2018 (5) TMI 1548 - HC - Income Tax

Reopening of assessment u/s 147 - allotment of shares at premium - assessee had not filed return for the relevant assessment year - allegation that assessee has alloted the share to bogus companies - these were shell companies engaged in providing accommodation entries having dummy directors - Held that - the reasons recorded by the AO can be challenged on the ground of their validity - thus it is open for the Court to strike down the notice based on such reasons. However, at the stage when the notice for reopening is under challenge, if it is not possible without further detailed inquiry to arrive at a final conclusion, the Court would be well advised in keeping such a question open and permitting further proceedings in connection with the notice of reopening. Petition dismissed - Decided against the assessee.

Issues Involved:
1. Legality of the notice issued for reopening the assessment for the assessment year 2010-11.
2. Validity of the reasons provided by the Assessing Officer for the reopening.
3. Determination of the relevant assessment year for the share application money and share premium received.
4. The impact of the search operation findings on the reopening of the assessment.

Detailed Analysis:

1. Legality of the notice issued for reopening the assessment for the assessment year 2010-11:
The petitioner, a private limited company, challenged the notice dated 28.03.2017 issued by the Assessing Officer to reopen the assessment for the assessment year 2010-11. The notice was based on the belief that income chargeable to tax had escaped assessment. The petitioner argued that the share capital and share application money were received during the financial year 2008-09, relevant to the assessment year 2009-10, making the reopening for 2010-11 impermissible.

2. Validity of the reasons provided by the Assessing Officer for the reopening:
The reasons recorded by the Assessing Officer included findings from a search operation conducted on the Madhav Group, revealing that the petitioner had allotted 100,000 shares at a premium to Kolkata-based companies, which were identified as shell companies involved in providing accommodation entries. Statements from dummy directors of these companies corroborated the findings, indicating that the share capital raised was bogus. The Assessing Officer dismissed the petitioner’s objections, stating that the allotment of shares, not the receipt of share application money, was the matter of concern. Additionally, it was noted that part of the share application money was credited in the financial year 2009-10, justifying the reopening for the assessment year 2010-11.

3. Determination of the relevant assessment year for the share application money and share premium received:
The petitioner contended that the entire share application and share premium money were received by 31.03.2009, relevant to the assessment year 2009-10. However, the Assessing Officer argued that the transaction was completed only upon the allotment of shares, which occurred on 30.04.2009, within the financial year 2009-10. Moreover, it was found that a portion of the share application money was credited on 02.04.2009, further supporting the reopening for the assessment year 2010-11.

4. The impact of the search operation findings on the reopening of the assessment:
The search operation on the Madhav Group yielded significant evidence, including statements from dummy directors and reports from the Investigation Wing, indicating that the petitioner received share application money from shell companies. The petitioner’s director failed to provide clarification on the genuineness of these transactions during the search. These findings formed a substantial basis for the Assessing Officer’s belief that income chargeable to tax had escaped assessment, warranting the reopening of the assessment.

Conclusion:
The court, considering the serious nature of the reasons cited by the Assessing Officer and the undisputed fact that the petitioner had not filed a return for the relevant assessment year, found the reopening of the assessment permissible. The court emphasized that the precise timing of the taxing event should be determined during the assessment process. The petition was dismissed, allowing the assessment to proceed independently of the observations made in the order. The court refrained from expressing a final opinion on the petitioner’s principal contention and did not address other issues cited by the Assessing Officer.

← Previous Next →