INCOME TAX ACT, 1961

Section 147

Reassessment - Reason to believe - Detailed Information emanated from investigation wing - Assessee pleading no conclusive proof as to escapement

AO received information from investigation wing as to assessee having received accommodation entries in the shape of bogus long-term capital gain on sale of shares claimed as exempt under section 10(38). Accordingly, AO reopened assessment so as to make addition. Assessee challenged this on the ground of no conclusive proof as to escapement.Held: Section 147 requires that AO should have reason to believe that any income chargeable to tax had escaped. The word 'reason to believe' would only mean a cause or justification to think or suppose that income had escaped assessment. It does not mean that AO should have finally ascertain the facts by legal evidence that there is a definite escapement of an income. Reason to believe has to be a tentative belief not a certain answer to the escapement of income otherwise, law would not have made a provision of recording reason and then issuing notice to assessee, it could have straightway provided that assessment would be made on the basis of the material available but that is not the case. Thus, it does not mean a subjective satisfaction on the part of the AO. it is merely a prima facie belief. In the instant case, an exhaustive detail in the form of detailed investigation report was available before AO and therefore, it could not be said that there was nothing in that material agianst assessee because name of assessee was mentioned directly as as beneficiary dealing in the company mentioned in the information as a penny stock company providing huge capital gain falling under section 10(38) on which no tax was required to be paid. Hence, there was a clear-cut application of mind on the information (material) received by AO having direct nexus with belief of escapement of income and there being a good case for reopening of assessment, same was held valid.

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