2019 (2) TMI 1514 - HC - Income Tax

Reopening of assessment - undisclosed share application amounts - substantial cash transactions - HELD THAT - The primary duty is upon the assessee to disclose material facts relating to share application amounts credits claimed etc. In the present case the details of all sundry creditors were disclosed; the nature of business transactions by cash intensive transaction all bank statements were also furnished in the original assessment. In case the AO was not satisfied he ought to have made further inquiries seeking confirmations in respect of particular entries. In the present case no such inquiry was made. The failure of the Revenue in that regard does not clothe it with the power to carry out reassessment under Section 147/148. This Court is also of the opinion that the principal basis for reassessment appears to be the opinion of the Revenue that substantial cash transactions were carried out having regard to the date of opening of the accounts which were not verified. Now this Court is of the opinion that this reason is vague. The duty of the assessee is to disclose the bank statements for the relevant year which it did. As to what inferences are to be drawn for the previous years is not within the remit of the AO and consequently of no relevance whatsoever at least in considering whether to issue or not to issue reassessment notice on just cash intensive transactions; clearly this reason is vague and unjustified. - Decided in favour of assessee.

Summary

Issues:
1. Legality of the re-assessment notice dated 30.03.2016 under Section 147/148 for A.Y.2009-10.
2. Justification of re-assessment based on information received from the investigation wing.
3. Disclosure of relevant material facts by the assessee during the original assessment.
4. Interpretation of 'new material' leading to income escaping assessment.
5. Duty of the assessee in disclosing material facts related to cash deposits.

Analysis:

Issue 1: Legality of the re-assessment notice
The petitioner challenged the re-assessment notice, arguing that all necessary information for income computation was provided during the scrutiny assessment under Section 143(3) on 30.11.2011. The notice was based on information from an investigation into a company's bank account activities, alleging that a substantial amount had escaped assessment. The petitioner contended that the re-assessment lacked fresh or tangible material justifying it.

Issue 2: Justification of re-assessment based on investigation
The Revenue defended the re-assessment, stating it relied on information from the investigation wing, indicating that income of at least &8377;4.36 crores had escaped assessment for A.Y. 2009-10. The investigation report formed the basis of the re-assessment notice. However, the petitioner argued that the vague internet searches and information did not constitute material withheld during the original assessment.

Issue 3: Disclosure of relevant material facts
The Court noted that during the original scrutiny assessment, the petitioner had disclosed all relevant material facts, including bank statements, sundry creditors, and detailed business transactions. The petitioner had replied to all queries and provided necessary documents, fulfilling the duty to disclose related material facts.

Issue 4: Interpretation of 'new material'
The Court emphasized the requirement for 'new material' to justify reassessment, as established in previous judgments. The failure of the Revenue to make further inquiries or seek confirmations regarding specific entries did not warrant reassessment under Section 147/148. The Court highlighted the importance of disclosing material facts by the assessee and conducting thorough inquiries before reassessment.

Issue 5: Duty of the assessee in disclosing cash deposits
The Court found the reasoning for reassessment based on substantial cash transactions and unverified accounts to be vague and unjustified. The duty of the assessee to disclose bank statements was fulfilled, and the AO's interpretation of previous years' transactions was deemed irrelevant to the reassessment process. Consequently, the Court quashed the re-assessment notice and all related proceedings.

Overall, the Court ruled in favor of the petitioner, emphasizing the importance of fulfilling disclosure duties and requiring concrete 'new material' to justify reassessment under the Income Tax Act, 1961.