2022 (4) TMI 628 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Reassessment on the basis of information received from the ADIT (Inv.) Kolkata and ACIT New Delhi and the ITO Kolkata, regarding routing of funds in the garb of share premium - HELD THAT - We find that the facts regarding the petitioner s dealings with shell companies for routing its own unaccounted money into its books of accounts had not been truly and fully disclosed by the petitioner during the original assessment and scrutiny assessment, though the information was embedded in the records produced before the A.O. and could be found out on a detailed scrutiny and investigation. On the basis of information received subsequently, the A.O. has formulated a reason to believe that the petitioner s income has escaped assessment and this reason cannot be said to have been formulated on the basis of information already available before the A.O. Therefore, the submission to this effect made by the learned Counsel for the petitioner cannot be accepted. Whether initiation of the proceedings u/s 147 / 148 of the Act is based on a review of the existing material, which is not permissible in law? - From the discussion made above, it is clear that the fact that the petitioner had routed its undisclosed funds through entry providers and absorbed it in its books of accounts by way of accommodation entries of pre-arranged share application money and share premium with the help of a syndicate of operators and thus an unaccounted money of the petitioner was routed to its books of accounts, had not been examined by the AO during the original assessment for want of a full and true disclosure of facts by the petitioner. Therefore, the A.O. did not examine the aforesaid issues and he did not form an opinion regarding the same during the original assessment proceedings. Keeping into view the scope of power of judicial review while scrutinizing a notice issued under Section 148 of the Act as explained in Raymond woolen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT and Phool Chand Bajarang Lal 1993 (7) TMI 1 - SUPREME COURT and Srikrishna 1996 (7) TMI 2 - SUPREME COURT , we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not and the sufficiency or correctness of the material need not be considered at this stage. In the instant case, the notice under Section 148 of the Act has been issued by the assessing officer after receipt of information and conducting an investigation and after forming a reason to believe that the petitioner did not truly and fully disclose all the material facts because of which income amounting to ₹ 95,00,000/- has escaped assessment. We are satisfied that there is prima facie material available on record before the assessing officer for issuing a notice for reassessment. Thus, the notice under Section 148 passed by the National Faceless Assessment Centre rejecting the petitioner s objections against issuance of the notice, do not suffer from any such illegality as to warrant interference by this Court in exercise of its Writ Jurisdiction.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Examination of the petitioner's full and true disclosure of material facts.
3. Consideration of the bar under the First Proviso to Section 147 of the Income Tax Act.
4. Determination of whether the reassessment proceedings were based on a change of opinion.
5. Relevance of the ITAT order in a similar case.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31.03.2021 issued by the DCIT Circle Faizabad under Section 148 of the Income Tax Act, proposing to reassess the petitioner’s income for the assessment year 2013-14. The petitioner argued that the assessment was completed under Section 143(3) and more than four years had passed, invoking the First Proviso to Section 147. The court referred to the Supreme Court's rulings in Raymond Woolen Mills Ltd. and Phool Chand Bajrang Lal, emphasizing that at the stage of notice, the court only needs to see if there is prima facie material for reopening the case. The court found that the notice was issued based on new information received from various tax authorities about the petitioner’s transactions with shell companies, justifying the reopening of the assessment.

2. Examination of the petitioner's full and true disclosure of material facts:
The petitioner claimed that all material facts were fully and truly disclosed during the original assessment. However, the court noted that the petitioner had routed its undisclosed funds amounting to ?95,00,000/- through shell companies, which was not fully disclosed during the original assessment. The court highlighted that mere production of account books does not amount to full and true disclosure as per Explanation 1 to Section 147. The court concluded that the petitioner failed to make a true and full disclosure of all material facts necessary for the assessment.

3. Consideration of the bar under the First Proviso to Section 147 of the Income Tax Act:
The petitioner argued that the reassessment proceedings were barred by the First Proviso to Section 147, which prohibits action after four years unless there is a failure to disclose fully and truly all material facts. The court found that the petitioner’s dealings with shell companies were not fully disclosed, and thus, the case fell within the exception of the First Proviso. The court held that the bar of initiating reassessment after four years did not apply in this case due to the petitioner’s failure to disclose material facts.

4. Determination of whether the reassessment proceedings were based on a change of opinion:
The petitioner contended that the reassessment was based on a review of existing material, amounting to a change of opinion. The court referred to the Supreme Court's interpretation in CIT v. Techspan India (P) Ltd., which clarified that reassessment based on new information does not constitute a change of opinion. The court found that the original assessment did not form any opinion regarding the routing of funds through shell companies. The reassessment was based on new information received after the original assessment, justifying the reopening.

5. Relevance of the ITAT order in a similar case:
The petitioner cited an ITAT order quashing the reopening of a similar case involving a sister concern. The court noted that the department had challenged the ITAT order and emphasized that an ITAT order is not relevant when examining the validity of reassessment in a writ petition. The court dismissed the relevance of the ITAT order in the present case.

Conclusion:
The court concluded that the notice under Section 148 and the order rejecting the petitioner’s objections did not suffer from any illegality. The court found that there was prima facie material for reopening the assessment, and the reassessment proceedings were justified based on new information. The writ petition was dismissed without any order as to costs.

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