2015 (2) TMI 733 - HC - Income Tax

Validity of reopening of assessment - Held that - The reasons to believe recorded by the AO and duly communicated to the assessee had noted that its name figures as one of the beneficiaries of alleged bogus transactions, which had cropped up during the investigation carried out by the Directorate of Investigation, Jhandewalan. The entries relating to the transactions and the sums of money were also included in tabular statement as part of the note. CIT v. M/s Kelvinator of India Ltd, (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) states that the reassessment can be resorted to if there is tangible material justifying such move. The receipt of the investigation report in the opinion of the Court, undoubtedly constituted such tangible material outside the record, which were received by the AO after the assessment was processed under Section 143 (1). - Decided against assessee. Absence of notice under Section 143 (2) - Held that - In the present case, there is no doubt at all that the assessee cooperated and appeared both in the assessment as well as reassessment proceedings. Therefore, it had deemed notice of the re-assessment proceedings. Its contentions were taken into account. In such circumstances, issuance of notice is a mere empty formality. Thus, the non-issuance of notice, in the opinion of the Court, shall not vitiate the assessment proceedings after due service of notice under Section 147. - Decided against assessee. Addition u/s 68 - Held that - Both the purchasers did not respond to notices issued by the income tax authorities. Furthermore, the AO s enquiry reveal that these purchasers had insubstantial means and could not reasonably be said to possess the means to make the investments that they did, in purchasing the assessee s shares for the amounts reported by it. Besides, as to whether the transaction was genuine or not is a pure finding of fact which has concurrently been rendered against the assessee. - Decided against assessee.

Summary

Issues:
1. Validity of re-assessment proceedings under Section 147
2. Absence of notice under Section 143(2)
3. Merits of addition of Rs. 4,84,000 under Section 68

Issue 1: Validity of re-assessment proceedings under Section 147:
The assessee challenged the re-assessment proceedings initiated under Section 147. The court noted that the AO had tangible material justifying the reassessment based on information from the Directorate of Investigation. The court referenced the case law CIT v. M/s Kelvinator of India Ltd to support the legality of the reassessment. The court concluded that the reasons to believe constituted tangible material, and thus rejected the challenge to the initiation of re-assessment proceedings.

Issue 2: Absence of notice under Section 143(2):
The assessee argued the absence of notice under Section 143(2) vitiated the proceedings. However, the court invoked Section 292BB, which deems notice to be valid if the assessee has cooperated in the inquiry or proceeding. As the assessee had cooperated in both assessment and reassessment proceedings, the court held that the notice was deemed to be valid. The court emphasized that the non-issuance of notice did not affect the assessment proceedings after due service of notice under Section 147.

Issue 3: Merits of addition of Rs. 4,84,000 under Section 68:
Regarding the addition of Rs. 4,84,000 under Section 68, the court referred to CIT v. Lovely Exports to establish the requirements for introducing Section 68. The court highlighted the need to establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. The court found that the purchasers did not respond to notices, had insubstantial means, and could not reasonably afford the investments. The court considered the transaction's genuineness as a factual finding against the assessee. Consequently, the court dismissed the appeal, finding no grounds for interference and no substantial question of law.

In conclusion, the court upheld the re-assessment proceedings, deemed the notice under Section 143(2) as valid, and found the addition under Section 68 justified based on the lack of creditworthiness and genuineness of the transaction by the purchasers. The appeal was dismissed accordingly.