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TMI Blog2022 (4) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The questionnaire inter alia demanded production of all the share capital details of the petitioner s share-holders alongwith PAN and mode of payment for obtaining shares in his name or in the name of family members, and also the details of share premium receipts. The petitioner submitted a reply giving statement of income and complete address of sundry creditors alongwith the details of all investor companies to whom shares were allotted. The petitioner stated that shares were allotted at a premium to some companies. There is no bar in the Companies Act against issuance of shares at a high premium, and there was no such bar in the Income Tax Act. 4. The petitioner submitted that if the shares were issued at fair market value, there was no question of any addition and there was no contravention. The fair market value of the shares could be calculated as per formula given in Rule 110 A of the Act, as per which, the fair market value of the company s share works out to be ₹ 206.50. The shares were issued at the fair market value and, therefore, there was no contravention of law. 5. It has also been submitted by the petitioner that the matter of increase in shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Truthful Dervcon Pvt. Ltd. 12,500 18-08-2014 Rahul Dalmia Beneficiary Trust 2 30-03-2013 Welkin Investments Pvt. Ltd. 12,500 18-08-2014 Rahul Dalmia Beneficiary Trust 3 30-03-2013 Punam Chand Modi Paints Pvt. Ltd. 7,500 18-08-2014 Rahul Dalmia Beneficiary Trust 4 30-03-2013 Gyan Darshan Comodeal Pvt. Ltd. 2,500 01-12-2014 Rahul Dalmia Beneficiary Trust 5 30-03-2013 Radha Fincom Ltd, 12,500 01-12-2014 Rahul Dalmia Beneficiary Trust Total 47,500 9. From the detailed discussion made in the assessment order of the petitioner for the A.Y. 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the assessment order, the A.O. has not mentioned anything about the verification of the issue of introduction of new share capital and share premium. Subsequently, based on the information gathered during the course of assessment for A.Y. 2012-13, on examination of the petitioner s balance sheet for A.Y. 2013-14, it was found that the petitioner had received funds to the tune of ₹ 95,00,000/- as given in the chart below, by way of routing of funds materialized by M/s Radha Fincom Pvt. Ltd. and others: - S l Name of share holder Address Shares issued Amount received 1 Truthful Dervcon Pvt. Ltd. 7, Ganesh Chandra Avenue 12,500 25,00,000/- 2 Welkin Investments Pvt. Ltd. P-38, Princep Street, 1 st Floor, Room No. 1, Kolkata 12,500 25,00,000/- 3 Punam Chand Modi Paints Pvt. Ltd. 71, Canning Street, Kolkata 700001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Woollen Mills Ltd. v. ITO , (2008) 14 SCC 218, the Hon ble Supreme Court reiterated that while examining the validity of a notice issued under Section 148 of the Income Tax Act, we do not have to give a final decision as to whether there is a suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. 16. In light of the aforesaid pronouncements of the Hon ble Supreme Court we proceed to examine the rival submissions advanced on behalf of the parties so as to ascertain as to whether there was prima facie some material on the basis of which the Department could reopen the case, without going into the sufficiency or correctness of the material. 17. Mr. Pradeep Agrawal, the learned Counsel representing the petitioner, has submitted that the petitioner had fully and truly disclosed the entire material during the assessment proceedings and there is no fresh material for initiation of the proceedings. Drawing attention of the Court to the averments made in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original assessment, he had reason to believe that the amount of ₹ 95,00,000/- received by the petitioner, which was chargeable to tax, had escaped assessment. 19. The reasons recorded by the A.O. for initiating the process of re-assessment state that on the basis of information received from the ADIT (Inv.), Unit 6, Kolkata, the ACIT, Circle 3 (2), New Delhi and the ITO (Inv.), Unit 4, Kolkata, regarding routing of funds in the garb of share premium, the A.O. examined the returns of other assessees and found that the petitioner had received funds to the tune of ₹ 95,00,000/- by way of routing of funds materialized by M/s Radha Fincom Pvt. Ltd. others in A.Y. 2013-14 As per the departmental database of bogus shell companies, accommodation entry providers and operators, the company was merely a paper concern having no existent and real business. Finally the case of these assessees for A.Y.2012-13 were re-opened under Section 147 of the Act and after a detailed and in-depth analysis of the information in possession of the office, it was established that the petitioner had routed its own money in the garb of shares application money and share premium through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income Tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income Tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income Tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. (Emphasis supplied) 22. In Srikrishna (P) Ltd. v. ITO, (1996) 9 SCC 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the total hundi loans of ₹ 8,53,298) were established to be bogus persons or mere name-lenders in the assessment proceedings relating to the subsequent assessment year. Does it not furnish a reasonable ground for the Income Tax Officer to believe that on account of the failure - indeed not a mere failure but a positive design to mislead - of the assessee to disclose all material facts, fully and truly, necessary for his assessment for that year, income has escaped assessment? We are of the firm opinion that it does. It is necessary to reiterate that we are now at the stage of the validity of the notice under Sections 148/147. The enquiry at this stage is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. 10. A recent decision of this Court in Phool Chand Bajrang Lal v. ITO, we are gratified to note, adopts an identical view of law and we are in respectful agreement with it. The decision rightly emphasises the obligation of the assessee to disclose all material facts necessary for making his asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words change of opinion imply formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 17. It is well settled and held by this Court in a catena of judgments and it would be sufficient to refer to CIT v. Kelvinator of India Ltd. wherein this Court has held as under: (SCC p. 725, para 5-7) 5. where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe . Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. 6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is a sister concern of the petitioner, was re-opened under Section 148 of the Act for A.Y. 2012-13 on similar issue, where re-opening of the case in the matter of M/s Arohul Foods Pvt. Ltd. was quashed by the ITAT, Lucknow Bench vide order dated 11-08-2021, it has been 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. 28. Regarding the petitioner s submission that the proceedings initiated after a lapse of more than four years are barred by the First Proviso appended to Section 147 of the Act, we find that Section 147 of the Act, as it stood at the relevant time, was as follows: - 147. Income escaping assessment .- If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 147 of the Act. Therefore, the submission to this effect made by the learned Counsel for the petitioner cannot be accepted. 30. 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. (1) and (2) and Phool Chand Bajarang Lal and Srikrishna (Supra) , 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 as well as the order dated 03-03-2022 passed by the National Faceless Assessment Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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