2022 (8) TMI 1030 - HC - Income Tax

Validity of reopening of assessment u/s 147 - initiation of the proceedings after expiry of more than four years - reasons to believe OR reasons to suspect - HELD THAT - Petitioner did not furnish the PAN of the companies, the mode of receipt of the amount and the account number in which the money was received even after receipt of a notice under Section 133 (6) of the Act. Thus it appears that the petitioner did not make a full and true disclosure of facts before the A.O. It has been discovered subsequently during investigation that all the companies through which the entire share business has been dealt with by the petitioner, are bogus shell companies, through which the operators provide accommodation entries for routing the unaccounted money of the petitioner company through banking channels so as to give it a prima facie appearance of a genuine transaction, though actually it is not. Thus they manage taxable income to escape assessment. A.O. had completed the assessment under Section 143 (3) on the basis of the facts available on record at that time and the A.O. could not examine the facts which were discovered later on and, therefore, the case has been re-opened on the basis of fresh material on record. Whether initiation of the proceedings under Sections 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 during investigation carried out subsequent to the limited scrutiny assessment, it was found that all the companies through which the entire share business has been dealt with by the petitioner, are bogus shell companies, through which the operators provide accommodation entries for routing the unaccounted money of the petitioner company through banking channels, thereby causing taxable income escaping assessment. This fact could not be 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 limited scrutiny assessment proceedings. In such a situation, it is not a case of change of opinion or the drawing of a different inference from the same facts as were earlier available but the A.O. has acted on fresh information and it is not a review of the existing material. In the present case, during the limited scrutiny assessment under Section 143 (3) the petitioner did not make a full and true disclosure of all the material facts and, therefore, the A.O. could not form any opinion regarding the fact that the companies through which the entire share business has been dealt with by the petitioner, are bogus shell companies, through which the operators provide accommodation entries for routing the unaccounted money of the petitioner company. This fact came to light only after investigation conducted subsequent to the limited scrutiny assessment and it was only thereafter that the A.O. had formed an opinion in this regard. Therefore, the present case would not fall in the category of change of opinion . Submission advanced on behalf of the petitioner, that the case of M/s Arohul Foods Pvt. Ltd., which is a sister concern of the petitioner, was re-opened under Section 148 of the Act for A.Y. 2012-13 on similar issues and reopening of the case in the matter of M/s Arohul Foods Pvt. Ltd. was quashed by the ITAT, Lucknow Bench 2021 (8) TMI 695 - ITAT LUCKNOW - The respondents have stated in the Counter affidavit that the department has not accepted the order of the ITAT and has challenged the order by filing an appeal under Section 260 A of the Act. Even otherwise, an order passed by the ITAT would not be relevant when the validity of the re-assessment is being examined by this Court in a Writ Petition. Therefore, this submission of the petitioner is also rejected. Proceedings initiated after a lapse of more than four years are barred by the First Proviso appended to Section 147 - As is evident from the discussions made in the preceding paragraphs of this judgment, 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. The petitioner did not furnish complete information regarding its share transactions, particularly the information regarding the mode of receipt of amount for share transfer, the date of receipt of the amount and the account number in which the money was received. The present case falls within the exception carved out in the First proviso, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assesse to disclose fully and truly all material facts necessary for his assessment, for that assessment year and the bar of initiating re-assessment proceedings after a lapse of four years since the original assessment contained in the First Proviso appended to Section 147 of the Act, would not apply to the present case. Therefore, the submission to this effect made by the learned Counsel for the petitioner cannot be accepted. 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 at the time of limited scrutiny assessment, and it has been discovered subsequently during investigation that all the companies through which the entire share business has been dealt with by the petitioner, are bogus shell companies, through which the operators provide accommodation entries for routing the unaccounted money of the petitioner company through banking channels in a manner which prima facie makes it appear as a genuine transaction, though actually it is not. Thus taxable income 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. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of the reassessment proceedings initiated after four years from the end of the relevant assessment year.
3. Alleged failure of the petitioner to make a full and true disclosure of material facts.
4. Whether the reassessment proceedings amount to a review of existing material or are based on fresh tangible material.
5. Applicability of the First Proviso to Section 147 of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice Under Section 148 of the Income Tax Act:
The petitioner challenged the notice dated 31.03.2021 issued under Section 148, proposing to reassess the income for the assessment year 2015-16. The petitioner argued that all necessary details were provided during the original assessment, and there was no failure to disclose material facts. The court, referencing the Supreme Court's judgments in *Raymond Woollen Mills Ltd. v. ITO* and *Phool Chand Bajrang Lal v. ITO*, emphasized that at the stage of issuing a notice for reopening assessment, the court only needs to see if there is prima facie some material for reopening the case. The sufficiency or correctness of the material is not to be considered at this stage.

2. Legitimacy of the Reassessment Proceedings Initiated After Four Years:
The petitioner contended that the reassessment proceedings were barred by the First Proviso to Section 147, as more than four years had passed since the end of the relevant assessment year. The court noted that the proviso allows reopening after four years if there is a failure to disclose fully and truly all material facts necessary for assessment. The court found that the petitioner did not disclose the mode of payment for obtaining shares and other crucial details, which justified the reassessment.

3. Alleged Failure of the Petitioner to Make a Full and True Disclosure of Material Facts:
The court observed that the petitioner did not provide complete information regarding the share transactions, particularly the mode of receipt of the amount and the account number in which the money was received. It was discovered during the investigation that the companies involved were bogus shell companies, used to route unaccounted money. This lack of full and true disclosure justified the reopening of the assessment.

4. Whether the Reassessment Proceedings Amount to a Review of Existing Material or Are Based on Fresh Tangible Material:
The petitioner argued that the reassessment was a mere review of existing material, which is not permissible. The court, however, found that the reassessment was based on fresh material discovered during subsequent investigations, revealing that the companies involved were bogus shell companies. This fresh information provided a valid basis for reopening the assessment, distinguishing it from a mere change of opinion.

5. Applicability of the First Proviso to Section 147 of the Income Tax Act:
The court concluded that the exception in the First Proviso to Section 147 applied because the petitioner failed to disclose fully and truly all material facts necessary for assessment. This failure allowed the reassessment proceedings to be initiated even after four years from the end of the relevant assessment year.

Conclusion:
The court dismissed the writ petition, holding that the notice under Section 148 and the subsequent order rejecting the petitioner’s objections were valid. The reassessment proceedings were justified based on the fresh material discovered, indicating that the petitioner did not make a full and true disclosure of material facts. The proceedings did not amount to a mere review of existing material but were based on new tangible information.