Validity of Reassessment if there is a failure to disclose fully and truly all material facts

Short Overview Where transaction itself on the basis of the subsequent information was found to be a bogus transactions, mere disclosure of said transaction at the time of original proceedings, could not be said to be a disclosure of true and full facts in the case. Therefore, notice issued under section 148 after expiry of four years from the end of relevant assessment year was not hit by proviso to section 147 and accordingly, impugned notice was sustained as valid.

AO received information from investigation wing as to assessee having received accommodation entries in the form of bogus purchase. Accordingly, AO issued notice under section 148 after expiry of four years from the end of relevant assessment year so as to reopen assessment. Assessee pleaded no independent application of mind by AO, no failure on part of assessee to disclose fully and truly all material facts and mechanical approval granted by Pr. CIT under section 151.

It is held that  AO, after careful examination of the materials on record, had examined information received from Surat Wing and based on the information, made inquiries to the information and after independent application of mind, and upon due satisfaction, he reached to the conclusion that the alleged transaction with the M/s. Agni Gems (P) Ltd. appeared to be a bogus purchase and it was accommodation entry provided at the instance of Afroze Mohd. Hasanfatta and their group. Therefore, reasons recorded led to belief, to form an opinion by AO regarding escapement of assessment having live-link with conclusion and materials gathered during the inquiry. In view of this, it could be said that after framing of assessment made under section 143(3), tangible material came into the hands of AO through the investigation wing and upon perusal of same, he made independent inquiries and applied his mind and upon due satisfaction, he formed an opinion that income had escaped assessment. Where transaction itself on the basis of the subsequent information was found to be a bogus transaction, mere disclosure of said transaction at the time of original proceedings, could not be said to be a disclosure of true and full facts in the case. Further, while according the sanction under section 151, competent authority had given satisfaction in hand writing and has expressed his satisfaction with regard to reasons recorded and accorded sanction to issue impugned notice. Accordingly, impugned notice was sustained as valid.

Decision: Against the assessee

IN THE GUJARAT HIGH COURT

J.B. PARDIWALA & ILESH J. VORA, JJ.

Nisha Diamonds (P) Ltd. v. ITO

R/Special Civil Application No. 22187 of 2019

9 March, 2021

Petitioner(s) No. 1 by: Omkar C Dave (2003)

Respondent(s) No. 1 by: Kalpana K Raval (1046)

ORAL ORDER

Ilesh J. Vora, J.

By filing this writ application under Article 226, the writ applicant seeks to challenge the notice, dated 31-3-2019 issued by the respondent under section 148 of the Income Tax Act, 1961 (‘the act’ for short) seeking to reopen the applicant’s income assessment for the assessment year 2012 -13.

2. The brief facts leading to file the present writ application can be summarized as under:-

2.1 The writ applicant-assessee Company filed its return of Income for the assessment year 2012- 13 on 24-8-2012 declaring total income at Rs. 28,910 and same was processed under section 143(3) of the Act and final assessment was completed on 31-3-2014.

2.2 The assessing officer has reopened the assessment under section 147 by issuing impugned notice, dated 31-3-2019 under section 148 of the Act.

2.3 At the request of the writ applicant, reasons recorded have been furnished to the writ applicant on 9-5-2019, which reads as under :–

“2. Since you have filed return of income in response to notice under section 148 of the income tax act, therefore, reason for reopening is provided as under :–

“The assessee company filed its Return of Income for the assessment year 2012- 13 on 24-8-2012 declaring total income at Rs. 28,910 . In this case assessment order under section 143(3) was passed on 31-3-2014.

