2021 (4) TMI 224 - HC - Income Tax

Reopening of assessment u/s 147 - reopening beyond the period of 4 years - bogus purchases transactions of diamonds - accommodation entry receipts - hawala racket busted during the search operation at the several places and found that Mr. Afroze Mohd. Hasanfatta and their group, instead of importing diamonds, they made bogus import bills, claiming that they have purchased the diamonds from foreign traders and by using this bogus bills, money was routed through 12 entities, without any single diamond being imported in India - HELD THAT - As during the course of previous assessment proceedings, the assessee failed to disclose material particulars with regard to alleged transactions and the true facts of the transactions having been discovered by the Assessing Officer on the basis of the information received from the concerned department. Law in this regard has been settled by various decisions of this Court as well as the Apex Court that burden is on the assessee to make true and full disclosure. Where the transaction itself on the basis of the subsequent information is found to be a bogus transactions, mere a disclosure of said transaction at the time of original proceedings, cannot be said to be a disclosure of true and full facts in the case. Assessee was aware that the transaction with M/s. Agni Pvt Ltd was not business transaction but in the form of bogus purchase, it was only an accommodation entries and the company was one of the beneficiaries of the transactions, despite of this, the assessee failed to disclose true and correct facts at the relevant time and therefore, the Assessing Officer is entitled to initiate reassessment proceedings on the basis of tangible material came in his hand, which tends to expose the untruthfulness of the entry of purchase made in the books of accounts. In this context, we may refer the observation of the Apex Court in the case of Honda Siel Power Products Vs. Dy. CIT, 2011 (7) TMI 275 - SC ORDER wherein, it is held that assessee having not pointed out during assessment proceedings about expenses incurred relatable to tax free income u/s. 14A, there was an omission and failure on its part to disclose fully and truly material facts, hence, reopening was justified. Reassessment proceedings said to have been initiated mechanically on the basis of third party information - AO has verified the information and after application of mind and upon due satisfaction, he formed an opinion that income has escaped assessment. See Principal Commissioner of Income Tax, Rajkot Vs. Gokul Ceramics 2016 (7) TMI 214 - GUJARAT HIGH COURT Whether according the sanction under Section 151 of the Act, the authority concerned has not applied his mind properly and mechanically accorded the sanction? - As perused the papers of the approval, which shows that the competent authority has given the satisfaction in hand writing and has expressed his satisfaction with regard to reasons recorded and accorded the sanction to issue impugned notice. Therefore, the approval for reassessment was granted on the date on which the impugned notice was issued. In this circumstances, the contention raised by the learned advocate for the writ applicant that sanction was not obtained before issuance of the notice cannot be accepted. It cannot be said that there was no tangible material before the Assessing Officer and that he proceeded mechanically based on the sole information and the impugned notice is without jurisdiction and contrary to Section 147.

Issues Involved:
1. Compliance with Section 148(2) of the Income Tax Act.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Reopening of assessment based on "borrowed satisfaction."
4. Compliance with Section 151(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Compliance with Section 148(2) of the Income Tax Act:
The petitioner argued that the respondent authority failed to comply with Section 148(2) as the reasons for reopening were not recorded before issuing the notice. It was pointed out that the reasons recorded did not bear a date, indicating non-compliance. However, the court found that the Assessing Officer had received detailed information from the Investigation Wing and had analyzed the case records before forming a belief that income had escaped assessment. The court concluded that the reasons recorded were sufficient and the procedural requirements were met.

2. Alleged failure of the assessee to disclose fully and truly all material facts:
The petitioner contended that there was full and true disclosure during the original assessment. The court, however, noted that the assessee had failed to disclose material particulars regarding transactions with M/s. Agni Gems Pvt. Ltd., which were later found to be bogus. The court emphasized that mere disclosure of transactions does not equate to full and true disclosure if the transactions are subsequently found to be false. The court referred to the Supreme Court's decision in Phoolchand Bajranglal, which held that acquiring fresh, specific information exposing the falsity of the assessee's statements justifies reopening the assessment.

3. Reopening of assessment based on "borrowed satisfaction":
The petitioner argued that the reopening was based on information from the Investigation Wing without independent application of mind by the Assessing Officer. The court rejected this contention, stating that the Assessing Officer had verified the information, made independent inquiries, and applied his mind before forming a belief that income had escaped assessment. The court cited several precedents, including the Supreme Court's decision in Central Provinces Manganese Ore Co. Ltd., to support the validity of reopening based on reliable information from other authorities.

4. Compliance with Section 151(1) of the Income Tax Act:
The petitioner claimed that the necessary sanction from the competent authority was not obtained before issuing the notice. The court examined the approval process and found that the competent authority had given handwritten satisfaction and accorded the sanction to issue the notice. The court concluded that the approval was granted on the same date as the notice issuance, thus complying with Section 151(1).

Conclusion:
The court dismissed the writ application, holding that the reopening of the assessment was justified based on tangible material and independent inquiries by the Assessing Officer. The court emphasized that the assessee's failure to disclose true and full facts warranted the reassessment, and all procedural requirements were duly met.

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