2017 (10) TMI 320 - HC - Income Tax

Reopening of assessment - sham transaction converting the black money into that of share money or security money through a shell company - Held that - In the present case after conclusion of the assessment order under Section 143(3) of the Act, the Assessing Officer received information that the disclosure, as made by the petitioner in the return, is bogus for the reason that it was a sham transaction only for the sake of converting the black money into that of share money or security money through a shell company. The aforesaid material was in no way unreliable or unauthentic, inasmuch as it was on the basis of statement of the person, running the shell company, who himself has confessed that the petitioner is one of the company, which had received a sum of ₹ 14,70,15,000/- as security premium during the assessment year 2008-09. The narration of facts and material in the reasons to believe impliedly amounts to saying that the assessee is guilty of not disclosing the true and full material facts necessary for assessment. In such a situation, even if there was a disclosure of the aforesaid amount in the return filed by the petitioner under Section 139 of the Act and the assessment was completed under Section 143(3) of the Act, it would not amount to be a full and true disclosure of the material facts necessary for completion of the assessment. We do not deem it fit to interfere with the re-assessment proceedings or impugned notice issued under Section 148 of the Act. - Decided against assessee.

Issues Involved:
1. Legality of re-assessment proceedings initiated under Section 148 of the Income Tax Act, 1961.
2. Requirement of "reasons to believe" for re-opening assessment.
3. Disclosure of full and true material facts by the assessee.
4. Validity of notice issued beyond the four-year limitation period.

Issue-wise Detailed Analysis:

1. Legality of re-assessment proceedings initiated under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the re-assessment proceedings initiated for the assessment year 2008-09 via notice dated 30.03.2015 issued under Section 148 of the Income Tax Act, 1961. The petitioner argued that the Assessing Officer lacked jurisdiction to proceed under Section 147 of the Act since the petitioner had disclosed full and complete particulars relevant for the assessment in the return. The court examined whether the re-assessment proceedings were legally valid, especially considering the time frame and the necessity of "reasons to believe."

2. Requirement of "reasons to believe" for re-opening assessment:
The court emphasized that for re-assessment under Section 147, there must be "reasons to believe" that income chargeable to tax has escaped assessment. This belief must be based on new, tangible material. The court noted that the Assessing Officer received information from a search and seizure operation, where Jagdish Prasad Purohit admitted to providing bogus entries, including a sum of ?14,70,15,000/- to the petitioner. This new information was deemed sufficient to form a belief that income had escaped assessment.

3. Disclosure of full and true material facts by the assessee:
The court scrutinized whether the petitioner had disclosed all material facts necessary for assessment. The petitioner argued that the amount in question was disclosed in the return, and the assessment order under Section 143(3) had considered it. However, the court referred to the Supreme Court's decision in M/s Phool Chand Bajrang Lal, which held that mere disclosure of a transaction later found to be bogus does not constitute full and true disclosure. The court concluded that the petitioner's disclosure was not full and true, as the transaction was a sham to convert black money into legitimate funds.

4. Validity of notice issued beyond the four-year limitation period:
The court examined the proviso to Section 147, which stipulates that no action can be taken after four years unless income escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court found that the Assessing Officer's reasons to believe impliedly asserted the petitioner's failure to disclose true and full material facts. Thus, the notice issued beyond the four-year period was deemed valid.

Conclusion:
The court dismissed the writ petition, holding that the re-assessment proceedings and the notice issued under Section 148 were valid. The Assessing Officer was permitted to proceed with the assessment uninfluenced by the court's observations.

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