2018 (2) TMI 1534 - HC - Income Tax

Reopening of assessment - Addition u/s 68 - independent application of mind - Held that - Proviso added by the Finance Act 2012 with effect from 1.4.2013 to Section 68 says where the assessee is a company and the sum so credited consists of share application money share capital share premium or any such amount by whatever name called explanation offered by the assessee company shall be deemed to be not satisfactory unless the person in whose name such credit is recorded in the books of the company also offers an explanation about the nature and source of sum so credited and such explanation in the opinion of the AO has been found to be satisfactory. Essentially this proviso eases the burden of proof on the Revenue while making addition under section 68 with respect to non genuine share application money of the companies. Even in absence of such proviso as was the case governing the periods with which we are concerned in the present case if facts noted by the Assessing Officer and recorded in reasons are ultimately established invocation of section 68 of the Act would be called for. The contention that the Assessing Officer had merely and mechanically acted on the report of the investigation wing also cannot be accepted. We have reproduced the reasons recorded by the Assessing Officer and noted the gist of his reasons for resorting to reopening of the assessment. We have recorded that the Assessing Officer had perused the materials placed for his consideration and thereupon upon examination of such materials formed a belief that income chargeable to tax had escaped assessment. - Decided against assessee.

Issues Involved:
1. Validity of notice for reopening the assessment beyond four years.
2. Examination of share application money during original assessment.
3. Sufficiency and validity of reasons for reopening.
4. Applicability of newly inserted proviso to section 68 of the Income Tax Act.
5. Independent application of mind by the Assessing Officer.

Detailed Analysis:

1. Validity of Notice for Reopening the Assessment Beyond Four Years:
The petitioner challenged the notice dated 31.3.2017 for reopening the assessment of the assessment year 2010-11, issued beyond the period of four years from the end of the relevant assessment year. The petitioner argued that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The court noted that the Assessing Officer received fresh information from the investigation wing suggesting that the transactions of share application money were not genuine and were merely accommodation entries. The court held that the reopening of assessment was permissible even beyond four years if there was a failure to disclose fully and truly all material facts.

2. Examination of Share Application Money During Original Assessment:
The petitioner contended that during the original scrutiny assessment, the Assessing Officer had thoroughly examined the nature and source of the share application money and made no additions. Revisiting this issue would amount to a change of opinion. The court observed that the reopening was based on new material received from the investigation wing, which was not available during the original assessment. Therefore, the reopening was not barred by the principle of change of opinion.

3. Sufficiency and Validity of Reasons for Reopening:
The petitioner argued that the reasons recorded by the Assessing Officer lacked validity as there was no material to form a belief that the income chargeable to tax had escaped assessment. The court held that at the stage of issuing the notice, the sufficiency or correctness of the material is not to be considered. The court found that the Assessing Officer had tangible material at his command to form a belief that the income had escaped assessment. The court referred to the judgment in Raymond Woolen Mills Ltd. v. Income-tax Officer, which stated that the court's role is to see whether there was some material on the basis of which the Department could reopen the case.

4. Applicability of Newly Inserted Proviso to Section 68 of the Income Tax Act:
The petitioner contended that their case would be governed by the pre-amended section 68 of the Act and that they had complied with the requirements during the original assessment. The court observed that even without the newly inserted proviso, if the facts noted by the Assessing Officer were established, the invocation of section 68 of the Act would be justified. The proviso to section 68 eases the burden of proof on the Revenue while making additions for non-genuine share application money.

5. Independent Application of Mind by the Assessing Officer:
The petitioner argued that the Assessing Officer had merely relied on the report of the investigation wing without independent application of mind. The court rejected this contention, noting that the Assessing Officer had perused the materials placed before him and formed a belief that the income chargeable to tax had escaped assessment. The court referred to previous judgments where similar contentions were raised and rejected, emphasizing that the Assessing Officer's belief should be based on material available at the time of reopening.

Conclusion:
The court dismissed the petition, upholding the validity of the notice for reopening the assessment. The court found that the Assessing Officer had sufficient material to form a belief that the income chargeable to tax had escaped assessment and that this was due to the petitioner’s failure to disclose fully and truly all material facts. The court emphasized that the sufficiency of the reasons for reopening is not to be judged at the stage of issuing the notice, and the Assessing Officer had acted on new material received after the original assessment.

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