2. In this case, an information has been received from O/o the DDIT (Inv.), Unit 2, Surat through email on 22-3-2019, related to inquiry report in the case ofShri Afroz Mohd. Hasanfatta and Group. In this case, Enforcement Directorate (ED) received information through Customs Department Surat that some of the companies opened their bank accounts with ICICI Bank Surat and used their accounts for making foreign remittances against fake import documents. The ED conducted investigation and filed a charge sheet against some persons on 18-7-2014 and later on a supplementary chargesheet was filed on 18-7-2014 before the Special Court under the Prevention of Money Laundering Act, 2002. During the course of investigation by ED, searches at several places were conducted. Further, investigations were also carried by the Income Tax department on the inputs from other Govt. Agencies as well as its own information; which brought the big scam of money laundering to the fore. In the investigation, it was found that foreign remittances have been made by the following 12 entities from their bank accounts to the Dubai and Hongkong based companies on the strength of fake documents for the purpose of money laundering :–

Sr	Name of the entity	PAN
1.	Agni Gems (P) Ltd	AAHCA9913G
2.	Hem Jewels (P) Ltd.	AACCH4749N
3.	MB Offshore Distributors (P) Ltd.	AAFCM9622E
4.	Maa Mumba Devi Gems (P) Ltd.	AAGCM7114A
5.	RA Distributors (P) Ltd. AAECR5078E	AAECR5078E
6.	Ramshyam Exports (P) Ltd.	AADCR9459E
7.	Riddhi Exim (P) Ltd.	AAECR2891P
8.	Bajrang Diam (P) Ltd.	AAECB4069R
9.	Renuka Exim (P) LTd	AAFR3262D
10.	Shimmer Exim (P) Ltd.	AAOS3360A
11.	Aunik Diamond (P) Ltd.	AAKCAG419J
12.	Jaime Exim (P) Ltd.	AADCJO986G

3. During the course of investigation, the following facts were unearthed :–

1. These companies remitted total foreign outward remittances of INR 8,159 crores.

2. These entities had received the above said amounts through RTGS credits in their respective bank accounts primarily from certain other Indian fictitious concerns.

3. It was found that the accused Shri Madanlal Manekchand Jain and Shri Afroze Mohd. Hasanfatta have used the companies and fictitious firms for illegal transfer of money to Dubai and Hongkong based companies/concerns on the strength of fake import documents.

4. Shri Afroze Mohd. Hasanfatta was arrested on 21-5-2014 and his statement was recorded on 22-5-2014 under section 50 of PMLA, 2002. In his statements, he has Stated the entire modus operandi of money laundering scam.

5. Shri Madanlal M Jain was arrested on 17-7-2014 under section 19 of PMLA, 2002. In his statements, he has stated the entire modus operandi of money laundering scam. He has stated that he has made different directors and partners in many companies/firms and lent the same to Shri Afroze Mohd. Hasanfatta.

6. Apart from the above, many other facts have been recorded in the charge-sheets filed by the ED as well as investigation made by the Income Tax Deptt. which proved that the entire movement of funds was for the illegal purpose of money laundering.

4. In all, this money laundering scam is known as Afroze Mohd. Hasanfatta group scam. Several entities were traced related to this group on the basis funds trail, which were used as a conduit for channelizing funds to various concerns, ultimate beneficiaries of which were Hong Kong and Dubai based entities, to which the funds were transferred on the fake documents.

5. The detailed information so received from the Investigation Wing, Surat has been perused carefully and it is found that the assessee company is one of the concerns which has provided entry of funds to the below: mentioned entities operated by Shri Afroz Fatta during the financial year 2011 12 relevant to assessment year 2012- 13 :–

Sr.No	Parties Name	Target entities	Amount of transaction (in crore)
1.	M/s. Nisha Diamond (P) Ltd	M/s. Agni Gems (P) Ltd	14.62
		TOTAL	14.62

6. The above information received from the investigation Wing has been analysed along with the case records available in the case of the assessee company. On perusal of assessment records in the case of the assessee for assessment year 2012- 13, it is seen that the assessee has shown purchase of Rs. 3,25,54,800 from one of the above alleged concerns i.e. M/s. Agni Gems (P) Ltd. It establishes that the allegation that the assessee has made transaction with the above mentioned alleged parties, is true. Further, it is found on the bases of fund trail provided by Investigation Wing, that during the year under consideration, the assessee company has made transactions with the above mentioned target entity (Sr No. 1 to 4) either directly or in a circular manner, in other words, funds have reached to the above destination companies either directly or through other intermediary concerns.

