructure & Telecom Services Ltd but with a different company, S.V. Electricals Ltd, which later changed its name. The objections were rejected without addressing the core contention, leading to the petitioner filing a petition challenging the notice.

The Court emphasized that the reopening of an assessment must be based on the Assessing Officer's own satisfaction after examining the information in the context of the case. In this instance, the impugned notice was issued solely based on information from the Deputy Collector of Income Tax (Investigation) without the Assessing Officer conducting a thorough examination. It was noted that M/s Nivyah Infrastructure & Telecom Services Ltd did not exist during the relevant assessment year, indicating a lack of due diligence by the Assessing Officer. The Court held that the impugned notice was unsustainable in law as it was not issued on the Assessing Officer's satisfaction that income had escaped assessment. Therefore, the notice was quashed and set aside, allowing the petition.

In conclusion, the Court's decision highlights the importance of the Assessing Officer's independent satisfaction based on a thorough examination of information before issuing a notice for reopening assessment. The judgment underscores the need for proper application of mind and adherence to legal requirements to prevent arbitrary actions in income tax proceedings.