2025 (5) TMI 895 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - AO Ward 2 (1) (1) Ahmedabad jurisdiction to issue the notice for reopening - information made available on the insight portal regarding the alleged accommodation entries received by the petitioner in the bank account from Kushal Ltd who was alleged to be an accommodation entry provider. HELD THAT - AO Ward 2 (1) (1) Ahmedabad would have equal jurisdiction to issue the notice for reopening and thereafter he may transfer the case after obtaining permission from the higher authorities to the proper jurisdiction. It cannot be said that the respondent did not have jurisdiction to issue the notice for reopening upon receipt of the information more particularly when the petitioner has not informed the respondent with regard to the change of jurisdiction as averred in the additional affidavit-in-reply filed on behalf of the respondent as extracted here-in-above. Petitioner never informed about the change in PAN of the petitioner due to change of name to the respondent-Assessing Officer and as such the impugned notice dated 31.10.2017 was issued in name of the petitioner by the respondent for reopening of AY 2017-18 dated 31.10.2017. As in case of Abhishek Jain 2018 (6) TMI 211 - DELHI HIGH COURT has also relied upon the decision in case of S.S. Ahluwalia 2014 (3) TMI 624 - DELHI HIGH COURT to come to the conclusion that the notice in the facts of the said case cannot be said to be without jurisdiction in view of the provision of section 124(1) of the Act which provides that the AO would have jurisdiction over the areas in terms of the directions issued as per the provision of section 120 of the Act. Therefore there cannot be said to be lack of jurisdiction of the respondent-Assessing Officer while issuing impugned notice as the respondent after change of name cannot be said to have different territorial jurisdiction and all Assessing Officers within the same territorial jurisdiction are authorized to take action in accordance with law. Validity of reasons to believe - It appears that the respondent has failed to take into consideration the details of the accommodation entries alleged to have been taken by the petitioner from Kushal Ltd where the search has been conducted. No evidence much less a single evidence was referred while recording the reasons vis-a-vis the alleged bogus accommodation entry obtained by the petitioner for the year under consideration. We are therefore of the opinion that merely because name of the petitioner appears in the insight portal in connection with any search operation carried out then it is the duty of the respondent-Assessing Officer to have material to have a live nexus with the information made available on the insight portal and the assessment records of the petitioner to form a bona fide belief that the income has escaped assessment. It appears that AO has issued the impugned notice for reopening only to make fishing and roving inquiry on the basis of information in the insight portal making allegations of credit entries in the books of accounts of the petitioner which is duly audited and income is offered to tax by filing the return of income. It cannot be said that AO could have formed a reasonable belief to arrive at prima facie conclusion on the basis of the information made available on the insight portal for assumption of the jurisdiction to issue the impugned notice for reopening of the assessment. Thus impugned notice is not tenable in the eye of law as per the settled legal position as AO could not have formed a reason to believe to assume jurisdiction in absence of details of nature of transaction date of transaction and any live nexus of the information with the transactions recorded and audited as per the books of accounts of the petitioner to come to even prima facie conclusion that the income has escaped assessment.

Summary

The core legal questions considered by the Court were:

1. Whether the Assessing Officer who issued the notice under section 148 of the Income Tax Act, 1961 had jurisdiction to do so, particularly in light of the change in the petitioner-company's name and PAN, and the consequent alleged change in jurisdictional circle.

2. Whether the Assessing Officer had formed a valid reason to believe that income chargeable to tax had escaped assessment, thus justifying the reopening of assessment under section 148.

3. Whether the impugned notice under section 148 was a fishing or roving inquiry lacking specific material or was based on credible information sufficient to constitute a reason to believe.

4. Whether the procedural requirements, including sanction under section 151 and jurisdictional protocols under sections 120 and 124 of the Act, were complied with.

5. The applicability and interpretation of relevant legal provisions and precedents concerning jurisdiction and the formation of reason to believe for reopening assessments.