7. During the course of the assessment proceedings, the assessee failed to disclose fully and truly all material facts related to the above companies/firms, necessary for his assessment for the assessment year under consideration. Therefore, the failure being on the part of the assessee company and in view of the above facts/material available on records and after analyzing the same, I have reason to believe that income of the assessee to the extent of Rs. 14,62,00,000 has escaped assessment for assessment year 2012- 13 within the meaning of section 147 of the Income Tax Act.

8. In this case, a return of income was filed for the year under consideration and regular assessment under section 143(3) of the Act was made on 25-3-2014. Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings under section 147 are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 2 to 7). Though, during the course of assessment proceedings, the assessee company has disclosed the transaction with the alleged concern either directly or with the intermediary concerns through which funds were circulated, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidences could not be discovered by assessing officer and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act. Further, this case is being analysed now on the basis of fresh material which was not available with the assessing officer at the time of assessment. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary for its assessment for the year under consideration thereby reopening under section 147 of the Act.

In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice under section 148 has been obtained separately from Principal Commissioner as per the provisions of section 151 of the Act.

3. Further it is pertinent to mention here that as per the guidelines of Hon’ble Gujarat High Court in the case ofSahkari Khand Udhyog Mandal Ltd., you may file objection if desire so, within 60 days of receipt of the reason.

2.4 The writ applicant raised the objections vide its communication, dated 4-7-2019, mainly on the following issues on facts and law :–

(i) Provision of section 148(2) not complied with;

(ii) No failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment;

(iii) Reopening is based on “borrowed satisfaction”;

(iv) provision of section 151(1) not complied with.

2.5 The objections came to be rejected by the respondent vide Order, dated 30-8-2019.

3. Being aggrieved by the disposal of the objections against the notice for reopening of the assessment, the writ applicant has come up before this Court with the present writ application.

4. We have heard Mr. Sunit Shah, the learned Senior counsel assisted by Mr. Omkar C. Dave, the learned advocate appearing for the writ applicant and Mrs. Kalpana K. Raval, the learned Standing Counsel appearing for the revenue.

5. Mr. Sunit Shah, the learned Senior Counsel appearing for the writ applicant raised the following contentions :–

5.1 There was full and true disclosure by the writ applicant during the course of filing of return as well as original assessment framed under section 143(3) and therefore, there was no false or untrue declaration by the writ applicant on any of the issues on which the reopening is sought to be initiated.

5.2 It was submitted that the respondent authority failed to comply with the provisions of section 148(2) of the Act, as before issuing the notice, the assessing officer should record his reasons for reopening of the assessment. Referring to the letter, the learned counsel invited the attention of this Court that no date being mentioned on the reasons recorded, which evident that reasons for issuing notice under section 148 of the Act were not recorded before issuing the notice and therefore, notice lacks validity.

5.3 It was further pointed out that, in the present case, the reopening of the assessment is beyond the period of 4 years and in that case, the sanction of the competent authority as provided under section 151 of the Act is necessary before issuance of the notice. In this regard, it was submitted that there is no valid approval accorded by the sanctioning authority as provided under section 151 of the Act.

5.4 Referring to the proviso to section 147, the learned counsel pointed out that in the present case, the scrutiny assessment under section 143(3) was already completed and now it cannot be reopened unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material necessary facts for its assessment. In this context, the learned counsel submitted that the notice under section 142(1) was issued by the assessing officer to call for certain particulars like details of bank, sales and purchase, stock etc. In response to the notice, the assessee had furnished the names of the persons from whom the purchases and sales were made including the transaction related to purchase with M/s. Agni Gems (P) Ltd. The learned counsel has urged that based on the particulars furnished by the assessee, the transaction with M/s. Agni Gems (P) Ltd. was verified and accepted by the then assessing officer and passed the assessment order without any major additions. In this background of facts, the learned counsel submitted that there was no failure on the part of the assessee to disclose material facts necessary for the assessment for the year under consideration. Therefore, reopening is bad.

