2019 (11) TMI 935 - HC - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - HELD THAT - Person/ entity found to be indulging in the activity of providing accommodation entries, may have entered into some genuine transactions as well. It would be essential for the AO of such third party/ parties to find a live-link, i.e. a link which is actionable between the person/ entity indulging in the activity of providing accommodation entries and such third party/ Assessee. The person who has undertaken such financial transaction(s) with such a person/ entity (the bogus entry provider) cannot avoid further scrutiny of such a transaction by laying a challenge to the re-opening of the assessment u/s 147/148 when the re-opening is, otherwise, within the period of limitation. In the present case, the live-link between the said material information, and the formation of the belief that taxable income has escaped assessment is the fact that the petitioner, admittedly, received ₹ 3 crores from M/s Prraneta Industries Ltd., now known as M/s Adhar Venture India Ltd. This live-link is actionable as it was found and acted upon within the period of limitation under the proviso to Section 147 of the Act. A serious and well founded doubt about the genuineness of the transaction would justify formation of the reasonable belief that taxable income has escaped assessment in the light of the scheme of Section 68 of the Act, which provides that cash credits which, in the opinion of the AO are not satisfactorily explained, would be charged to income tax as the income of the assessee. The subsequent acquisition of knowledge that the monetary transaction (including of the kind discussed above) undertaken by the assessee was with a bogus entity/ person such as an accommodation entry provider which knowledge was not available to the Assessing Officer at the time of completion of the scrutiny assessment, would be a material change of circumstances, and the formation of belief that taxable income has escaped assessment would not suffer from the taint of simplicitor change of opinion. One cannot lose sight of the fact that once the proceedings are reopened, the assessee would have full opportunity to meet the material/ evidence that the Assessing Officer may seek to rely upon to re-compute the taxable income in accordance with law. Moreover, an assessment order passed by the Assessing Officer would be open to challenge in appeals under the Act. AO while making the regular assessment did not undertake the scrutiny that he should have undertaken in respect of the investment into the share capital of the petitioner by Pranetta Industries Ltd. Though the identity of the investor Pranetta Industries Ltd. stood established, neither the financial capacity/ creditworthiness of the said investor companies, nor the genuineness of the transaction was examined. We have already extracted herein above the assessment order passed by the AO during regular assessment. Since the investor company Pranetta Industries Ltd. (now known as Aadhar Venture India Limited) has been found to be an entry provider, most certainly, there was reasonable cause for belief that the monies received by the petitioner from Pranetta Industries Ltd. may also be part of the bogus entries provided by Pranetta Industries Ltd. and, consequently, the taxable income of the petitioner had escaped the assessment. No merit in the present petition, so far as the challenge to the issuance of notice under Section 148 of the Act is concerned, on the ground of wrong assumption of jurisdiction. The notice dated 29.03.2019 is sustained. Grievance raised by the petitioner is that along with the reasons to believe, the petitioner was not provided with any material on the basis of which the reasons are recorded - submission is that due to the relevant material and documents not being provided, the right of the petitioner to raise objections has been effectively curtailed - The right vested in the assessee to raise objections and invite an order thereon, has been conferred by the Supreme Court on the assessee by its decision in M/s GKN Driveshafts (India) Ltd Vs ITO 2002 (11) TMI 7 - SUPREME COURT . The purpose of such an opportunity appears to be, to explore the possibility of the re-assessment proceedings being dropped, even if validly re-opened, after consideration of objections that the assessee may have. The said right cannot be reduced to an empty formality. Therefore, we set aside the order dated 30.08.2019, passed by the respondent disposing of the objections of the petitioner. We permit the petitioner to raise its objections in the light of the documents provided by the respondent today in Court within seven days from today. No further time shall be granted for that purpose. The Assessing Officer shall decide the objections that may be raised within two weeks from today.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Justification for reopening the assessment under Section 147 of the Act.
3. Adequacy of the material provided to the petitioner for raising objections.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961, alleging escapement of income chargeable to tax for the assessment year 2012-13. The petitioner argued that the notice was not served to M/s Adhar Venture India Ltd. (formerly M/s Pranetta Industries Ltd.) at the correct address. The Court found that the notice under Section 133(6) of the Act was indeed sent to an incorrect address. However, the non-receipt of a response to this notice was not the sole reason for reopening the assessment. The primary reason was the information received from DCIT, Central Circle-2(2), Mumbai, indicating that M/s Pranetta Industries Ltd. was engaged in providing accommodation entries.

2. Justification for reopening the assessment under Section 147 of the Act:
The Court examined the reasons recorded by the Assessing Officer for reopening the assessment, which included the involvement of M/s Pranetta Industries Ltd. in providing bogus accommodation entries. The investigation report from DCIT, Central Circle-2(2), Mumbai, based on a search conducted under Section 132 of the Act, revealed that M/s Pranetta Industries Ltd. made investments in the petitioner company, which were part of accommodation entries. The Court referred to the Supreme Court's decision in Principal Commissioner of Income Tax (Central)- I v. NRA Iron & Steel Pvt. Ltd., which emphasized the onus on the assessee to prove the genuineness of transactions, identity, and creditworthiness of investors. The Court found that the Assessing Officer had reasonable grounds to believe that the petitioner’s income had escaped assessment due to dubious transactions with M/s Pranetta Industries Ltd.

3. Adequacy of the material provided to the petitioner for raising objections:
The petitioner contended that they were not provided with the material on which the reasons for reopening were based, thereby curtailing their right to raise objections. The Court noted that the right to raise objections and receive an order thereon is conferred by the Supreme Court in M/s GKN Driveshafts (India) Ltd Vs ITO. The Court set aside the order dated 30.08.2019 disposing of the petitioner’s objections and allowed the petitioner to raise objections in light of the documents provided by the respondent in Court. The Assessing Officer was directed to decide the objections within two weeks, and reassessment proceedings were to be stayed during this period.

Conclusion:
The Court upheld the notice dated 29.03.2019 under Section 148 of the Act, finding the reopening of the assessment justified based on the information received about the dubious nature of transactions with M/s Pranetta Industries Ltd. However, it directed the Assessing Officer to provide the petitioner with all relevant material and reconsider the objections raised by the petitioner before proceeding with the reassessment.