2013 (1) TMI 316 - HC - Income Tax

Reopening of assessment - more than Rs.100 crores of rupees has been siphoned by Maharaja Prithvi Raj & Maharaja Jai Singh (Director) out of the companies accounts - traveling and conveyance from the years 2002-03 to 2007-08 expenses were not related to the petitioner s business - Held that - As in respect of the foreign travel expenses, no details were furnished by the assessee at the time of the original assessment, except a bare noting that a part of such expenditure was incurred in foreign currency. No details of the place visited and the purpose of the visit and how the visit was connected to the business of the petitioner were furnished. The assessee was under a duty to disclose these particulars fully and truly at the time of the original assessment particularly so because under the arrangement with the Taj Group of Hotels it would appear that the petitioner was not under any obligation to incur the expenditure. No attention was drawn by the petitioner to any particular document or record in which the full and true particulars of the foreign travel expenses were submitted at the time of the original assessment nor was it disputed that there was such a clause in the agreement with Taj group. There was thus a failure on the part of the petitioner which would attract the first proviso to Section 147. The contention that the reopening was prompted by a mere allegation of irregularities without any tangible material or finding is not acceptable. The complaint has been filed by Raj Kumar Devraj, one of the directors of assessee company, before the Company Law Board and some credibility has to be accorded to the same as it was filed before a statutory authority competent to deal with the complaint, it must be taken to have been filed with some responsibility. There is also mention in the reasons recorded to an agreement between the petitioner and the Taj Group of Hotels under which the responsibility of incurring foreign travel expenses is with the Taj Group. Thus as the petitioner did not furnish any particulars relating to the foreign tours and their connection with the business it cannot be said that the reopening of the assessment is without jurisdiction. Expenditure debited under the head repairs and maintenance of building and additions to fixed assets were actually siphoned off by illegal withdrawals with the connivance of the contractors appointed in consultation and for the personal benefit of Maharaja Prithviraj Singh and Maharaja Jai Singh - assessment year 2004-05 - reassessment beyond the period of four years - Held that - As in respect of the assessment year 2004-05, not only did the petitioner furnish all the relevant details relating to the purchase of fixed assets, repairs and maintenance of buildings but also the details relating to the foreign travel expenses. The proceedings relating to the original assessment also show that the assessing officer had raised queries regarding repairs and maintenance of building, plant and furniture which were answered by the petitioner. No query would appear to have been raised in relation to the foreign travel expenses in regard to which the petitioner had furnished the relevant details. In these circumstances, it cannot be said that there was any failure on the part of the petitioner to submit full and true particulars at the time of the original assessment. It was for the assessing officer to examine the details and draw the appropriate inferences. The notice under Section 148 issued for the assessment year 2004-05 is therefore without jurisdiction. Assessment year 2005-06 - Held that - There was a complaint filed by one of the directors before the Common Law Board alleging irregularities such as illegal siphoning off of the company s funds by the other two directors in the guise of fixed assets, repairs and maintenances, travelling expenses etc. This complaint constitutes tangible material on the basis of which action to reopen the assessment can be taken in good faith; the belief entertained by the assessing officer on the basis of the complaint which has been filed with some responsibility by one of the directors of the petitioner, cannot be said to be a mere pretence nor can the belief be said to be divorced from the material. Thus uphold the notice issued under Section 148.

Summary

Issues Involved:
1. Validity of reassessment notices under Section 148 of the Income Tax Act, 1961.
2. Failure to disclose material facts fully and truly.
3. Tangible material for reopening assessments.
4. Jurisdiction of the assessing officer to reopen assessments.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Notices under Section 148 of the Income Tax Act, 1961:
The reassessment notices were challenged by the petitioners on the grounds that they were issued beyond the permissible time limit and without any new material or facts justifying the reopening of the assessment. The court examined whether the notices issued under Section 148 were valid and whether the assessing officer had the jurisdiction to issue such notices.

2. Failure to Disclose Material Facts Fully and Truly:
The court scrutinized whether the petitioners had failed to disclose all material facts fully and truly during the original assessment proceedings. For the assessment year 2003-04, the court noted that the petitioner had disclosed details of repairs and maintenance expenses, additions to fixed assets, and foreign travel expenses in the original assessment. However, it was found that the petitioner did not furnish specific details regarding foreign travel expenses, which were necessary due to the operational agreement with the Taj Group of Hotels. This failure to disclose was deemed sufficient to attract the first proviso to Section 147 of the Act, justifying the reopening of the assessment.

3. Tangible Material for Reopening Assessments:
The court evaluated whether the complaint filed by one of the directors, Raj Kumar Devraj, constituted tangible material for reopening the assessments. The complaint alleged siphoning of funds by the directors under the guise of repairs and maintenance expenses, additions to fixed assets, and foreign travel expenses. The court held that the complaint, being filed before a statutory authority like the Company Law Board, constituted credible and tangible material for the assessing officer to form a belief that income chargeable to tax had escaped assessment.

4. Jurisdiction of the Assessing Officer to Reopen Assessments:
The court assessed the jurisdiction of the assessing officer to reopen the assessments based on the tangible material provided by the complaint. For the assessment year 2004-05, the court found that the petitioner had furnished all relevant details during the original assessment proceedings, and there was no failure to disclose material facts. Therefore, the reopening notice for this year was deemed without jurisdiction. However, for the assessment year 2005-06, where the return was processed under Section 143(1) without scrutiny, the court upheld the reopening notice, stating that the assessing officer had reasonable grounds to believe that income had escaped assessment based on the complaint.

Separate Judgments Delivered:
- For WP(C) No.7023/2010 (AY 2003-04), WP(C) No.7206/2012 (AY 2005-06), WP(C) No.7513/2010, and WP(C) No.7516/2010, the court dismissed the petitions, upholding the validity of the reassessment notices.
- For WP(C) No.8825/2011 (AY 2004-05), the court allowed the petition, declaring the reassessment notice as without jurisdiction due to full and true disclosure of material facts by the petitioner during the original assessment.

Conclusion:
The court's judgment emphasized the necessity for the assessing officer to have tangible material and a bona fide belief for reopening assessments under Section 148. It also highlighted the importance of full and true disclosure of material facts by the assessee during the original assessment proceedings.