5.5 The learned counsel vehemently submitted that according to the case of the revenue, assessee has made entered into transaction with M/s. Agni Gems (P) Ltd. amount to Rs. 3,25,54,800 and in the reasons recorded, the amount of Rs. 14,62,00,000 has been shown as escaped assessment. Therefore, when the purchase was of Rs. 3,25,54,800 then, how the assessing officer has recorded that the amount of Rs. 14,62,00,000 has escaped assessment. In this regard, it has been urged that this discrepancies show that assessing officer has not applied his mind while forming the belief of escape assessment.

5.6 It was further contended that the assessing officer has acted mechanically on the basis of the information received from the concerned department and there is no any independent application of mind by the assessing officer to arrive at the conclusion that the income chargeable to tax has escaped assessment. Therefore, reopening based on the third party satisfaction cannot be sustained in law and the proceedings initiated on borrowed satisfaction required to be quashed and set aside.

6. In view of the aforesaid contention, the learned counsel for the writ application submitted that, the impugned notice as well as the order of disposing off the objections are bad, illegal and without jurisdiction and therefore, the same deserve to be quashed and set aside and accordingly, the writ application may be allowed.

7. On the other hand, Mrs. Kalpana K. Raval, learned Standing Counsel appearing for the revenue has vehemently opposed the writ application, contending that, in the present case, subsequent to the scrutiny assessment, the assessing officer has received the information from the Investigating Wing Surat that the assessee company entered into transaction with M/s. Agni Gems (P) Ltd. amounting to Rs. 4,57,48,000 and total transactions worked out by the Investigation wing of Rs. 10,13,00,000 whichprima facie appears to be an accommodation entries which was controlled and managed by Hawala dealer Afroze Mohd. Hasanfatta against whom case under the provisions of Prevention of Money Laundering Act, was registered and accordingly he was arrested and during the course of investigation it was found that foreign remittances were made by 12 entities including M/s. Agni Gem (P) Ltd., from their bank account to the Dubai and Hongkong bases company on the strength of fake documents for the purpose of money laundering and the assessee is one of the company which had provided entry of funds to the Nisha Diamond and Agni Gems. In this factual background, the learned counsel for the revenue submitted that the assessing officer has verified the information and after independent inquiries, he found that the transactions with M/s. Agni Gems (P) Ltd., is not genuine and it is an accommodation entries and the assessee was one of the beneficiaries and therefore, the income has escaped assessment.

8. In view of the above contentions, the learned counsel for the revenue urged that the writ application may not be entertained.

9. Having heard the learned counsel appearing for the respective parties and having gone through the materials on record, the only question that falls for our consideration is whether the revenue is justified in reopening the assessment beyond the period of 4 years under section 147 of the Act.

10. It is settled law that the reopening of the assessment beyond 4 years from the end of the relevant year, the assessing officer must have reasons to believe that income chargeable to tax have escaped assessment and same was occasioned either on account of failure on the part of the assessee to make a return of his income or disclose fully and truly all material facts necessary for assessment of that year and both the conditions are condition precedent and must be satisfied simultaneously before issuance of the notice.

11. We have carefully examined the materials on the record as well as the reasons recorded. It appears from the record that the assessee company had filed its return of income for the assessment year 2012- 13, dated 24-8-2012 declaring total income at Rs. 28,910 and assessment for the year under consideration was completed under section 143(3) of the Act on 31-3-2014. We take the notice of the fact that the transaction of purchases with M/s. Agni Gems (P) Ltd. amounting Rs. 3,25,54,800 and after due inquiry, the total amount worked out to the tune of Rs. 14,62,00,000 was the main reason for reopening of the assessment for the year under consideration.

