2016 (6) TMI 747 - HC - Income Tax

Reopening of assessment - Ingenuine share transactions - Held that - The total of payout during the period under consideration is some what lesser than what is recorded with the Assessing Officer in terms of volume of shares and the value of receipt. However, when such large entries are being examined and corelated, minor discrepancy would not shake the very foundation of reason to believe, particularly when substantial portion of such alleged payout is demonstrated through the entries, matching with the BSE record of buying and selling data of Prraneta Industries Limited. In the reasons recorded, the Assessing Officer has mentioned that such amount of ₹ 4.03 crores is received by the assessee during the assessment year 2010-11/2011-12 which is not genuine transaction. This one statement cannot be picked out of context and appreciated in isolation to argue that the Assessing Officer is not clear as to in which year such income should be taxed. The notice for the reopening was issued for the assessment year 2010-11, majority of transactions are relevant to such assessment year. If a small portion of the entries related to the subsequent assessment year, it would not mean that the assessment cannot be reopened for the year during which majority of these transactions actually took place. With respect to the additional ground raised in the other petitions, the data provided by the Revenue for a total of 4,50,572 shares which has stated to have been claimed, it is true that some 30,843 fall during the period post 31.03.2011. However, majority of the sale of shares of nearly 4,20,000 was during the period 01.04.2010 to 31.03.2011 and only on this ground therefore, we would not be justified in quashing the notice for reopening. - Decided against assessee

Issues Involved:
1. Validity of the reasons for reopening the assessment.
2. Adequacy of the material on record to establish the formation of belief that income chargeable to tax had escaped assessment.
3. Specificity of the assessment year in question.
4. Relevance of the material relied upon by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of the reasons for reopening the assessment:
The petitioner contested the validity of the reasons for reopening the assessment, arguing that there was no material on record to establish any payout made to the petitioner as recorded in the reasons. The petitioner’s counsel argued that the formation of the belief by the Assessing Officer that income chargeable to tax had escaped assessment was wholly invalid. The court, however, found that the reasons recorded by the Assessing Officer detailed the manner in which Shirish Chandrakant Shah had created a web of sham companies to provide accommodation entries, including long-term capital gains through the sale of shares. The court concluded that there was prima facie material suggesting that Prraneta Industries Limited was one such company used for this purpose, and therefore, the reasons for reopening the assessment were valid.

2. Adequacy of the material on record to establish the formation of belief that income chargeable to tax had escaped assessment:
The petitioner argued that the Assessing Officer’s belief was invalid as there was no payout of ?4,03,34,595/- for the sale of 9,55,644 shares as stated in the reasons. The court examined the material produced by the Revenue, including the reconciliation of entries in the "n navkar bips" file with the data from the Bombay Stock Exchange (BSE). The court found prima facie justification for the Assessing Officer’s conclusion that the petitioner had received a payout for the sale of shares of Prraneta Industries Limited. The court held that there was a live link between the material on record and the formation of the belief that the income chargeable to tax had escaped assessment.

3. Specificity of the assessment year in question:
The petitioner’s counsel argued that the Assessing Officer was uncertain whether the sum of ?4.03 crores represented unassessed income for the assessment year 2010-11 or 2011-12. The court noted that the majority of the transactions were relevant to the assessment year 2010-11 and that a small portion of the entries related to the subsequent assessment year. The court held that this minor discrepancy did not invalidate the reopening of the assessment for the year during which the majority of the transactions took place.

4. Relevance of the material relied upon by the Assessing Officer:
In other petitions, the petitioner’s counsel argued that the Revenue had included payments made to the petitioner for the sale of shares after 01.04.2011 for reopening the assessment for the assessment year 2011-12, where the relevant period would be 01.04.2010 to 31.03.2011. The court found that the majority of the sale of shares occurred during the period 01.04.2010 to 31.03.2011, and only a small portion of the entries related to the subsequent assessment year. The court held that this did not justify quashing the notice for reopening.

Conclusion:
The court dismissed all petitions, discharged the notices, and vacated the interim relief, concluding that the reasons for reopening the assessment were valid, there was sufficient material on record to form a belief that income chargeable to tax had escaped assessment, and the minor discrepancies did not invalidate the reopening of the assessment.

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