2021 (3) TMI 526 - HC - Income Tax

Reopening of assessment u/ 147 - assessment beyond a period of four years - unexplained investment towards share application money - HELD THAT - Company having surplus funds at the beginning of the year represented by share capital and advances receivable and the same was the source of investment in the alleged company. Therefore, in our view, it is the omission on the part of the assessee company not to point out this specific particular items of the balance-sheet to show that, the surplus funds was being utilized for the investment. Therefore, failure to highlight specifically the relevant items of the account books or the particular portion of the balance-sheet to the respondent could be said to be an omission on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. Thus, we hold that, the assessee has failed to disclose the primary facts with regard to the sources of investment. It is an admitted fact that, the original return was processed under Section 143 (1) of the Act without scrutiny assessment. It is pertinent to note that, the explanation 1 to Section 147 of the Act clearly says that, the production before the assessing officer of account books or other evidence could with due diligence have been discovered by the assessing officer will not amount to disclosure. In view of the aforesaid discussions and considering the facts and circumstances of the case, we hold that, in absence of primary facts with regard to the sources of investment, the assessing officer has rightly recorded that the assessee has not furnished the details with regard to the sources of investment and therefore, there is a cause or justification for him to believe that, the unexplained investment chargeable to tax has escaped assessment. Thus, in the overall view of the matter, it cannot be said that, there was no tangible material before the assessing officer to re-open the assessment and that he has proceeded mechanically based only on the information received from the Investigation DDIT (Inv.) I, Ahmedabad and therefore, the impugned notice is without jurisdiction and contrary to Section 147 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Legality and jurisdiction of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening the assessment beyond the prescribed period.
3. Requirement of "reason to believe" based on tangible materials.
4. Disclosure of primary facts by the assessee.
5. Justification for treating investment as income from undisclosed sources.

Detailed Analysis:

1. Legality and Jurisdiction of Notice under Section 148:
The writ applicant challenged the notice dated 28.03.2018 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the income tax assessment for A.Y 2011-12. The applicant argued that the notice was illegal, bad in law, and without jurisdiction because the conditions precedent for valid reopening under Section 147 of the Act were not satisfied. The respondent contended that the notice was valid as the assessee failed to disclose its income fully and truly.

2. Validity of Reopening the Assessment Beyond the Prescribed Period:
The court examined whether the Revenue was justified in reopening the assessment beyond a period of four years under Section 147 of the Act. The Revenue's case was based on the assessee's failure to provide details of the source of investment amounting to ?52,50,000 in Gujarat Natural Resources Ltd., leading to the belief that income chargeable to tax had escaped assessment.

3. Requirement of "Reason to Believe" Based on Tangible Materials:
The applicant argued that the reopening was not based on tangible materials and that the investment of ?52,50,000 was duly recorded in the audited accounts, showing sufficient funds at the beginning of the year. The court referred to the principles laid down in Krupesh Ghanshyambhai Thakkar Vs. DCIT, stating that reopening cannot be resorted to for mere scrutiny or further verification and must be based on the assessing officer's independent satisfaction.

4. Disclosure of Primary Facts by the Assessee:
The court emphasized the duty of the assessee to disclose fully and truly all material facts necessary for assessment, as established in Calcutta Discount Company Ltd. Vs. Income Tax Officer. It was found that the assessee failed to highlight specific items in the balance sheet to show the source of investment, thus not fulfilling the obligation to disclose primary facts.

5. Justification for Treating Investment as Income from Undisclosed Sources:
The court noted that the assessee did not provide the source of investment in Gujarat Natural Resources Ltd., leading to the conclusion that the investment of ?52,50,000 was unexplained and should be treated as income from undisclosed sources. The explanation to Section 147 clarified that merely producing account books does not amount to full disclosure.

Conclusion:
The court held that the assessee failed to disclose primary facts regarding the source of investment, justifying the reopening of the assessment. The notice issued under Section 148 was deemed valid, and the writ application was dismissed. The interim relief granted earlier was vacated.

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