Issue-wise Detailed Analysis:

Issue 1: Jurisdiction of the Assessing Officer to issue notice under section 148 after change of name and PAN of the petitioner-company

Legal Framework and Precedents: Sections 2(7A), 120, and 124 of the Income Tax Act define the Assessing Officer and vest jurisdiction based on directions/orders issued by the Board. Section 124(1) clarifies that an Assessing Officer vested with jurisdiction over an area shall have jurisdiction over persons carrying on business or residing therein. Section 124(3) bars questioning jurisdiction after certain periods if no objection is raised timely. Section 127 authorizes transfer of cases between Assessing Officers. The Court also considered the decision of the Delhi High Court in a landmark case which held that multiple or concurrent jurisdictions exist and that change of name or PAN does not ipso facto alter jurisdiction. The Court relied on the principle that the Assessing Officer before whom the return was filed continues to have jurisdiction unless proper transfer procedures are followed.

Court's Interpretation and Reasoning: The Court observed that the petitioner-company, despite change of name and PAN, remained within the same territorial jurisdiction. The Assessing Officer who had earlier jurisdiction over the petitioner-company's assessment year 2017-18 continued to have jurisdiction to issue the reopening notice. The petitioner failed to inform the Assessing Officer about the change in PAN and name, and no formal transfer under section 127 was sought. The Court held that the respondent-Assessing Officer was within jurisdiction to issue the notice and that the petitioner could not challenge jurisdiction belatedly, especially having participated in proceedings without raising jurisdictional objections as mandated under section 124(3).

Key Evidence and Findings: The respondent's affidavit revealed absence of intimation by the petitioner regarding change of name and PAN. The petitioner's contention that jurisdiction shifted was unsupported by any formal transfer or notification. The Court noted that the Assessing Officer's jurisdiction is determined annually and can be concurrent.

Application of Law to Facts: Applying the statutory provisions and precedents, the Court concluded that the Assessing Officer Ward 2(1)(1), Ahmedabad had jurisdiction to issue the notice under section 148 for AY 2017-18 notwithstanding the change in name and PAN of the petitioner-company.

Treatment of Competing Arguments: The petitioner argued that jurisdiction shifted to Circle 3(1)(1), Ahmedabad based on the new PAN and that the notice was therefore invalid. The respondent countered that jurisdiction remained with the original Assessing Officer unless formally transferred, and that the petitioner did not comply with procedural requirements to effect such transfer. The Court sided with the respondent, emphasizing statutory provisions and the petitioner's failure to challenge jurisdiction timely.

Conclusion: The Court held that the Assessing Officer had valid jurisdiction to issue the notice under section 148, and the petitioner's challenge on jurisdictional grounds failed.

Issue 2: Validity of the reason to believe to reopen assessment under section 148

Legal Framework and Precedents: Section 147 of the Act permits reopening of assessment if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The Supreme Court and various High Courts have held that at the stage of issuing notice under section 148, the Assessing Officer need only have a prima facie reason to believe based on credible material; conclusive proof is not required. The belief must be bona fide and based on relevant material, not mere suspicion or fishing inquiry. Precedents cited include decisions emphasizing that the formation of reason to believe is an administrative, not judicial, act.

Court's Interpretation and Reasoning: The Court analyzed the reasons recorded by the Assessing Officer, which were based on information from the DGIT (System) and investigation findings uploaded on the Insight Portal. The reasons included unexplained huge cash deposits and alleged accommodation entries linked to a company from which a search was conducted. However, the Court noted that the Assessing Officer failed to specifically identify the nature, date, or details of transactions relating to the petitioner or provide evidence linking the petitioner's transactions to escapement of income. The Court emphasized that mere unexplained credits or entries, without further material or nexus to income escaping assessment, do not justify reopening.

Key Evidence and Findings: The reasons for reopening cited cash deposits and accommodation entries but lacked detailed analysis or evidence tying these to undisclosed income. The petitioner had filed audited accounts and returns reflecting the transactions. The Court found that the Assessing Officer did not demonstrate a live nexus between the information on the Insight Portal and the petitioner's records to form a bona fide reason to believe.

