Allahabad H.C : The petitioner has preferred this writ petition so as to challenge the re-assessment proceedings initiated for the assessment year 2008-09 vide notice dated 30.03.2015 issued under Section 148

High Court Of Allahabad

Sairam Commercial Pvt. Ltd. vs. Union Of India And Other

Section 148

Pankaj Mithal & Umesh Chandra Tripathi, JJ.

Writ Tax No. -196 of 2016

19th September, 2017

Counsel Appeared:

Nishant Mishra for the Petitioner. : A.S.G.I., C.S.C. I.T., Praveen Kumar for the Respondent.

ORDER:

Heard Sri P.K. Jain, Senior Counsel assisted by Sri Nishant Mishra, learned counsel for the petitioner and Sri Praveen Kumar, learned counsel appearing for the respondents.

The parties have exchanged pleadings and agree for the final disposal of the petition at the stage of admission itself on the basis of aforesaid pleadings.

The petitioner is a duly registered company under the Companies Act, 1956. It was previously assessed in Calcutta and is now being assessed with the ITO, Central Circle-1 at Kanpur.

The petitioner has preferred this writ petition so as to challenge the re-assessment proceedings initiated for the assessment year 2008-09 vide notice dated 30.03.2015 issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) by the Assistant Commissioner, Income Tax, Central Circle-1, Kanpur.

It appears from the pleadings that in the relevant assessment year, petitioner had filed return on 25.09.2008 under Section 139 of the Act. The return so filed was processed by the Assessing Officer under Section 143(1) of the Act on 10.07.2009. Finally, an order of assessment was passed on 31.12.2009 under Section 143(3) of the Act. Thereafter, on the basis of some information received, the Assessing Officer formed an opinion that certain income of the petitioner has escaped assessment. Accordingly, notice under Section 148 of the Act was issued on 31.03.2015 (wrongly mentioned as

30.03.2015).

The petitioner asked for supplying the reasons to believe for forming such an opinion for reopening the assessment. The Assessing Officer supplied the reasons vide letter dated 21.08.2015.

Apart from other things, it records that search and seizure operations were carried out on 21.01.2015 at Jodhpur, where the statement of one Jagdish Prasad Purohit was recorded, who accepted that his associates were working as dummy directors in various companies and that all the affairs of all those companies are being managed by him. He accepted that he was an entry provider in the form of share capital, share premium, bogus bills and unsecured loans in lieu of commission. The petitioner company had also received a sum of Rs. 14,70,15,000/-as security premium amount during assessment year 2008-09 in the similar fashion.

The submission of learned counsel for the petitioner is that the petitioner had disclosed full and complete particulars relevant for the assessment in the return and that the assessment order passed under Section 143(3) of the Act, very much deals with the said amount, which was said to be by way of bogus transaction. The Assessing Officer, as such lacked jurisdiction to proceed under Section 147 of the Act.

In other words, the contention of Sri Jain is that in the absence of any assertion in the reasons to believe that the petitioner has failed to disclose fully and truly all the material facts necessary for assessment, a notice under Section 148 of the Act is bad in law more particularly when an order of assessment was made under Section 143(3) of the Act.

On the other hand, the submission is that the very fact that the entry of Rs. 14,70,15,000/-was admitted to be a bogus entry by Jagdish Prasad Purohit, it constituted sufficient new material to conclude that the income of the assessee had escaped assessment in the relevant year and mere disclosure of the amount so received in the return would not be a full and true disclosure of all material facts for the purposes of assessment.

Section 147 of the Act permits the Assessing Officer to assess or re-assess the assessee subject to the provisions of Sections 148 to 153 if he has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year.

It further provides that in the case of assessment under Section 143(3) of the Act, no action shall be taken under Section 147 after the expiry of four years from the end of the relevant assessment year, provided income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return under Section 139 of the Act or in response to the notice under Section 142(1) of the Act or Section 148 of the Act or to disclose fully and truly all material facts necessary for assessment in the relevant year.

It is settled in law that for making an assessment under Section 147 of the Act, there has to be a reason to believe that the income of the assessee has escaped assessment and in the event, the proceedings for re-assessment are drawn after four years but before completion of six years from the end of the relevant assessment year, the Assessing Officer has to be further satisfied that there is a failure on the part of the assessee to file return or to disclose fully and truly all material facts necessary for assessment.

In the case at hand, we are basically concerned with the condition regarding full and complete disclosure of all material facts necessary for assessment.

In view of the above, as admittedly the proceedings for re-assessment were started after the expiry of four years, it was incumbent upon the Assessing Officer to have satisfied that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The reasons to believe as supplied to the petitioner vide letter dated 21.08.2015 filed as annexure 7 records that Jagdish Prasad Purohit provided a list of 246 companies, controlled and managed by him and that the petitioner company had received a sum of Rs.14,70,15,000/- as security premium amount during the assessment year 2008-09 by way of entry.

