Rajshree Realtors Private Limited Vs Union of India (Bombay High Court)
Bombay High Court held that initiation of reassessment proceedings u/s 147 after the expiry of 4 years from the end of the relevant assessment years without failure on the part of the assessee to disclose fully and truly all the material facts unsustainable and liable to be quashed.
Facts- During the assessment proceedings, AO made addition of Rs. 3,00,00,000/- u/s. 68. However, CIT(A) deleted the said addition. ITAT upheld the order of the CIT(A). Accordingly, revenue has challenged the order of ITAT and appeal is still pending.
Later, petitioner received a notice from respondent no.3 u/s. 148 of the Act in which it is stated that respondent no.3 had reasons to believe that income chargeable to tax for A.Y.-2012-2013 has escaped assessment. As required, petitioner provided all information and material called for as per the notice. Petitioner was provided a copy of the reasons to believe recorded for initiating reassessment proceedings u/s. 147 of the Act. It is alleged that, as per information the assessee company is one of the beneficiaries who had taken accommodation entry in form of bogus share capital/premium from bogus paper companies, viz., SCPL and SHPL. As per respondent no. 3 the amount involved in the transaction was Rs.2,50,00,000/-.
Conclusion- Held that Section 147 of the Act is very clear that no action shall be taken under the said Section after the expiry of 4 years from the end of the relevant assessment years unless any income chargeable to tax has escaped assessment by reason of the failure on the part of assessee to disclose fully and truly all material facts. First of all, it is not spelt out in the reasons to believe as to what was the material fact which was not truly and fully disclosed. Further, having considered the submissions of petitioner during the course of original assessment proceedings and the findings of CIT(A) as well as ITAT, we are also satisfied that there was no failure on the part of petitioner to disclose fully and truly any material fact. Even assuming, respondents’ case is petitioner should have disclosed that these were bogus or accommodation entries, still there is nothing on record to indicate that petitioner was aware that these were bogus shares capital/premium from bogus paper companies, viz., SHPL and SCPL and were accommodation entries.
In the circumstances, we hereby quash and set aside the notice dated 19th March 2019 issued under Section 148 of the Act.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1 Petitioner is impugning the notice dated 19th March 2019 issued by respondent no.3 under Section 148 of the Income Tax Act, 1961 (the Act).
2 Petitioner is engaged in the business of real estate and was regularly assessed to tax. For A.Y.2012-2013, petitioner had filed its return of income on 21st September 2012 declaring an income of Rs.1,05,318/- and had shown the said income under the head “Profit and Gains from Business and Profession”. The return of income was initially processed under Section 143(1) of the Act. Subsequently, petitioner’s case was selected for scrutiny under Computer Aided Scrutiny Selection (CASS) norms and statutory notices under Section 142(1) and 143(2) of the Act were issued to petitioner.
3 During the course of the assessment proceedings, petitioner was, by a letter dated 24th March 2015, called upon to explain huge share application money and share premium received by petitioner. Petitioner by its letters dated 14th November 2014, 27th February 2015 and 27th March 2015 replied and also provided all documents. Petitioner also provided the valuation report and the explanation for the share premium charged as also the details of the two subscribers, viz., Shubhshree Hirise Pvt Ltd (SHPL) and Subhdrishti Complex Pvt Ltd. (SCPL). Respondent no.3 proceeded to pass the assessment order dated 30th March 2015 under Section 143(3) of the Act and added as income under Section 68 of the Act, a sum of Rs.3,00,00,000/- that petitioner had received as share application money. The face value of the share was Rs.10 and was subscribed by SHPL and SCPL at the premium of Rs.9 each. Respondent No.3 added under Section 68 of the Act, not only the face value of the share, i.e., Rs.10/- but also the premium paid for the shares as income of petitioner. Against return of income of Rs.1,05,318/-, respondent no.3, in his order under Section 143(3), assessed petitioner’s taxable income to Rs.3,01,05,318/-.
4 Aggrieved by the order of respondent no.3, petitioner preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. CIT(A) after hearing the parties and considering the documents and evidence by an order dated 27th January 2017, deleted the said sum of Rs.3,00,00,000/- added by respondent no.3. This order of CIT(A) was impugned by respondent no.3 by filing an appeal before the Income Tax Appellate Tribunal (ITAT). By an order dated 8th February 2019, the ITAT upheld the order of CIT(A). Respondent No.3 has challenged the order of ITAT by filing an appeal in this court, which appeal is still pending.