Application of Law to Facts: The Court applied the legal standard that the Assessing Officer must have some tangible material to form a reason to believe. The absence of detailed evidence or explanation rendered the reasons vague and insufficient to sustain reopening.

Treatment of Competing Arguments: The respondent argued that the information from the Insight Portal and investigation reports constituted credible material justifying the formation of reason to believe. The petitioner contended that the information was vague, amounted to a fishing expedition, and the Assessing Officer failed to consider the nature of the transactions or the petitioner's explanations. The Court agreed with the petitioner, holding that the Assessing Officer's belief was not supported by adequate material.

Conclusion: The Court concluded that the Assessing Officer did not have valid reason to believe that income had escaped assessment and that the reopening notice was therefore not sustainable.

Issue 3: Whether the impugned notice amounted to fishing or roving inquiry

Legal Framework and Precedents: It is well established that reopening notices must not be used as a tool for fishing or roving inquiries. The Assessing Officer must have concrete material to form a reason to believe. Mere suspicion or vague information does not suffice.

Court's Interpretation and Reasoning: The Court observed that the reopening notice was issued solely on the basis of information on the Insight Portal linking the petitioner to accommodation entries from a searched entity, without any detailed evidence or nexus to the petitioner's income. The Court held that such a vague basis, without specific material, amounted to a fishing inquiry.

Application of Law to Facts: The petitioner had filed audited returns and accounted for all credits. The Assessing Officer's failure to examine the nature of transactions or provide particulars rendered the notice a fishing expedition.

Conclusion: The Court held that the notice was issued without proper material and was a fishing inquiry, thus not tenable.

Issue 4: Compliance with procedural requirements including sanction under section 151

Legal Framework: Section 151 requires sanction for issuance of notice under section 148. The Court noted the petitioner's contention that sanction was not obtained properly and that the notice was based on borrowed satisfaction.

Court's Reasoning: The Court did not find explicit discussion on sanction in the judgment extract but implicitly considered the procedural compliance in the context of jurisdiction and reason to believe. The Court's ultimate quashing of the notice on merits and jurisdiction rendered further procedural scrutiny unnecessary.

Significant Holdings:

"The Assessing Officer, before whom the petitioner-Company had filed return of income for A.Y. 2017-18, and as such the respondent-Assessing Officer, Ward 2 (1) (1), Ahmedabad would have equal jurisdiction to issue the notice for reopening and thereafter, he may transfer the case after obtaining permission from the higher authorities to the proper jurisdiction."

"The impugned notice dated 31.03.2021 is hereby quashed and set aside... the respondent-Assessing Officer could not have formed a reason to believe to assume jurisdiction in absence of details of nature of transaction, date of transaction and any live nexus of the information with the transactions recorded and audited as per the books of accounts of the petitioner to come to even prima facie conclusion that the income has escaped assessment."

"Mere fact that there are cash and credit entries in the bank account would not ipso facto mean that such cash as well as credit entries represent income of the petitioner which has escaped the assessment."

"The reopening notice issued on the basis of vague and non-specific information without any tangible material or evidence is a fishing inquiry and not sustainable in law."

Core principles established include:

- Jurisdiction of the Assessing Officer depends on directions/orders under sections 120 and 124 and is not automatically altered by change of name or PAN without formal transfer.

- The Assessing Officer must have a bona fide reason to believe based on tangible, relevant material to reopen assessment under section 148; mere suspicion or unexplained bank credits are insufficient.

- Reopening notices must not be used as fishing or roving inquiries.

- Failure to raise jurisdictional objections within prescribed time bars later challenge to jurisdiction.

Final determinations:

- The Assessing Officer had jurisdiction to issue the reopening notice.

- The Assessing Officer did not have valid reason to believe that income had escaped assessment.

- The impugned notice was issued without sufficient material and amounted to a fishing inquiry.

- The impugned notice dated 31.03.2021 under section 148 was quashed and set aside.