2021 (4) TMI 225 - HC - Income Tax

Reopening of assessment u/s 147 - reopening beyond 4 years - addition u/s 68 as assessee failed to disclose the true facts with regard to alleged cash transactions, which found to be an accommodation entries and the assessee being the beneficiaries, the amount has escaped assessment - as argued by assessee all the material facts including the bank statements, books of accounts, credit transactions were furnished and same was thoroughly examined by the Assessing Officer and in this circumstances, when there was no concealment or suppression of any facts, the reopening beyond 4 years in the absence of any nondisclosure of material facts cannot be permitted - HELD THAT - We are not agree with the above contention as the true facts with regard to cash transaction made by the assessee was discovered by the Assessing Officer on the basis of the specific and relevant information received from the concerned department, which prima facie prove that the transaction shown in the books of accounts itself on the basis of subsequent information is found to be a bogus transaction and mere a disclosure of the cash entries reflected in the bank account, cannot be said to be disclosure of the full and true facts. Assessee was aware that the transaction was not business transaction and 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 could be said to have been initiated mechanically on the basis of third party information - Assessing Officer has verified the information and after application of mind and upon due satisfaction, he formed an opinion that income has escaped assessment. Learned Single Judge of Madras High Court in case of Sterlite Industries (India) Ltd. v. Assistant Commissioner of Income Tax 2008 (3) TMI 133 - MADRAS HIGH COURT upheld the notice for reopening which was based on information from enforcement directorate showing possible inflation of purchases made by the assessee. While according the sanction under Section 151 authority concerned has not applied his mind properly and mechanically accorded the sanction - We have 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. Thus 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 of the Act. - Decided against assessee.

Issues Involved:
1. Validity of reasons recorded before issuance of notice under Section 148.
2. Approval of Principal CIT under Section 151.
3. Failure of assessee to disclose all material facts.
4. Reopening based on "borrowed satisfaction".

Detailed Analysis:

1. Validity of Reasons Recorded Before Issuance of Notice Under Section 148:
The writ applicant challenged the notice dated 31.03.2019 issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for A.Y. 2012-13. The applicant contended that reasons for reopening were not recorded before the issuance of the notice, as evidenced by the absence of a date on the recorded reasons. However, the court found that the reasons were duly recorded and that the Assessing Officer had applied his independent mind to the information received from the Investigation Wing, Mumbai. The Assessing Officer concluded that the credit entries amounting to ?51,00,000/- were unexplained accommodation entries, justifying the reopening of the assessment.

2. Approval of Principal CIT Under Section 151:
The applicant argued that the approval of the Principal Commissioner of Income Tax (CIT) was not obtained before issuing the notice, as required under Section 151 of the Act. The court examined the papers and found that the competent authority had given handwritten satisfaction and expressed approval for the reasons recorded. The approval was granted on the same date as the issuance of the notice, fulfilling the legal requirement.

3. Failure of Assessee to Disclose All Material Facts:
The applicant claimed there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. They argued that during the previous assessment under Section 143(3), all relevant details, including bank statements and credit transactions, were furnished. However, the court noted that specific information received later revealed that the transactions were accommodation entries. The court held that mere disclosure of cash entries in bank accounts does not equate to full and true disclosure of material facts. The court referred to the Supreme Court's observation in Phoolchand Bajranglal and another Vs. ITO, stating that acquiring fresh, reliable information exposing the falsity of earlier statements justifies reopening the assessment.

4. Reopening Based on "Borrowed Satisfaction":
The applicant contended that the reopening was based on borrowed satisfaction from vague third-party information without independent inquiry by the Assessing Officer. The court rejected this argument, stating that the Assessing Officer had verified the information, conducted independent inquiries, and applied his mind before forming the belief that income had escaped assessment. The court cited various judgments, including AGR Investment Ltd. Vs. Additional Commissioner of Income Tax, to support the validity of reopening based on reliable information from third parties.

Conclusion:
The court concluded that the revenue was justified in reopening the assessment. The Assessing Officer had tangible material, conducted independent inquiries, and formed a bona fide belief that income had escaped assessment. The writ application was dismissed, and the notice under Section 148 and the subsequent proceedings were upheld as valid and lawful.

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