The Gauhati High Court strongly ruled that the precondition for incoming powers u/s 147/148 of the Income Tax Act is a “live link” between the ‘formation of a belief in writing that income had escaped assessment’ and the ‘tangible materials’ for entertaining such a belief. Once these preconditions stand satisfied, the AO can proceed u/s 147/148, and a mere possibility that this belief may ultimately be unfounded is no ground to interfere with the reopening notice u/s 148.
Reprimanding the petitioner for his latitude, the Single Judge Bench comprising Justice Soumitra Saikia emphasized that the purpose and intent of Section 147 is to ensure that a person cannot get away by wilfully making a false and untrue statement at the time of original assessment, and when falsity comes to the notice of the AO, then the taxpayer cannot turn around to say that “you accepted my lie, now your hands are tied and you cannot do nothing”. The Single Judge noted that the reopening proceeding u/s 147 was initiated based on information admittedly received from the Director of Investigation, Kolkata, that the share capital raised by the petitioner company relates to certain companies which are primarily existing only on paper and are found to be traceable to one Narendra Kr. Jain.
The Decision of the Apex Court in the case of L&T Ltd. v. State of Jharkhand, (2017) 13 SCC 780, was also referred to reiterate that the expression “information” means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or having a bearing on the assessment, and it includes the discovery of new facts/ information available in the record of assessment not previously noticed/ investigated.
The issue before the Single Judge was first whether an information received from Investigation Wing can form the basis of re-opening of assessments without any further enquiry by the AO, and secondly whether such information can be considered as “tangible material” and it has a “live link” for initiating the proceedings u/s 147 and 148 of the Income Tax Act.
In this case, the original return shown by the petitioner after search & seizure operation was assessed u/s 153C/143(3) at NIL income, and after an information by the Investigation Wing that share capital to the tune of Rs. 1.51 crores were raised by the petitioner by making allotment to paper companies, a statement of one Narendra Jain was recorded, who admitted that those companies essentially belonged to him only. The admission also stated that he was an accommodation entry provider, which provides bogus accommodation entries, bogus unsecured loans, etc. This led to the formation of an opinion as to income escaping assessment, and the resultant effect was reassessment.
The Single Judge noted that even though the only ground for re-opening the assessments and initiation of proceedings u/s 147 was this information received from the Investigation Wing, however, such information regarding the share capital raised by the petitioner by making bogus entries, prima facie cannot be said to be information not germen for re-opening of assessments or that it does not provide a “live link” for re-opening of the assessment.
The Bench went on to observe that although the reasons recorded for reopening were communicated to the petitioner, the reply filed in response to the same does not reveal any material evidence to show that the allegations regarding escapement of income raised by allotment to share capital to bogus companies were incorrect. The petitioner has neither bothered to submit any material in his averments in the petition, nor before the AO during reopening proceedings. Finally, the Single Judge admitted the petition as maintainable in the absence of an effective appellate remedy; however, disposed of the petition while answering in favor of the Department.
Appearances:
Senior Advocate R. Goenka and Advocate U.K. Borthakur, for the Petitioners
Advocate S.C. Keyal, Advocate for the Respondents