Reopening of assessment valid after Inquiry suggests the Assessee is beneficiary of Accommodation Entry

The Gujarat High Court has ruled that reopening an income tax assessment can be valid, even if the initial assessment order has been passed. The court found that the Assessing Officer had sufficient reason to believe income had escaped assessment, based on inquiries and statements from relevant parties. The court dismissed the petitioner's argument that the reopening was solely due to a change of opinion or based on unreliable statements, confirming no procedural lapses occurred.

In Bharatkumar Kalubhai Ghadiya v. Assistant Commissioner of Income Tax, Central Circle 2(3) [R/Special Civil Application No. 7743 of 2021 dated August 19, 2021], Bharatkumar Kalubhai Ghadiya ("the Petitioner") has filed the current petition seeking to quash Notice dated  March 18, 2020 by Assistant Commissioner of Income Tax, Central Circle 2(3) ("the Respondent") wherein the Respondent believes that the Petitioner has escaped assessment of Income Tax chargeable under Section 147 of the Income Tax Act, 1961 ("the IT Act").

There was a reopening by the Assessing Officer ("the AO") of the assessment of Income tax Returns filed by the Petitioner on March 17, 2021 under Section 148 of the IT Act. The Petitioner raised legal and factual objections against the reopening before the Respondents, the same being disposed of vide Order dated May 10, 2021 holding the reopening was justified and valid. The Petitioner therefore has filed the petition granting interim relief for the same.

The Petitioner contended that the reopening is based upon change of opinion due to the information received by the Respondent after passing of the Assessment Order. Further contended that statement made by a tainted party cannot be made a reason to believe that the Income chargeable has escaped Assessment. The same should be believed based on tangible material and act which lacks in the current case.

The Hon'ble Gujarat High Court observed that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment. The exercise of reopening has only been made after due inquiries and recording of statements of concerned persons and notice has only been issued after finding prima facie material.

Held, no procedural lapse and/or deviation from procedure prescribed in reopening and the reasons recorded do not lack validity as necessary approvals from the competent authority appear to have been received.