2018 (2) TMI 2074 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - onus to prove - sufficiency of the reasons recorded by the Assessing Officer - HELD THAT - Basic onus on the assessee to establish identity of the investor, genuineness of the transaction and creditworthiness attaches, also attaches on a company. There is a clear distinction between a situation where the company discharges its basic onus of providing details of the share applicants, genuineness of the transactions and their creditworthiness, but the Revenue still chases the company instead of inquiring with the investors if any mismatch or unexplained investments are found as compared to a situation where large scale share applications are found to be totally bogus transactions, are completely fictitious or stated to have been entered into by non existent persons or entities. The former is seen as a case where the company has discharged its own whereas the later would be a situation where the very genuineness of the transaction is in doubt. We therefore, do not accept the legal contention in this respect canvased by the counsel for the petitioner. As held by the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. 2007 (5) TMI 197 - SUPREME COURT the sufficiency of reasons cannot be gone into at this stage. Nevertheless, the Assessing Officer must have tangible materials at his command to form a belief that the income chargeable to tax had escaped assessment. In this context, we may recall the Assessing Officer referred to the materials available with him which prima facie suggested that the assessee company had received share capital and share premium from various companies which were proved to be bogus companies engaged in providing mere accommodation entries. After analysing such materials, he came to the conclusion that share capital/share premium amounting to Rs. 1.55 crores received by the assessee during the financial year 2009-2010 relevant to the present assessment year was bogus. It cannot be stated that the Assessing Officer did not have tangible materials at his command to form such a belief. His reference to materials on record must be understood in the context of facts on record. The Assessing Officer was not writing a statute. His expression therefore, cannot be seen with such rigidity. If therefore, he referred to the returns filed by the assessee and the accompanying documents as also materials received by him post acceptance of return, ofcourse without scrutiny as materials on record , he did not commit any legal error. He was ofcourse, referring to the materials placed for his consideration which enabled him to form such a belief. The contention that this is a case of borrowed satisfaction also cannot be accepted. The Assessing Officer had perused the materials and analysed the same so as to come to the conclusion that prima facie it suggested that the assessee had received large number of share applications/share premiums from the companies which were bogus companies and which engaged in providing accommodation entries. The respondent has filed affidavit stating that before issuing notice, sanction was granted by the competent authority. A statement on oath, in absence of any contrary material on record need not be disbelieved. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147/148 of the IT Act.
2. Application of Section 68 of the IT Act concerning share capital and share premium received by the petitioner.
3. Adequacy of reasons recorded by the Assessing Officer for reopening the assessment.
4. Whether the Assessing Officer acted on borrowed satisfaction.
5. Requirement of sanction from the Commissioner of Income Tax for reopening the assessment.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The petitioner challenged the notice dated 31.3.2007 issued by the respondent Assessing Officer for reopening the assessment for the assessment year 2010-2011. The return filed by the petitioner was initially accepted under Section 143(1) without scrutiny. The Assessing Officer issued the notice based on information received from other ITOs indicating that the petitioner had received share capital and share premium from companies proven to be bogus, engaged in providing accommodation entries. The court noted that since the original assessment was not scrutinized, there was no question of change of opinion, and the Revenue had wider latitude to reopen the assessment.

2. Application of Section 68 of the IT Act:
The petitioner argued that even if the investors were non-genuine, additions under Section 68 could not be made in the hands of the company, citing the Supreme Court's judgment in CIT v. Lovely Exports (P) Ltd. The court, however, clarified that the judgment did not lay down a blanket proposition that additions under Section 68 could never be made in the hands of the company. The court emphasized that the basic onus to establish the identity of the investor, genuineness of the transaction, and creditworthiness attaches to the company. The court rejected the petitioner's contention, stating that the nature of the transactions in question suggested that the share capital and share premium received by the petitioner were bogus.

3. Adequacy of Reasons Recorded by the Assessing Officer:
The court examined whether the Assessing Officer had tangible materials to form a belief that income chargeable to tax had escaped assessment. The reasons recorded by the Assessing Officer included detailed information about the bogus nature of the companies from which the petitioner received share capital and share premium. The court found that the Assessing Officer had sufficient tangible materials to form such a belief, and the sufficiency of reasons could not be questioned at this stage.

4. Borrowed Satisfaction:
The petitioner contended that the Assessing Officer acted on borrowed satisfaction, relying on information provided by other ITOs without independent application of mind. The court rejected this contention, stating that the Assessing Officer had analyzed the materials and formed an independent belief that the share capital and share premium received by the petitioner were from bogus companies.

5. Requirement of Sanction from the Commissioner of Income Tax:
The petitioner questioned whether the Commissioner of Income Tax had accorded the necessary sanction for reopening the assessment. The respondent filed an affidavit stating that the competent authority had granted the required sanction before issuing the notice. The court accepted this statement in the absence of any contrary material on record.

Conclusion:
The petition was dismissed, and the interim relief was vacated. The court upheld the validity of the reopening of the assessment, the application of Section 68 concerning the share capital and share premium received by the petitioner, and the adequacy of the reasons recorded by the Assessing Officer. The court also found that the Assessing Officer did not act on borrowed satisfaction and that the necessary sanction from the Commissioner of Income Tax was obtained.