2012 (5) TMI 25 - HC - Income Tax

Reassessment - Addition u/s 68 - Reason to believe - AO after verifying the assessment records and information received from the Director General (Investigation) through CIT, Delhi-IV, had come to the conclusion that the assessable income had escaped assessment - held that - Mere reproduction of the language of the proviso and observation by the Assessing Officer that there was failure or omission on the part of the assessee to disclose fully and truly all material facts is not necessary. It has to be examined whether the Assessing Officer had drawn an inference or given a finding that there was omission or failure on the part of the assessee to disclose fully and truly material facts. The requirement is that there should be full and true disclosure of the material facts before the Assessing Officer. In the present case, the tribunal has not referred to the letter dated 19th July, 2006 written by the Additional CIT and the information, which was enclosed with the said letter. What was the nature and character of the said information has not been considered and examined by the tribunal. - Matter remanded back to tribunal - Decided in favor of revenue.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Fulfillment of jurisdictional preconditions for reassessment.
3. Failure or omission on the part of the assessee to make full and true disclosure of material facts.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148 of the Income Tax Act, 1961:
The primary issue was whether the Income Tax Appellate Tribunal (ITAT) was correct in quashing the reassessment proceedings initiated under Sections 147/148 of the Income Tax Act, 1961. The reassessment was initiated by the Assessing Officer (AO) based on information received from the Director General (Investigation) through the Commissioner of Income Tax (CIT), indicating that the assessee had received accommodation entries, which were not genuine transactions.

2. Fulfillment of Jurisdictional Preconditions for Reassessment:
The ITAT had quashed the reassessment proceedings on the grounds that the jurisdictional preconditions were not satisfied. Specifically, the ITAT held that the AO had not mentioned in the "reasons to believe" that there was a failure or omission on the part of the assessee to make full and true disclosure of all material facts. The ITAT relied on the first proviso to Section 147(1) of the Act, which mandates that reassessment after four years from the end of the relevant assessment year can only be initiated if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

3. Failure or Omission on the Part of the Assessee to Make Full and True Disclosure of Material Facts:
The High Court examined whether the AO had drawn an inference or given a finding that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts. The court noted that the ITAT had not referred to the letter dated 19th July 2006, written by the Additional CIT, and the information enclosed with it. The court emphasized that the material facts stated by the assessee would not be true if accommodation entries were provided, and therefore, the condition of "fully" disclosing material facts would not be met.

The High Court highlighted that at the stage of initiation, only a prima facie or tentative view is required, and final conclusiveness is not mandated. The court cited the Supreme Court's observation in the case of Income-Tax Officer, Cuttack and Others Vs. Biju Patnaik (1991) 188 ITR 247, which stated that even if the notice does not prima facie disclose the satisfaction of the conditions under Section 147(a), the record and counter affidavit can show that the AO had applied his mind to the facts and was prima facie satisfied.

Conclusion and Remand:
The High Court concluded that the ITAT had not adequately examined whether the AO had applied his mind and reached an opinion based on the information and material that there was a failure or omission on the part of the assessee to make full and true disclosure of all material facts. The court remitted the matter back to the ITAT to examine the material/documents available before the AO and determine whether the jurisdictional preconditions were satisfied. The court allowed the assessee to raise all contentions before the ITAT.

Final Order:
The substantial question of law was answered in favor of the Revenue and against the assessee. The case was remitted to the ITAT for further examination as per the High Court's directions. The assessee was directed to appear before the Assistant Registrar of the Tribunal on 14th May 2012, for a date of hearing to be fixed.