2018 (1) TMI 194 - HC - Income Tax

Reopening of assessment - undisclosed income of the assessee company which received the contribution to its share capital - Held that - Prior to amendment to Section 68 of the Act by addition of the proviso, there is no responsibility upon the assessee to explain the source of share capital as the amendment is not retrospective. Further where share application money is received from the alleged bogus share holders, whose names are available with the Assessing Officer, then the Revenue is free to open their individual assessments in accordance with law, but it could not be regarded as undisclosed income of the assessee company which received the contribution to its share capital. In view of the decisions of this Court in Gagandeep Infrastructure Pvt. Ltd. (2017 (3) TMI 1263 - BOMBAY HIGH COURTa) and the Apex Court in Lovely Exports (P) Ltd. (2008 (1) TMI 575 - SUPREME COURT OF INDIA), prima facie, the Assessing Officer, could not have reason to believe that the income chargeable to tax has escaped assessment. - Decided in favour of assessee.

Summary

Issues:
Challenge to Notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2010-11.

Analysis:
The petition challenges a Notice dated 22nd March, 2017, seeking to reopen the assessment for the mentioned Assessment Year under Section 148 of the Income Tax Act, 1961. The reasons for reopening the assessment were based on information received from the Director General of Income Tax regarding alleged accommodation entries provided by Mr. Praveen Jain, leading to the Assessing Officer forming a belief that income chargeable to tax had escaped assessment. The petitioner objected to the reopening, arguing that prior to the amendment to Section 68 of the Act, the company was not required to explain the source of share capital. Citing the case of Commissioner of Income Tax Vs. M/s. Gagandeep Infrastructure Pvt. Ltd. and Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., the petitioner contended that the Assessing Officer had no reason to believe that income had escaped assessment. Despite these arguments, the objections were ignored by the Assessing Officer in the order.

The Court, considering the decisions in Gagandeep Infrastructure Pvt. Ltd. and Lovely Exports (P) Ltd., held that the Assessing Officer could not have had reason to believe that income had escaped assessment. Consequently, an interim stay was granted in favor of the petitioner. The Counsel for the Revenue waived service, and the petitioner's Counsel agreed to remove the objections within two weeks to ensure the petition's regular processing. Failure to do so within the stipulated time could result in dismissal of the petition and vacation of the interim relief granted.