2015 (1) TMI 827 - HC - Income Tax

Reopening of assessment - notice issued beyond the period of four years from the end of the relevant Assessment Year - accommodation entry by way of share capital - Held that - In this particular case the receipt of money through banking channels by the applicant for shares of the petitioner company may be considered to be a full disclosure but it may not be a true and full disclosure if the facts alleged in the reasons are not found to be false during the proceeding for reassessment. In the present case this would be an issue which would be considered during the reassessment proceedings. Thus we find that in the present case it cannot be said that there is no basis to conclude that there has been a failure to disclose truly and fully all material facts necessary of assessment. On reading of the reason in support of the impugned notice as a whole we find that it does bring out the failure on the part of petitioner to disclose fully and truly all material facts necessary for assessment. There is no ambiguity in the information which would require investigation. The information of accommodation entries has been given by a participant and this is reason enough to believe that income chargeable to tax has escaped assessment. At this stage the Assessing Officer is not required to conclusively prove that the reasons in support of the impugned notice establish that the petitioner has taken accommodation entries. This is a matter which would be subject of further investigation during the reassessment proceeding. At that stage it would be open to the petitioner to raise all permissible defences and also to insist on cross examination of the persons who have made a statement implicating the petitioner in having participated in taking accommodation entires. Thus we are not inclined to exercise our extraordinary jurisdiction under Article 226 of the Constitution of India and injunct the Revenue from proceeding further with the impugned notice for reassessment. However it would be open to the petitioner during the reassessment proceedings to challenge the reopening notice on the ground that the statement made by the Pravin Kumar Jain which forms the basis of the reopening notice is not sustainable. - Appeal dismissed.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2007-08 and challenge to the order disposing of objections to the reasons in support of the notice.

Analysis:
The notice issued under Section 148 sought to reopen the assessment for Assessment Year 2007-08 beyond the four-year period, based on information obtained during a search and seizure action. The notice alleged that the petitioner received accommodation entries as share capital from various companies, amounting to Rs. 120,00,000, confirmed as bogus by the entry provider. The petitioner raised objections, arguing that the information was not conclusive and did not establish the receipt as accommodation entries. The Assessing Officer rejected the objections, stating that the information was not disclosed during the regular assessment proceedings.

The petitioner contended that as the reopening was beyond the four-year period, the first proviso to Section 147 applied, requiring a failure to disclose material facts. The petitioner claimed full disclosure during regular assessment, including submission of balance sheets and PAN cards. The Assessing Officer's reasons did not mention any belief of escaped income, indicating a lack of independent application of mind. The Revenue argued that tangible material obtained during the search indicated a failure to disclose the true nature of share capital receipts as accommodation entries.

The High Court found that the petitioner's disclosure of share capital receipts did not constitute a true and full disclosure, as alleged tangible material suggested otherwise. The absence of specific words like "failure to disclose truly and fully" in the reasons did not invalidate the notice, as the overall content indicated a failure to disclose necessary facts. The Court held that the impugned notice was not issued mechanically, as the specific information provided a prima facie basis for believing income had escaped assessment.

The Court declined to intervene under Article 226 of the Constitution, allowing the reassessment to proceed. However, the petitioner could challenge the reopening notice during the proceedings. The observations made were prima facie and did not restrict the Assessing Officer's independent consideration of the petitioner's submissions. The Court excluded the period of the notice's stay from the limitation period for reassessment. The petition was dismissed without costs, leaving all contentions open for further proceedings.