2018 (5) TMI 1732 - HC - Income Tax

Validity of reopening of assessment - whether the investments made by companies in the form of share capital or share premium are genuine? - Held that - The Inspector made local inquires in the nearby area where the said company is working. He reported that it used to take accommodation entires of the share capital/share premium etc., in various years from the various Kolkata based paper companies to convert its black money into white. Hence, report of Inspector and information received from the Investigation Wing, Kolkata were co-related to each other. Consequently, above investment are not genuine. From the above discussion, it is proved that the assessee did not disclose fully and truly material facts to the Department which is necessary assessment. - Decided against assessee.

Issues Involved:
1. Validity of reopening assessment based on alleged bogus investments.
2. Issuance of notice beyond the period of four years.
3. Assessing Officer's reliance on the report of the Investigation Wing without independent application of mind.
4. Consideration of extraneous material by the Assessing Officer.

Detailed Analysis:

1. Validity of Reopening Assessment Based on Alleged Bogus Investments:
The petitioner challenged the notice dated 31st March 2017 issued by the Assessing Officer to reopen the assessment for the AY 2010-2011. The Assessing Officer recorded reasons for reopening, stating that the petitioner received accommodation entries in the form of share capital and share premium from Kolkata-based paper companies amounting to ?51,15,000. These companies were identified as shell companies with no business activity, created solely to provide accommodation entries. The court noted that the issue of whether these investments were genuine was central and had not been an issue during the original assessment. The court concluded that the Assessing Officer had not acted mechanically but had applied his mind to the information provided by the Investigation Wing, thus forming a bona fide belief that income chargeable to tax had escaped assessment.

2. Issuance of Notice Beyond the Period of Four Years:
The petitioner contended that the notice was issued beyond the period of four years from the end of the relevant assessment year, and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court observed that the question of true and full disclosure and the scrutinized issue closely overlapped in this case. The court held that the Assessing Officer had formed a reasonable belief based on the information received and the material on record, thus justifying the issuance of the notice beyond the four-year period.

3. Assessing Officer's Reliance on the Report of the Investigation Wing Without Independent Application of Mind:
The petitioner argued that the Assessing Officer had proceeded merely on the report of the Investigation Wing, Kolkata, without independent application of mind, thereby acting on borrowed satisfaction. The court examined the reasons recorded by the Assessing Officer and found that he had co-related the information from the Investigation Wing with the assessment records and had independently concluded that the investments were not genuine. The court referred to previous judgments, including Principal Commissioner of Income-tax, Rajkot-3 v. Gokul Ceramics, to support the view that the Assessing Officer had applied his mind and formed a bona fide belief based on the material available.

4. Consideration of Extraneous Material by the Assessing Officer:
The petitioner contended that the Assessing Officer had taken into account impermissible and extraneous material, claiming to have carried out discreet inquiries without revealing the precise mode of inquiry. The court acknowledged that the Assessing Officer had directed an Inspector to make discreet inquiries, and the report of the Inspector co-related with the information from the Investigation Wing. However, the court expressed doubts about the efficacy of such inquiries, noting that proper information should come from reliable sources. The court concluded that while the discreet inquiries might be seen as an overenthusiastic approach, they were separate and severable from the primary reasons for reopening the assessment.

Conclusion:
The court dismissed the petition, holding that the Assessing Officer had recorded proper reasons for reopening the assessment based on the information provided by the Investigation Wing and had formed a bona fide belief that income chargeable to tax had escaped assessment. The notice issued under Section 148 was thus upheld.

← Previous Next →