2016 (6) TMI 899 - HC - Income Tax

Reopening of assessment - failure to produce share application form details of shares allotted to the so called share holders and proof of attendance of Annual General Board Meeting of the said so called share holders. - Held that - The Assessing Officer has recorded detailed reasons recording that during the survey proceedings, the company failed to produce share application forms, details of shares allotted to the share holders, proof of attendance of annual general meeting of the share holders etc. During such survey, the Director of company verified the identity of the so-called share holders and it was found that the company and its persons did not exist at the address available with the assessee-company. The assessee-company had forfeited the share capital and share premium but failed to produce any details to show the action taken by the company regarding forfeiture. It was on the basis of such reasons the Assessing Officer has recorded the reasons to believe that income chargeable to tax has escaped assessment. We do not find such reasons lacked validity or a live link with the material on record enabling the Assessing Officer to form such a belief. As held by the Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007 (5) TMI 197 - SUPREME Court ) at this stage, it is not necessary for the Assessing Officer to conclusively establish that income would be invariably taxed. The inquiry of the Court while examining notices for re-opening, where original assessment is not framed after scrutiny is necessarily extremely narrow. The question whether said income can be taxed in the hands of the assessee or the department can proceed only against the investors would also depend on various facts and circumstances and only on such an assertion the reopening proceedings cannot be terminated. Undoubtedly, when share investment is made by the large number of persons, the company, in whose shares such investments are made, cannot be held responsible for unaccounted investments of such investors even if so found to have been made since it would be unaccounted investment of the investors not of the company. Nevertheless, if it is found that the entire transaction of the so called investment is wholly bogus, routing unaccounted income of the company itself through large scale allotment of shares to bogus entities and so-called investors, the question of taxing the company itself may arise. - Decided against assessee.

Issues Involved:
1. Validity of the notice for re-opening the assessment.
2. Requirement of "reason to believe" for income escapement.
3. Examination of the genuineness of share capital and share premium transactions.
4. Applicability of the Supreme Court's decision in Commissioner of Income Tax vs. Lovely Exports (P) Ltd.
5. Jurisdiction and procedural correctness of the Assessing Officer's actions.

Detailed Analysis:

1. Validity of the notice for re-opening the assessment:
The petitioner challenged the notice dated 23.02.2014 for re-opening the assessment for the assessment year 2009-10. The court noted that the original assessment was accepted under Section 143(3) of the Act without scrutiny. The re-opening was based on information obtained during survey proceedings under Section 133A and assessment proceedings for the year 2012-13. The court held that since the original assessment was not made after scrutiny, the question of change of opinion did not arise.

2. Requirement of "reason to believe" for income escapement:
The court emphasized that the Assessing Officer must have a "reason to believe" that income chargeable to tax has escaped assessment, as per Section 147 of the I.T. Act. The reasons recorded by the Assessing Officer included the failure of the petitioner to produce share application forms, details of shares allotted, and proof of attendance of the Annual General Meeting of shareholders. The Director of the company verified that the shareholders did not exist at the provided addresses. The court found that the reasons recorded were valid and had a live link with the material on record.

3. Examination of the genuineness of share capital and share premium transactions:
The court examined whether the share capital and share premium transactions were genuine. The petitioner had received substantial amounts as share capital and share premium from various entities. During the survey, the petitioner failed to provide sufficient details to prove the genuineness of these transactions. The court referred to several judgments, including the Delhi High Court's decisions in Riddhi Promoters P. Ltd. vs. Commissioner of Income Tax and Commissioner of Income Tax vs. Youth Construction Pvt. Ltd., which highlighted the importance of proving the identity, creditworthiness, and genuineness of transactions.

4. Applicability of the Supreme Court's decision in Commissioner of Income Tax vs. Lovely Exports (P) Ltd.:
The petitioner relied on the Supreme Court's decision in Commissioner of Income Tax vs. Lovely Exports (P) Ltd., which stated that unaccounted investments in shares could not be taxed in the hands of the company but only in the hands of the investors. The court, however, noted that if the entire transaction of investment was found to be bogus, routing unaccounted income through large scale allotment of shares to bogus entities, the question of taxing the company itself could arise.

5. Jurisdiction and procedural correctness of the Assessing Officer's actions:
The court held that the Assessing Officer had jurisdiction to issue the notice for re-opening the assessment based on the reasons recorded. The court referred to the Supreme Court's decision in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd., which clarified that the formation of belief by the Assessing Officer is within the realm of subjective satisfaction and does not require conclusive evidence at the initiation stage.

Conclusion:
The court dismissed the petitions, upholding the validity of the notice for re-opening the assessment and the actions of the Assessing Officer. The court also noted a typographical error in the date of the impugned notice, which was corrected accordingly.

← Previous Next →