12. A plain reading of the reasons recorded as indicated above, emerge that the assessing officer had received inquiry report in relation to Mr. Afroze Mohd. Hasanfatta and Mr. Madan Jain, who made foreign remittances through 12 different companies, controlled and supervised by them and there involvement in money laundering was detected. As per the report, out of 12 companies, one of the concerned was M/s. Agni Gems (P) Ltd., who made transactions either directly or in circular manner, without any import from the other countries and money circulated outside India. The assessing officer noticed that the crores of rupees were remitted in UAE and Hongkong on the basis of forged bill of entry through the bank accounts of 12 companies. The assessing officer has noted that the ED busted multicrore havala racket during the search operation at the several places and found that Mr. Afroze Mohd. Hasanfatta and their group, instead of importing diamonds, they made bogus import bills, claiming that they have purchased the diamonds from foreign traders and by using this bogus bills, money was routed through 12 entities, without any single diamond being imported in India.

13. We have examined the reasons for reopening of the year under consideration, wherein, assessing officer analyzed the records available in the case of the assessee company and after perusal of the assessment records, he found that assessee is one of the concerned which has provided the entries in directly or in circular manner to M/s. Agni Gems (P) Ltd., operated by Mr. Afroze Mohd. Hasanfatta and the purchase transactions as recorded in the books of account by the assessee was not genuine and true transactions. The assessing officer has also taken into account the statements of Mr. Afroze Mohd. Hasanfatta and Mr. Madan Jain which have been recorded under section 150 of the PML Act, 2002 and found that the 12 companies had received huge amount from different entities like the present assessee through RTGS credits in their respective bank accounts. through their bank accounts and the said amount were transferred to Dubai and Hongkong companies on the strength of fake import.

14. After careful examination of the materials on record, we found that the assessing officer has examined the information received from the Surat wing and based on the information made inquiries to the information and after independent application of find, and upon due satisfaction, he reached to the conclusion that the alleged transaction with the M/s. Agni Gems (P) Ltd. Seems to be a bogus purchase and it is accommodation entries provided at the instance of Afroze Mohd. Hasanfatta and their group. Therefore, the reasons recorded led to belief, to form an opinion by the assessing officer regarding the escapement of assessment having live link with the conclusion and materials gathered during the inquiry.

15. In view of the aforesaid discussion, it could be said that after framing of the assessment made under section 143(3) of the Act, tangible material came into the hands of the assessing officer through the investigation wing and upon perusal of the same, he made independent inquiries and applied his mind and upon due satisfaction, he formed an opinion that, the income has escaped assessment.

16. The main contention advanced by the learned counsel that at the final assessment proceedings, all the material facts including the transactions with M/s. Agni (P) Ltd. having been duly recorded in the books of accounts and same was thoroughly examined by the assessing officer and in this circumstances, when there was no concealment or suppression of any facts, the reopening beyond 4 years in the absence of any non disclosure of material facts cannot be permitted.

17. We do not agree with the above contention mainly on the ground that during the course of previous assessment proceedings, the assessee failed to disclose material particulars with regard to alleged transactions and the true facts of the transactions having been discovered by the assessing officer on the basis of the information received from the concerned department. Law in this regard has been settled by various decisions of this Court as well as the Apex Court that burden is on the assessee to make true and full disclosure. Therefore, where the transaction itself on the basis of the subsequent information is found to be a bogus transactions, mere a disclosure of said transaction at the time of original proceedings, cannot be said to be a disclosure of “true and full” facts in the case. In this context, we may refer and rely on the observations made by the Apex Court in the case ofPhoolchand Bajranglal & Anr. v. ITO (2001) 10 SCC 189. The observations made in para 19 reads thus :–

“19. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the Income Tax Officer at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the “true” and “full” facts in the case and the Income Tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income Tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific. “

