2022 (4) TMI 46 - SC - Income Tax

Reopening of assessment u/s 147 - scope and effect of the Income Declaration Scheme (IDS) - voluntary disclosure of untaxed income and the assessee s acknowledging income tax liability - substantial amount of unaccounted income of promoters/directors was introduced in the closely held companies of the assessee group through Shirish Chandrakant Shah, alleged to be a Mumbai based accommodation entry provider- through Pradeep Birewar, another accommodation entry provider based at Ahmedabad - revenue was of opinion that Shirish Chandrakant Shah was providing accommodation entries, through various companies controlled and managed by him, and that the assessee was one of the beneficiaries of the business - Whether declaration under the IDS can lead to immunity (from taxation)? - HELD THAT - The details of income declaration by Garg Logistics under the IDS scheme was submitted by Pravin. P. Agrawal (the assessee s chairman) in support of its claim of genuineness of receipt of share capital. However, as noticed earlier, the basis for reopening the assessment in this case was the information from the material seized during search in cases of Shrish Chandrakant Shah and correlation with return of income of the assessee. Further, there was no scrutiny assessment done at the original assessment stage. As a matter of fact, M/s Garg Logistics filed its IDS application with a different Commissionerate which did not share information with the AO in the present case; he did not also call for any such information. Pravin Chandra Agrawal, the chairman of the assessee (M.R. Shah group) was queried with regard to the capital raised with high premium during a search, and post search inquiry. He submitted details of the IDS declaration by Garg Logistics Pvt Ltd to say that the amounts received toward share applications were genuine transactions. Clearly, in the present case, the High Court went wrong in holding that the department had shared confidential IDS information of Garg Logistics Pvt Ltd. AO utilized the material submitted by Pravin. P. Agrawal (the assessee s chairman) and correlated it with the ROC data filed by the assessee. Further, it is also apparent, that the AO s reasons to believe do not disclose any inquiry made in relation to Garg Logistic Pvt Ltd s account or declaration. Information or tangible material which the assessing officer comes by enabling re-opening of an assessment, means that the entire assessment (for the concerned year) is at large; the revenue would then get to examine the returns for the previous year, on a clean slate as it were. Therefore, to hold- as the High Court did, in this case, that since the assessee may have a reasonable explanation, is not a ground for quashing a notice under Section 147. As long as there is objective tangible material (in the form of documents, relevant to the issue) the sufficiency of that material cannot dictate the validity of the notice. As noticed previously the declarant was Garg Logistic Pvt Ltd and not the assessee. Facially, Section 192 affords immunity to the declarant nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty Therefore, the protection given, is to the declarant, and for a limited purpose. However, the High Court proceeded on the footing that such protection would bar the revenue from scrutinizing the assessee s return, absolutely. Quite apart from the fact that the re-opening of assessment was not based on Garg Logistic s declaration, the fact that such an entity owned up and paid tax and penalty on amounts which it claimed, were invested by it as share applicant, (though the share applicants were other companies and entities) to the assessee in the present case, cannot by any rule or principle inure to the assessee s advantage This court is, therefore, of the opinion that the High Court fell into error, in holding that the sequitur to a declaration under the IDS can lead to immunity (from taxation) in the hands of a non-declarant. The impugned judgment is hereby set aside. The AO is at liberty to take steps to complete the re-assessment.

Issues Involved:
1. Validity of reopening assessment under Section 147/148 of the Income Tax Act.
2. Adequacy of "reasons to believe" for reopening assessment.
3. Impact of Income Declaration Scheme (IDS) on reassessment proceedings.
4. Immunity under IDS and its applicability to non-declarants.

Detailed Analysis:

Validity of Reopening Assessment under Section 147/148:
The Supreme Court examined the validity of the reopening of the assessment for the assessment year 2010-11. The Commissioner of Income Tax (the revenue) appealed against the Gujarat High Court's decision which quashed the notice for reopening. The reopening was based on the discovery during search proceedings that the assessee was a beneficiary of accommodation entries provided by Shirish Chandrakant Shah through various companies. The assessee's return for AY 2010-11 was initially accepted without scrutiny under Section 143(1). The notice for reassessment was issued on 31.3.2017, based on new information from search proceedings and subsequent analysis.

Adequacy of "Reasons to Believe":
The Court emphasized that the "reasons to believe" must be based on objective materials and a reasonable view. The AO's belief was formed on the basis of materials seized during searches and the correlation of these materials with the assessee's returns. The AO noted discrepancies in the investments received by the assessee and the amounts declared by Garg Logistics under the IDS. The AO's reasons included detailed analysis and comparison of investments, which indicated that the assessee had introduced unaccounted income through accommodation entries. The Court held that the sufficiency of the material for forming the belief is not a matter for judicial review, as long as there is objective tangible material.

Impact of Income Declaration Scheme (IDS) on Reassessment Proceedings:
The Court analyzed the role of the IDS in the context of reassessment. The High Court had held that the AO could not rely on the declaration made by Garg Logistics under the IDS to conclude that the share application money received by the assessee was its unaccounted income. The Supreme Court clarified that the reopening was not based on the IDS declaration but on information from search proceedings. The IDS declaration was used by the assessee's chairman to support the genuineness of the share capital received, but the AO found discrepancies and did not rely solely on the IDS declaration for reopening the assessment.

Immunity under IDS and its Applicability to Non-Declarants:
The Court discussed the limited immunity provided under Section 192 of the Finance Act, 2016, which protects the declarant from penalty proceedings but does not extend to non-declarants. The High Court had erroneously concluded that the IDS declaration by Garg Logistics provided immunity to the assessee. The Supreme Court held that the protection under IDS is limited to the declarant and does not prevent the revenue from scrutinizing the assessee's returns. The Court cited previous judgments to support the view that immunity granted under a tax amnesty scheme does not extend to other entities or for purposes beyond the scheme's scope.

Conclusion:
The Supreme Court set aside the High Court's judgment, allowing the revenue to proceed with the reassessment. The Court emphasized that the reopening of the assessment was based on tangible material and was not solely dependent on the IDS declaration. The AO was directed to complete the reassessment in accordance with the law. The appeal was allowed without any order on costs.

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