2016 (9) TMI 559 - HC - Income Tax

Reopening of assessment - complaint contained allegations of a private citizen directors of the petitioner-company - Held that - What the Assistant Director communicated to the Assessing Officer in the present case was a private complaint making serious allegations of fraud and financial irregularities against the directors of the petitioner-company. Such allegations by itself would not make a valid ground to reopen the assessment unless coupled with some further reliable material. If the investigation wing had carried out any inquiry after receipt of such a private complaint, the contents thereof are not on record before us and at any rate, never brought to the notice of the Assessing Officer. Before the Assessing Officer there were only two documents. First was the said undated complaint inwarded in the department on 05.03.2008 and second was the covering letter of the Assistant Director of Income Tax (Investigation Wing) dated 28.03.2011 along with which the said private complaint was annexed. As noted, a private complaint without any further investigation by the authorities surely not be a tangible material to enable the Assessing authority to form a belief that income chargeable to tax had escaped assessment. Letter of Assistant Director (Investigation) also did not contain any further material regarding the allegations made by the complainant. In the said letter, he merely brought to the notice of the Assessing Officer that during investigation in connection with the said complaint against Shri Jugal M. Biyani and Shri Rajesh R Bansal, it was found that there were allegations of the assessee-company having claimed undue rebates from the Central Excise department. This letter was addressed on 28.03.2011. Notice under Section 148 of the Act was getting time barred on 31.03.2011. The Assessing Officer was, therefore, under time pressure. He mechanically issued the notice for reopening relying on these two documents. Neither of these two documents contained any material regarding the irregularities of the assessee-company. The complaint contained allegations of a private citizen. The letter of the Assistant Director contained no further information on the issue of reliability of the allegations made in the complaint. Though this letter referred to some findings concerning the assessee during the investigation into the complaint, no such material was placed at the disposal of the Assessing Officer. Assessing Officer stressed the need to verify the accounts of the assessee. In the affidavit in reply filed in this petition also, similar stand was taken by the Assessing Officer while stating that on basis of said information, the detail verification in this regard is absolutely necessary to find out the possibility of escapement of income for the assessment year 2004-05. There is a possibility of a nexus between the petitioner, its directors and other firms to systematically earn hidden income by claiming rebate from the Central Excise Department and evade their liability to pay income tax. All along therefore, the Assessing Officer desired to reopen the assessment to verify whether there had been evasion of tax, surely a purpose for which, the power of reopening cannot be resorted to. - Decided in favour of assessee

Summary

Issues:
Challenge to notice for reopening assessment for the assessment year 2004-05 based on allegations of tax evasion and fraud by company directors.

Analysis:
1. The petitioner, a company, filed a return for the assessment year 2004-05 claiming deduction under Section 80HHC. The Assessing Officer restricted the deduction to a lower amount than claimed. A notice to reopen the assessment was issued beyond the statutory period based on allegations of tax evasion by the company directors.

2. The petitioner contended that the notice lacked valid grounds as the information relied upon was a private complaint without further investigation. The petitioner argued that the notice was issued for a fishing inquiry without substantial evidence to suggest income had escaped assessment due to failure to disclose material facts.

3. The respondent opposed the petition, stating that the investigation wing's report revealed excise duty evasion and fraud by the company directors. The Assessing Officer issued the notice after considering this information and forming independent reasons for reopening the assessment.

4. Upon perusal of the original file, it was found that the complaint against the company directors alleged irregularities and fraud in claiming rebates from the Central Excise Department. The complaint implicated the petitioner-company in earning undisclosed income through fraudulent means.

5. The Assistant Director of Income Tax forwarded the complaint to the Assessing Officer, suggesting prompt action before the notice issuance deadline. The notice was issued based on this communication and the complaint, alleging the company's involvement in excise duty evasion and rebate claims.

6. The court found that the notice lacked substantial grounds for reopening the assessment. The private complaint alone, without further investigation or reliable evidence, did not provide sufficient basis for the Assessing Officer to form a belief that income had escaped assessment.

7. The Assessing Officer's post-notice observations highlighted the need for verification and examination of the company's accounts. However, the lack of concrete evidence linking the company to tax evasion or irregularities undermined the validity of the notice for reopening the assessment.

8. Ultimately, the court quashed the impugned notice dated 30.03.2011, ruling in favor of the petitioner and disposing of the petition accordingly. The decision was based on the insufficiency of evidence and grounds to support the reopening of the assessment for the assessment year 2004-05.