18. In case ofYogendrakumar Gupta v. ITO (2014) 366 ITR : 2014 TaxPub(DT) 3042 (Guj-HC), this Court while rejecting petition challenging the notice for reopening which was issued beyond a period of 4 years from the end of relevant assessment year, wherein, one of the ground was that the issue was previously scrutinized during the assessment proceedings. We may reproduce the observations made in paras 16, 17 and 21, which read thus :–

19. InAradhna Estate (P) Ltd. v. Dy. CIT, (2018) 91 taxmann.com 119 (Guj) : 2018 TaxPub(DT) 0968 (Guj-HC), this Court held that where reassessment proceedings were initiated on the basis of the information received from the investigation wing that assessee had received certain amount from the Shell Companies working as an accommodation entry provider merely because these transactions were scrutinized by the assessing officer during original assessment proceedings, the reassessment could not be held unjustified.

20. InAaspas Multimedia Ltd. v. Dy. CIT (2017) 78 taxmann.com, this Court while examining the validity of the notice, held that where assessment was made on the basis of information received from the Principal DIT, (Investigation), that assessee was beneficiary of accommodation entry by way of share application provided by a third party, same was justified.

21. In the case ofJayant Security Finance Ltd. v. Asst. CIT (2018) 91 taxmann.com (Guj-HC) : 2018 TaxPub(DT) 0979 (Guj-HC), this Court held that the information from the investigation wing stating that the loan from the company working as an entry operator and earning bogus firms to provide advances to various persons was sufficient and would constitute genuine and bona fide reason to believe.

22. In view of the law laid down by this Court as well as the Apex Court and considering the facts of the present case, we are of the view that, the assessee was aware that the transaction with M/s. Agni (P) Ltd. was not business transaction but in the form of bogus purchase, it was only an accommodation entries and the company was one of the beneficiaries of the transactions, despite of this, the assessee failed to disclose true and correct facts at the relevant time and therefore, the assessing officer is entitled to initiate reassessment proceedings on the basis of tangible material came in his hand, which tends to expose the untruthfulness of the entry of purchase made in the books of accounts. In this context, we may refer the observation of the Apex Court in the case ofHonda Siel Power Products v. Dy. CIT, (2011) 10, taxmann.com, wherein, it is held that assessee having not pointed out during assessment proceedings about expenses incurred relatable to tax free income under section 14A, there was an omission and failure on its part to disclose fully and truly material facts, hence, reopening was justified.

23. The next contention raised by the learned counsel is that the reassessment proceedings could be said to have been initiated mechanically on the basis of third party information. We have examined the reasons as indicated above, and we are of the view that the assessing officer has verified the information and after application of mind and upon due satisfaction, he formed an opinion that income has escaped assessment. In this regard, it would be profitable to refer the decision ofPr. CIT, Rajkot v. Gokul Ceramics reported in (2016) 241 Taxman 1 (Gujarat) : 2016 TaxPub(DT) 3157 (Guj-HC), wherein, similar contention was raised and while rejecting the contention, this Court made the following observations. Paras 9 to 14 read thus :–

“9. It can thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show-cause notice placed at the disposal of the assessing officer. These materials prima facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty. On the basis of such material, the assessing officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the assessing officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the re opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the assessing officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue.

10. In case ofCentral Provinces Manganese Ore Co. Ltd. v. ITO, Nagpur (supra) the Supreme Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee had declared very low price in respect of the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under-voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the assessing officer relied on the facts as found by the Customs Authorities that the assessee had under-voiced goods during export. Under such circumstances, upholding the validity of the notice for reopening, the Supreme Court held and observed as under :–

“So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities but it can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee’s income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under section 147(a) of the Act was satisfied.”

