2021 (8) TMI 445 - HC - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - failure on the part of the assessee to fully and truly disclose all the facts necessary for assessment proceeding under section 143(3) - HELD THAT - AO has found that the petitioner company has not fully and truly disclosed all material facts necessary for assessment for the reason that the petitioner has concealed the fact that the investor companies are shell companies, to channelize the unaccounted funds into assessee company. As observed by the AO that the assessee has misreported his unaccounted income as capital receipt in the form of share application money to avoid instance of tax - there is clear failure on the part of the assessee to fully and truly disclose all the facts necessary for assessment proceeding under section 143(3) of the Act and that, there is no substance in the contention raised by the learned senior advocate for the petitioner with regard to the change of opinion by the AO. Incorrect facts have been recorded in the reasons recorded, the AO has commented that the identity of a company has to be seen in a holistic sense and mere existence of paper concern with Directors just for namesake, is not establishment of identity. The identity comprises of actual business of the investor and in the case on hand, Shri Narayan Patodia was unable to establish that he had carried out any actual business - a perusal of the record reveals that the investor companies are found to be shell/paper companies. In this regard, the report of the Commission under section 131 of the Act sent to Kolkata as well as physical entry done by the Inspector of this Range established that at the registered address of the company, no business was being carried out and in fact, the address of the company was a residential premises. Thus we are of the considered view that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment because such exercise of reopening has been made only after due inquiries and recording of statements of concerned persons, as referred to herein above, and on having found prima facie material, impugned notice is issued to the petitioner. AO has reason to believe that the investor companies are not in existence and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Kolkata and report thereof. The reasons for the formation of the belief by the Assessing Officer in the instant case, appear to have a rational connection with or relevant bearing on the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. Accordingly, no interference is called for at the hands of this Court in this petition under Article 226 of the Constitution of India. The department has observed that a cash flow cited by the assessee is with regard to unsecured loan, not with regard to share application money. On unsecured loan, the borrower has to pay the interest and the lender receives substantial income from the loan advanced, however, in the case of the assessee, the investor receives no return on his investment and the money given by the investor is justlying unproductively with the assessee. Further, during subsequent investigation, the investor companies found to be the shell/paper companies. Accordingly, in the said facts and circumstances of the case on hand, the decision relied upon by the learned senior advocate for the petitioner would be of no help to petitioner. - Decided against assessee.

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1967.
2. Allegation of income escaping assessment due to bogus share application money.
3. Compliance with procedural requirements for reopening assessment.
4. Allegation of mere change of opinion by the Assessing Officer.
5. Relevance of returning share application money in subsequent years.
6. Proper disclosure of material facts by the assessee.
7. Validity of approval for reopening assessment.

Issue-wise Analysis:

1. Validity of Reopening Assessment under Section 148:
The petitioner challenged the reopening of assessment for AY 2014-15 under Section 148, arguing that the share application money was returned in AY 2015-16, thus no income escaped assessment. The court noted that the reopening was based on the belief that the share application money received from six companies was bogus, as these companies were found to be non-existent or shell companies during scrutiny for AY 2016-17. The court held that the Assessing Officer had a "reason to believe" that income had escaped assessment, which is sufficient for reopening under Section 147, as per the Supreme Court's interpretation in various cases.

2. Allegation of Income Escaping Assessment Due to Bogus Share Application Money:
The petitioner argued that the share application money was legitimate and returned the following year. However, the respondent contended that the companies from which the money was received were shell companies used to channel unaccounted income. The court found that the Assessing Officer's belief was based on tangible material, including investigation reports and inquiries revealing the non-existence of these companies, thus justifying the reopening.

3. Compliance with Procedural Requirements for Reopening Assessment:
The petitioner argued that the reopening was procedurally flawed, particularly regarding the approval required under Section 151. The court found that all procedural requirements, including obtaining necessary approvals, were duly followed. The sanction from the competent authority was found to be proper and not mechanical.

4. Allegation of Mere Change of Opinion by the Assessing Officer:
The petitioner claimed that the reopening was based on a mere change of opinion since the issue of share application money was already scrutinized in the original assessment. The court disagreed, stating that the reopening was based on new tangible material and information from subsequent investigations, which indicated that the companies were shell entities, thus not a case of mere change of opinion.

5. Relevance of Returning Share Application Money in Subsequent Years:
The petitioner emphasized that the share application money was returned in the subsequent year, arguing this negated any income escaping assessment. The court noted that under Section 68, the onus is on the assessee to explain the nature and source of any cash credit, and the mere return of money does not discharge this onus. The court found that the petitioner failed to fully and truly disclose all material facts necessary for assessment.

6. Proper Disclosure of Material Facts by the Assessee:
The petitioner argued that all material facts were fully and truly disclosed during the original assessment. The court found that the petitioner failed to disclose that the investor companies were shell companies, which is a material fact. The court held that this non-disclosure justified the reopening of the assessment.

7. Validity of Approval for Reopening Assessment:
The petitioner contended that the approval for reopening was not obtained in the true and correct perspective. The court found that the approval was properly obtained, with the competent authority applying its mind before granting sanction, thus validating the reopening process.

Conclusion:
The court dismissed the petition, holding that the reopening of the assessment was justified based on the belief that income had escaped assessment due to the receipt of share application money from bogus companies. The procedural requirements were duly followed, and the reopening was not based on a mere change of opinion but on new tangible material. The petitioner's failure to disclose fully and truly all material facts further justified the reopening.

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