2020 (1) TMI 89 - HC - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - whether there has been application of mind, or is it merely a case of change of opinion which forms the basis of the re-opening of assessment, and; whether, the objections of the petitioner have been properly dealt with, and; whether, the AO has acted on mere suspicion, or he had a good reason to believe that taxable income had escaped assessment? - HELD THAT - AO while making the regular assessment did not undertake the scrutiny that he could have undertaken in respect of the investment into the share capital of the petitioner by M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. Though the identity of the investor M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may have been established, neither the financial capacity/ creditworthiness of the said investor companies, nor the genuineness of the transaction was examined. Since the two investor companies M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. have been found to be promoted by an accommodation entry provider, most certainly, there was reasonable cause for belief that the monies received by the petitioner from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may also be part of the bogus entries provided by them and, consequently, the taxable income of the petitioner had escaped the assessment. The submission of learned counsel that the impugned notice and reasons suffer from non-application of mind, merely because the respondents have failed to take into consideration the fact that the earlier assessment was a scrutiny assessment, is neither here nor there. This is for the reason that the reasons for re-opening are detailed, and clearly bring out the justification and cause for re-opening. Moreover, when we see the original assessment order dated 07.07.2014, we find that there is absolutely no examination or discussion with regard to the genuineness of the transactions undertaken by the petitioner assessee with M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. during the Financial Year 2011-12. Considering the circumstances and arguments raised, we find that the order of the Assessing Officer and notice issued under Section 148 read with Section 147 is not illegal. We, therefore, do not find any merit in this petition and dismiss the same, while making it clear that the Assessing Officer shall not be influenced by our aforesaid observations while framing the re-assessment order and he shall proceed independently on the basis of the evidences and other materials brought on his record. - Decided against assessee.

Issues Involved:
1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer (AO) while recording reasons for reopening.
3. Allegations of failure to disclose material facts fully and truly.
4. Justification for the belief that income chargeable to tax had escaped assessment.
5. Examination of the genuineness of transactions and the creditworthiness of investor companies.

Detailed Analysis:

1. Validity of the Reopening of Assessment Under Section 148:
The petitioner challenged the notice issued under Section 148 for reopening the assessment for the Assessment Year 2012-13, arguing that it was based solely on the investigation report without independent application of mind by the AO. The court held that the reopening was justified as there was sufficient tangible material indicating that income chargeable to tax had escaped assessment. The AO had reasons to believe that the transactions with M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd., controlled by Sh. Tarun Goyal, were not genuine and were accommodation entries.

2. Application of Mind by the AO:
The petitioner argued that the AO did not independently apply his mind while recording reasons for reopening and relied on borrowed satisfaction. The court found that the AO had recorded detailed reasons based on information from the investigation wing, which established that the companies involved were shell entities providing accommodation entries. The AO's belief was based on substantial material and was not merely a change of opinion.

3. Allegations of Failure to Disclose Material Facts Fully and Truly:
The petitioner contended that the reopening was time-barred as it was beyond four years and there was no failure on their part to disclose material facts. The court referred to Explanation 1 to Section 147, which states that mere production of account books or other evidence does not amount to disclosure. The court observed that the petitioner did not disclose that the investor companies were promoted by Sh. Tarun Goyal, an established accommodation entry provider, during the original assessment.

4. Justification for the Belief that Income Chargeable to Tax Had Escaped Assessment:
The court held that the belief formed by the AO was reasonable based on the information that the petitioner received substantial amounts from companies controlled by Sh. Tarun Goyal. The AO had a cause or justification to believe that the income had escaped assessment. The court emphasized that the reopening of assessment is justified if there is a reasonable belief of escapement of income, even if the original assessment was made under Section 143(3).

5. Examination of the Genuineness of Transactions and the Creditworthiness of Investor Companies:
The court referred to the Supreme Court's decision in Principal Commissioner of Income Tax (Central)-I v. NRA Iron & Steel Pvt. Ltd., which laid down that the assessee must prove the genuineness of the transaction, the identity of the creditors, and the creditworthiness of the investors. The AO had conducted inquiries which revealed that the investor companies did not have the financial capacity to make such investments and were found to be non-existent or lacked credibility. The court found that the petitioner failed to discharge the onus of proving the genuineness of the transactions and the creditworthiness of the investors.

Conclusion:
The court dismissed the petition, holding that the reopening of the assessment was justified and based on substantial material. The AO had a reasonable belief that income chargeable to tax had escaped assessment due to transactions with dubious entities. The court also imposed costs on the petitioner for unnecessary wastage of judicial time.

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