On the aforesaid information and the admission of Jagdish Prasad Purohit that he was working as entry provider in lieu of commission, the Assessing Officer formed an opinion that the petitioner is engaged in providing bogus entries and the amount of Rs. 14,70,15,000/- is in the nature of transfer of black money to beneficiary companies.

Sri Jain has drawn our attention to the assessment order passed under Section 143(3) of the Act and has contended that the aforesaid order takes into account the share capital raised by the petitioner company by the issuance of 14,85,000 shares of the face value of Re.1 on premium of Rs.99 and 1,06,000 shares of Re.1. The total of this share capital, he submits comes to Rs. 14,70,15,000/- and as such, it is not a case that this amount has not been disclosed by the petitioner in his return. He further submits that once the amount has been disclosed in the return and assessment order has been passed under Section 143(3) of the Act, it would not be a case of failure to disclose fully and truly all material facts necessary for assessment so as to permit the Assessing Officer to proceed for re-assessment under Section 147 of the Act.

In support of his submissions, he has placed reliance upon the several decisions of the various High Courts as well as that of Supreme Court.

The first decision, which he has relied upon, is that of the Division Bench of this Court in the case of M/s Noida Power Company Limited Vs. Commissioner of Income Tax and 2 others, 2017 (8) ADJ 350 (DB), in which one of us (Pankaj Mithal, J.) was a member.

The aforesaid decision lays down that for the purposes of re-assessment, two conditions are required to be satisfied. The first is, the Assessing Officer must have reasons to believe that the income of the assessee has escaped assessment in a particular assessment year and; secondly, he must also have reasons to believe that such escapement of income has occurred inter-alia on account of omission on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The first condition is mandatory where the action is taken within a period of four years from the end of the relevant assessment year but the fulfillment of the second condition becomes mandatory, if the proceedings are drawn after expiry of four years but before the completion of six years.

In the case of M/s Tikaula Sugar Mills Limited Vs. CIT, Muzaffar Nagar decided by the Division Bench of this Court on 16.10.2012, the only thing which has been said is that when the entire material is disclosed in the accounts, which were accepted and the assessment was finalized, there could be no ground to reopen the assessment on the assertion that the income has escaped assessment. It also lays down that the Assessing Officer has to apply his mind to the information, if any, collected for the purposes of forming his opinion as to the escapement of the income.

In Jagran Prakashan Ltd. Vs. Commissioner of Income Tax, (2014) 361 ITR 534 (Alld), it has been held that where Assessing Officer fails to record that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment and the proceedings for the assessment were finalized under Section 143(3) of the Act, it cannot be said that the petitioner has failed to disclose all the material facts relevant for the assessment to sustain an action under Section 148 of the Act.

This apart, much reliance has been placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax and another Vs. Foramer France (2003) 264 ITR 566 (SC). In the said case, the Supreme Court held that where any assessment has been made under Section 143(3) of the Act and the assessee has disclosed fully and truly all materials facts, a notice issued under Section 148 of the Act for re-assessment beyond the four years would be bad in law.

In other words, what has been laid down is that the proceedings for re-assessment on the basis of a notice under Section 148 of the Act cannot be initiated after a period of four years, if the assessee has disclosed the full and true material facts necessary for assessment.

The Division Bench of this Court in the case of Foramer Vs. CIT and another (2001) 274 ITR 436 (Alld) while considering a similar dispute relating to validity of notice under Section 148 of the Act held that where admittedly there is no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for assessment, the proviso to Section 147 of the Act would not be attracted and the impugned notice would be treated as barred by limitation. This authority also purports to lay down that for the purposes of issuing a notice under Section 148 of the Act beyond the period of four years, it is necessary to comply with the second condition or to record satisfaction with regard to the failure to disclose full and true material facts relevant for assessment.

A similar view has been expressed by another Division Bench of this Court in the case of Amrit Corp Ltd. Vs. Additional Commissioner of Income Tax (2015) 275 CTR 174 (Alld). In this case also, it was reiterated that Section 147 of the Act lays down that where the Assessing Officer has a reasonable belief that income chargeable to tax has escaped assessment for any assessment year, he may assess or re-assess the said assessee but where assessment under Section 143(3) of the Act has been made, no action shall be taken for re-assessment after expiry of four years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment by reason of failure on the part of the assessee either to make return or to disclose fully and truly all material facts necessary for assessment.

