2012 (4) TMI 441 - HC - Income Tax

Notice to re-open the assessment as income chargeable to tax has escaped assessment - Writ petition by assessee on validity of the re-opening of the assessment Held that - the material gathered by the Investigation Wing provides required nexus by the reference to the names of at least three companies in which Mukesh Gupta was a Director, through which, inter alia, he was admittedly carrying on the business of providing accommodation entries for commission. These companies had subscribed for the shares issued by the assessee - assessee is linked to the business of Mukesh Gupta which leads to conclusion that income chargeable to tax had escaped assessment because of the failure of the petitioner company to furnish fully and truly all material particulars necessary for its assessment against assessee.

Summary

Issues:
1. Validity of re-opening assessment after 4 years.
2. Nexus between reasons recorded and income escaping assessment.
3. Objections to re-opening assessment.
4. Assessment based on material from Investigation Wing.
5. Prima facie belief for re-opening assessment.
6. Nexus between material gathered and re-opening assessment.

Analysis:
1. The petitioner, a Private Limited Company, filed a return for the assessment year 2004-05, which was accepted. The Assessing Officer re-opened the assessment in 2011 under Section 148 of the Income Tax Act, alleging income had escaped assessment. The petitioner objected, arguing the companies providing share capital were legitimate. The objections were dismissed, leading to the writ petition challenging the re-opening.

2. The petitioner contended that re-opening after 4 years required proof of failure to disclose material particulars. They argued the reasons recorded lacked a nexus to income escaping assessment due to incomplete details. The petitioner's name was not mentioned in statements by Mukesh Gupta, raising doubts on the re-opening's validity.

3. The objections highlighted the legitimacy of share capital sources, requesting cross-examination of Mukesh Gupta. However, the Assessing Officer rejected the objections, citing information from the Investigation Wing as the basis for re-opening.

4. The assessment was re-opened based on material from the Investigation Wing, indicating discrepancies in the share capital received by the petitioner. The statement by Mukesh Gupta revealed the modus operandi of providing accommodation entries through companies, including those that invested in the petitioner.

5. The court found the re-opening valid, as the petitioner received substantial share capital from various companies, with details from the Investigation Wing supporting the Assessing Officer's belief of income escaping assessment.

6. The court upheld the re-opening, emphasizing the nexus between the material gathered and the reasons for re-assessment. Despite the petitioner's compliance with formalities like account payee cheques, doubts arose regarding the veracity of information provided during the original assessment.

In conclusion, the court dismissed the writ petition, affirming the validity of the re-opening under Section 148 due to the petitioner's failure to fully disclose material particulars, supported by evidence from the Investigation Wing.