2013 (5) TMI 414 - HC - Income Tax

Reopening of assessment - unexplained credit in the books of accounts - additions u/s 68 - AO issued summons under Section 131 to 25 parties from whom the share application money had been received - Statement of Mr. Deepak Gupta who has admitted that he has not carried out any business activity accept that of providing accommodation entries to the assessee - Held that - Unable to accept the contention that there has been failure on the part of the assessee to disclose all material facts in his return as first of all there is no such allegation in the reasons as furnished to the assessee secondly it cannot be ignored of the fact that the enquiry into the share application money had been conducted in detail by the AO in the first round of assessment. Having framed his assessment after enquiry into the identity genuineness and the creditworthiness of the share applicants it would not be open for the AO to re-examine the same without there being any material allegation of failure on the part of the assesse to make a full and true disclosure. It is well-settled that in order to invoke the provisions of Section 147 after a period of four years from the end of the relevant assessment year in addition to the AO having reason to believe that any income has escaped assessment it must also be established that the income has escaped assessment on account of the assessee failing to make returns under Section 139 or on account of failure on the part of the assessee to disclose fully and truly the necessary material facts. See Wel Intertrade P. Ltd. & Anr. v. ITO (2008 (8) TMI 18 - HIGH COURT DELHI) and Haryana Acrylic Manufacturing Company v. CIT &Anr (2008 (11) TMI 2 - DELHI HIGH COURT) Also see Duli Chand Singhania v. Asstt. CIT (2003 (12) TMI 23 - PUNJAB AND HARYANA High Court) wherein noted that absence of the finding that the escapement in income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts which is the sine qua non for assuming jurisdiction under section 147 in a case falling under the proviso thereto makes the action taken by the AO wholly without jurisdiction. Further the mere statement that the DRI has seized certain goods of the assessee and levied a penalty also cannot be stated to be a reason for reopening of assessment of the assessee as the said statement made is neither followed by the recording of a belief that the income escaped on that count or that the assessee has failed to disclose all relevant material fully and truly at the stage of the first assessment. Against revenue.

Summary

Issues Involved:
1. Legality of reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961.
2. Alleged failure of the assessee to disclose material facts.
3. Validity of the Assessing Officer's reasons for reopening the assessment.
4. Jurisdiction of the Assessing Officer to initiate reassessment proceedings after four years.

Issue-wise Detailed Analysis:

1. Legality of Reassessment Proceedings Initiated Under Section 148 of the Income Tax Act, 1961:
The Tribunal quashed the reassessment proceedings initiated by the Assessing Officer based on a notice under Section 148 issued for reopening the assessment of the assessment year 2002-03. The notice was issued on 25.03.2009, beyond the period of four years from the end of the relevant assessment year. The Tribunal held that the reassessment proceedings were illegal and without jurisdiction as there was no failure on the part of the assessee to disclose material facts.

2. Alleged Failure of the Assessee to Disclose Material Facts:
The Tribunal found that the assessee had disclosed all particulars relating to the share application money, including confirmations from the share applicants and other relevant evidence. The Tribunal noted that the reasons recorded for initiating reassessment proceedings did not allege any failure on the part of the assessee to disclose material facts. The High Court concurred, stating that there was no allegation in the reasons furnished by the Assessing Officer that the assessee had failed to disclose all material facts.

3. Validity of the Assessing Officer's Reasons for Reopening the Assessment:
The reasons for reopening the assessment were based on alleged accommodation entries totaling Rs. 3,65,80,000/-. The High Court observed that the reasons recorded by the Assessing Officer included repeated entries to arrive at the total amount, indicating a lack of application of mind. The Court found the reasons to be recorded in a callous manner, and thus, no belief that income had escaped assessment could be formed based on such reasons.

4. Jurisdiction of the Assessing Officer to Initiate Reassessment Proceedings After Four Years:
The High Court emphasized that for reassessment proceedings initiated after four years, it must be established that the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Court referred to previous judgments, including Wel Intertrade P. Ltd. & Anr. v. ITO and Haryana Acrylic Manufacturing Company v. CIT & Anr., which held that the absence of an allegation of failure to disclose material facts makes the reassessment proceedings without jurisdiction. The Court concluded that the conditions for reopening the assessment under Section 147 were not satisfied, as there was no allegation or evidence of failure on the part of the assessee to disclose material facts.

Conclusion:
The High Court dismissed the revenue's appeal, holding that no substantial question of law was raised. The reassessment proceedings were deemed illegal and without jurisdiction due to the lack of failure on the part of the assessee to disclose material facts and the inadequacy of the reasons recorded by the Assessing Officer. The appeal was dismissed, and parties were left to bear their own costs.