2016 (12) TMI 739 - HC - Income Tax

Validity of reopening of assessment - reasons to believe - bogus entries made - Held that - Whilst the assessee, no doubt, replied to the queries (especially question no.10) addressed to it on 21.12.2009, the materials on record clearly show that there was no full disclosure. The requirement in such cases - whether the AO is prima facie not satisfied about the genuineness of the transaction (Section 68), is not merely to establish the genuineness of the identity but also genuineness of the transaction itself and the creditworthiness of the investor. The materials supplied to the AO at the relevant time on 07.02.2009 (by the assessee) there is singular absence of documents such as bank details of the share applicants undoubtedly, the cheque numbers were disclosed whereby amounts were received by the assessee and credited to its accounts. They were, however, not a full disclosure. A further look into the bank accounts or even the bank branches would be sufficient in the circumstances, which was possible if Bank details were given (i.e. name of bank branch etc.). Likewise, the ITR form disclosing returns raise more questions than satisfy the queries. They merely show that the share applicants paid paltry amounts as income tax even while claiming to have invested amounts ranging over ₹ 8 crores. Clearly, there was no full disclosure of material facts. Thus we are of the opinion that the petitioner is disentitled to relief. The impugned notice is valid. - Decided against assessee

Issues Involved:
1. Legality of the reassessment notice under Sections 147/148 of the Income Tax Act, 1961.
2. Validity of the reasons to believe for reopening the assessment.
3. Adequacy of the original disclosure by the assessee during the initial assessment.
4. Tangible material and its connection to the reassessment notice.

Detailed Analysis:

1. Legality of the reassessment notice under Sections 147/148 of the Income Tax Act, 1961:
The petitioner contested the reassessment notice issued by the Assessing Officer (AO) under Sections 147/148 of the Income Tax Act, 1961, arguing that the prerequisites for a valid notice were not met. The petitioner emphasized that during the original assessment for AY 2008-09, the AO had made specific queries regarding the issues now being reopened, and the petitioner had provided detailed responses. The petitioner relied on precedents such as ITO v. M/s. Mewalal Dwarka Prasad and CIT v. Kelvinator of India Limited to argue that there was no suppression of material facts justifying the notice under Section 147.

2. Validity of the reasons to believe for reopening the assessment:
The AO's "Reasons to Believe" for reopening the assessment were based on a survey conducted at the corporate office of M/s Aravali Infrapower Ltd., which revealed bogus land development expenses and share capital. The AO concluded that the companies investing in Aravali Infrapower Ltd. did not have regular sources of income and were not involved in substantial business activities. Despite the petitioner's argument that all necessary details were provided during the original assessment, the AO found that the petitioner failed to prove the genuineness of the transactions and the identity and creditworthiness of the investing companies.

3. Adequacy of the original disclosure by the assessee during the initial assessment:
The petitioner argued that it had provided all necessary information during the original assessment, including details of share capital, share premium, and unsecured loans received, along with confirmations from the parties involved. However, the court noted that the original assessment did not include full disclosure of material facts, such as bank details of the share applicants and their creditworthiness. The court cited precedents like Haryana Acrylic Manufacturing Co. v. CIT, which emphasized the need for full and true disclosure of all material facts necessary for assessment.

4. Tangible material and its connection to the reassessment notice:
The court acknowledged that the information received by the revenue regarding bogus entries and the subsequent survey constituted tangible material. However, the court also emphasized that the AO's scrutiny during the original assessment did not preclude the reassessment if there was no full disclosure of material facts. The court highlighted that the materials provided by the petitioner during the original assessment were insufficient to establish the genuineness of the transactions and the creditworthiness of the investors.

Conclusion:
The court concluded that the reassessment notice was valid, as there was tangible material indicating that income had escaped assessment due to the petitioner's failure to fully disclose all material facts during the original assessment. The petitioner's writ petition was dismissed, and the reassessment proceedings were allowed to continue.

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