11. In case ofITO v. Purushottam Das Bangur(supra) after completion of assessment in case of the assessee, the assessing officer received letter from Directorate of Investigation giving detailed particulars collected from Bombay Stock Exchange which revealed earning of share and price of share increased during period in question and quotation appearing at Calcutta Stock Exchange was as a result of manipulated transaction. On the basis of such information, the assessing officer issued notice for reopening of the assessment. The question, therefore, arose whether the information contained in the letter of Directorate of Investigation could be said to be definite information and the assessing officer could act upon such information for taking action under section 147(b) of the Act. In such background, the Supreme Court observed as under :–

“12. Ms. Gauri Rastogi, the learned counsel appearing for the respondents, has urged that the letter of Shri. Bagai was received by the Income Tax Officer on 26-3-1974 and on the very next day, that is, on 27-3-1974, he issued the impugned notice under section 147(b) of the Act and that he did not have conducted any inquiry or investigation into the information sent by Shri. Bagai. Merely because the impugned notice was sent on the next day after receipt of the letter of Shri. Bagai does not mean that the Income Tax Officer did not apply his mind to the information contained in the said letter of Shri. Bagai. On the basis of the said facts and information contained in the said letter, the Income Tax Officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information on the basis of which he could have reasons to believe that income of the assessee chargeable to tax had escaped assessment for the relevant assessment years. For the reasons aforementioned, we are unable to uphold the impugned judgment of the High Court. The appeal is, therefore, allowed, the impugned judgment of the High Court is set aside and the Writ Petitions filed by the respondents are dismissed. No order as to costs.”

12. In case ofITO v. Selected Dalurband Coal Co. (P) Ltd.(supra), the assessment was reopened on the basis of the information contained in letter from Chief Mining Officer that the colliery of the assessee had been inspected and there had been under reporting of coal raised. Upholding the validity of re opening of assessment, the Supreme Court held and observed as under :–

“After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection was conducted in the colliery of the respondent on 9-1-1967, by the officers of the Mining Department in the presence of the representatives of the assessee and according to the opinion of the officers of the Mining Department, there was under reporting of the raising figure to the extent indicated in the said letter. The report is made by a Government Department and that too after conducting a joint inspection. It gives a reasonably specific estimate of the excessive coal mining said to have been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may be well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have not to go on we don not and we ought not to express any opinion on the merits.”

13. In case ofAGR Investment Ltd. v. Additional CIT & Anr.(supra), a Division Bench of Delhi High Court considered the validity of reopening of assessment where the notice was based on information received from Directorate of investigation that the assessee was beneficiary of bogus accommodation entries. The Court while upholding the validity of reopening observed that sufficiency of reason cannot be considered in a writ petition. It was observed as under :–

“23. The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the assessing officer treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that transactions involving Rs. 27 lakhs mentioned in the table in Annexure P 2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The assessing officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the DIT (INV V) as regards the transactions entered into by the assessee company with number of concerns which had made accommodation entries and they were not genuine transactions. As we perceive, it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under section 147 of the Act. The reason to believe has been appropriately understood by the assessing officer and there is material on the basis of which the notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. (P) Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score.”

14. Learned Single Judge of Madras High Court in case ofSterlite Industries (India) Ltd. v. Asstt. CIT reported in (2008) 302 ITR 275 (Mad) : 2008 TaxPub(DT) 1774 (Mad-HC) upheld the notice for reopening which was based on information from enforcement directorate showing possible inflation of purchases made by the assessee.”

24. The learned counsel raised the contention that while according the sanction under section 151 of the Act, the authority concerned has not applied his mind properly and mechanically accorded the sanction. We have perused the papers of the approval, which shows that the competent authority has given the satisfaction in hand writing and has expressed his satisfaction with regard to reasons recorded and accorded the sanction to issue impugned notice. Therefore, the approval for reassessment was granted on the date on which the impugned notice was issued. In this circumstances, the contention raised by the learned advocate for the writ applicant that sanction was not obtained before issuance of the notice cannot be accepted.

25. In view of the discussions made hereinabove, it cannot be said that there was no tangible material before the assessing officer and that he proceeded mechanically based on the sole information and the impugned notice is without jurisdiction and contrary to section 147 of the Act.

26. For the foregoing reasons, no case is made out and accordingly, present writ application deserves to be dismissed and is dismissed. No order as to costs.