In Writ Petition No. 192 of 2016 -BOM HC- Bombay High Court quashes notice issued to Welcome Plywood under Section 148 of the Income Tax Act, says no nexus between the purported transaction and the Income Tax officer's belief that income had escaped assessment
Justice Dhiraj Singh Thakur & Justice Kamal Khata [27-06-2023]

Read Order: Welcome Plywood Pvt. Ltd v. The Income Tax Officer and Ors

Chahat Varma

New Delhi, July 6, 2023: The Bombay High Court has ruled that the re-assessment of Welcome Plywood Pvt. Ltd.’s (petitioner) income tax, which was based on an alleged receipt of share premium, lacked a clear nexus or link between the purported transaction and the Income Tax officer's belief that income had escaped assessment. The court determined that there was no new tangible evidence to support the claim of income escaping assessment. Consequently, the court concluded that the reassessment was a mere ‘change of opinion’ by the Income Tax officer and therefore not justified.

Brief issue involved in the present case was that the petitioner had filed the present writ petition challenging a notice issued by the Income Tax officer under Section 148 of the Income Tax Act. The petitioner also challenged the order that rejected their objections to the validity of the notice. The reason for reopening the assessment was related to a search and survey action conducted by the investigation wing in the case of Shri Praveen Kumar Jain and his groups. During the search action, evidence and findings were collected, which conclusively proved that Shri Praveen Kumar Jain, through various entities controlled by him, was involved in providing accommodation entries such as bogus unsecured loans, bogus share applications, and bogus sales (purchase for the beneficiaries), among others. Based on the information obtained, it was observed that the above party had only issued accommodation entries to the petitioner, indicating that the petitioner had engaged in bogus transactions by receiving share premiums. The Income Tax officer believed that the petitioner's income chargeable to tax had escaped assessment for the relevant year.

The division bench of Justice Dhiraj Singh Thakur and Justice Kamal Khata noted that the criteria for reopening an assessment after a period of four years had been settled by a previous judgment of the Court in the case of Ananta Landmark (P) Ltd v. Deputy Commissioner of Income Tax & Ors [LQ/BomHC/2021/3155], wherein it was held that if the assessment was not being reopened based on a ‘reasonable belief’ that income had escaped assessment due to the assessee's failure to disclose all necessary facts, but rather on the basis of a mere ‘change of opinion’ by the Assessing Officer, then the reopening of the assessment was not justified.

The bench also referred to the case of Income Tax Officer v. Lakhmani Mewal Das [LQ/SC/1976/144], wherein the Supreme Court had observed that there must be a direct nexus or live link between the material coming to the notice of the Income Tax officer and the formation of his belief that there has been escapement of the income of the assessee from the assessment in the particular year because of his failure to disclose fully and truly all material facts.

The bench concluded that in the present case, the Income Tax officer did not provide specific details regarding the information available that formed the basis for the belief that income had escaped assessment.

With the above observations, the bench quashed the notice issued under section 148 of the Income Tax Act and also the order, that had rejected the objections raised by petitioner challenging the validity of the said notice.