The Division Bench on the facts and circumstances of the said case held that where the Assessing Officer returned a finding that as there was complete disclosure of all material facts necessary for assessment on the part of the assessee and the assessment order was passed under Section 143(3) of the Act after making necessary scrutiny and inquiry, it would not be a case for re-assessment for failure to satisfy the second condition.

In Sound Casting (P) Ltd. Vs. Deputy Commissioner of Income Tax (2013) 33 Taxmann.com 374 Bombay, it has been held that where there is no allegations in the reasons to believe that there was any failure on the part of the assessee to fully and truly disclose the material facts necessary for assessment, re-opening of the assessment beyond the period of four years would not be permissible.

The consideration of all the aforesaid authorities, viz-a- viz the provisions of Sections 147 to 153 of the Act makes it abundantly clear that for initiating the proceedings for reassessment beyond the period of four years from the end of the relevant assessment year, it is also mandatory that the income chargeable to tax must have escaped assessment for failure on the part of the assessee to file return or to disclose fully and truly all material facts necessary for assessment.

Thus, non-disclosure of full and true material facts was accepted to be one of the mandatory conditions for initiating the re-assessment proceedings under Section 147 of the Act, if it is after the expiry of four years from the end of the relevant year.

The reason to believe recorded by the Assessment Officer for issuing a notice under Section 148 of the Act apart from other things must contain an assertion that the assessee has failed to disclose full and true material facts necessary for assessment.

Additionally, if assessment proceedings are completed under Section 143(3) of the Act after due verification of the disclosures made by the assessee in the return, there is hardly any scope for re-assessment.

However, despite all above, the moot question, which remains is what would amount to nondisclosure of full and true particulars necessary for the assessment.

The Supreme Court in Sheonath Singh Vs. Appellate Assistant Commissioner of Income Tax, Calcutta AIR 1971 SC 2451 was considering the expression “reason to believe” and observed that it suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour for the purposes of re-assessment. It also laid down that the Court can always examine if the conditions necessary for the re-assessment are satisfied and that there exists any material for the formation of such belief.

The aforesaid opinion expressed by the Supreme Court has often been repeated not only by the Apex Court but by most of the High Courts.

What would amount to non-disclosure of full and true facts necessary for assessment has been dealt with by the Supreme Court in the case of M/s Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another (1993) 203 ITR 456. The facts of the aforesaid case were identical to that of the case, we are dealing with.

In the said case, the assessee had claimed that it had borrowed of Rs.50,000/-from M/s Jain Finance Distributors India Limited, Calcutta. On inquiry made by the Assessing Officer from his counterpart at Calcutta, it was revealed that the company based at Calcutta was a dummy company that had never actually advanced any loan to any person but has only lend its name so as to bring into the books the “black money” under the guise of a loan.

In the said case also, the return filed by the assessee was processed and was finalized after due scrutiny and verification. The Apex Court laid down the following two essential conditions for the re-assessment under Section 147 of the Act :

(1) The Income Tax Officer must have reason to believe that the income had escaped assessment and ;

(2) he must have reason to believe that such escapement was occasioned by a reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

It was held that both these conditions must coexist in order to confer jurisdiction upon the Income Tax Officer to proceed or to initiate the proceedings under Section 148 of the Act.

Now, applying the above conditions to the facts and circumstances of the case, the Supreme Court held that where the transaction itself on the basis of subsequent information was found to be bogus, mere disclosure of the transaction at the time of original assessment proceedings cannot said to be a disclosure of the “true and full facts” and in that case, the Income Tax Officer would have jurisdiction to re-open the concluded assessment for the relevant year.

In the present case also, after conclusion of the assessment order under Section 143(3) of the Act, the Assessing Officer received information that the disclosure, as made by the petitioner in the return, is bogus for the reason that it was a sham transaction only for the sake of converting the black money into that of share money or security money through a shell company.

The aforesaid material was in no way unreliable or unauthentic, inasmuch as it was on the basis of statement of the person, running the shell company, who himself has confessed that the petitioner is one of the company, which had received a sum of Rs. 14,70,15,000/-as security premium during the assessment year 2008-09.

The narration of facts and material in the reasons to believe impliedly amounts to saying that the assessee is guilty of not disclosing the true and full material facts necessary for assessment.

In such a situation, even if there was a disclosure of the aforesaid amount in the return filed by the petitioner under Section 139 of the Act and the assessment was completed under Section 143(3) of the Act, it would not amount to be a full and true disclosure of the material facts necessary for completion of the assessment.

In view of the aforesaid facts and circumstances, we do not deem it fit to interfere with the reassessment proceedings or impugned notice issued under Section 148 of the Act.

The writ petition is accordingly dismissed.

The Assessing Officer may proceed with the assessment and complete it uninfluenced by any observation or finding recorded herein above.

[Citation : 406 ITR 281]

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