5 Later, petitioner received a notice dated 19th March 2019 from respondent no.3 under Section 148 of the Act in which it is stated that respondent no.3 had reasons to believe that income chargeable to tax for A.Y.-2012-2013 has escaped assessment. As required, petitioner provided all information and material called for as per the notice. Petitioner was provided a copy of the reasons to believe recorded for initiating reassessment proceedings under Section 147 of the Act. As per the reasons recorded by respondent no.3, information had been received from the Deputy Commissioner of Income Tax, Central Circle-3(1),Kolkata(DC.CC-K), vide letter DCIT/CC-3(1)/PKA/Kol/2018-19/5096, dated 1st March 2019. Respondent no.3 further mentioned that DC.CC-K had enclosed letter No.F.No.35/2012-13/3606-14, dated 6th February 2013 from DIT (Inv.), Kolkata, that as per the information a search and seizure operation was conducted at the business and residential premises of one Mr. Praveen Agarwal and his group companies on 13th September 2012, that in his statement recorded in the course of search, Mr. Agarwal had accepted in his statement that he had registered a large number paper companies for providing various accommodation entries, that SCPL and SHPL were two such paper companies floated by Mr. Agarwal. As per information the assessee company is one of the beneficiaries who had taken accommodation entry in form of bogus share capital/premium from bogus paper companies, viz., SCPL and SHPL. As per respondent no. 3 the amount involved in the transaction was Rs.2,50,00,000/-. Respondent no. 3 further referred to statement of Mr. Agarwal and mentioned that petitioner had taken accommodation entry in form of bogus share capital /premium from the paper companies by Mr. Agarwal. Respondent no. 3 further stated that assessee had failed to disclose true and complete information regarding the share capital/premium and it was not a case of change of opinion. Assessee had failed to make requisite full and true disclosure of all material facts necessary for assessment and petitioner had taken accommodation entries in form of share capital/premium and had availed the benefit of Rs.2,50,00,000/-. Respondent no.3 specifically mentioned at the end of the page 3 of the satisfaction note that petitioner had filed a copy of audited Profit and Loss account and balance sheet along with the return of income where various information/material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment had not been made.
6 Petitioner replied by its letter dated 25th June 2019 and called upon respondent no.3 to provide certain information mentioned therein. Thereafter, petitioner filed its objections. Respondent no.3 specifically passed an order rejecting petitioner’s objections, after which this petition came to be filed. On 26th November 2019, pending admission, ad-interim stay to the notice dated 19th March 2019 was passed. The said order was continued from time to time. On 15th December 2021, petition came to be dismissed for want of prosecution and by an order dated 27th September 2022 petition came to be restored.
7 Petition was allowed to be amended by an order dated 1st December 2022 and this amendment came to be made in view of assessment order dated 7th September 2021 being passed despite a stay being in force. The assessment order was stayed subsequently.
8 Mr. Easwar Learned counsel for petitioner submitted as under:
a) That as per the mandate of Section 147 of the Act, the words “reason to believe” signifies that the belief must be based on reasonable grounds and not mere suspicion, gossip or rumour. The basis in the formation of opinion for reopening should not be vague, indefinite or far-fetched.
b) There is not even an iota of evidence on record to suggest that petitioner has taken any accommodation entries. Respondent no.3 is in effect going on fresh assessment proceeding solely relying upon the statements of a person with whom petitioner was not related in any There is no live link or close connection between the reasons recorded or the belief formed by respondent no. 3.
c) It is a clear case of change of opinion though in the reasons recorded for reopening respondent no.3 states the case under consideration is not the result of change of opinion. Respondent no.3 has admitted in reasons recorded that petitioner had filed copies of audited profit and loss account and balance sheet along with the return of income where various information/material were disclosed. However, respondent no.3 has, for reasons best known, ignored the fact that during the original assessment proceedings respondent no.3 had issued notices under Section 133(6) of the Act to both the subscribers of the shares, i.e., SHPL and SCPL about the share money and the premium and that after considering the available material the then Assessing Officer (AO) had raised the issue about justification for high premium.
d) Re-opening provisions of the Act cannot be used to overcome or to reverse the adverse order of the appellate authorities.
e) Respondent no.3 without application his mind issued the original assessment order under Section 143(3) of the Act. Respondent no.3 made additions to the income of petitioner by referring to Section 68 of the Act. Respondent no.3 has also ignored the fact that during the original assessment proceedings the then AO had not only directed petitioner to prove the identity, creditworthiness of SHPL and SCPL as well as the genuineness of the transaction but had also issued notices under Section 133(6)of the Act to both the entities.
f) More importantly, the notice under Section 148 of the Act has been issued after the expiry of 4 years from the end of the relevant assessment year. As per the first proviso in Section 147 of the Act, an assessment can be reopened after a period of 4 years only where income chargeable to tax has escaped assessment by reason of the failure on the part of assessee to make a return or to disclose fully and truly all material necessary for his assessment for that assessment year. In the case at hand, petitioner had furnished all the necessary details about the share and premium money during the original assessment proceedings. Respondent no.3, however, without even alleging what was the failure on the part of petitioner to furnish and what information was to be furnished has simply reproduced the language of Section 148 of the Act while issuing the notice. Respondent no.3 has not indicated which material facts were required to be disclosed by petitioner and were not produced during the scrutiny assessment. Since the assessment is being reopened after a period of 4 years from the end of A.Y.- 2012-2013, it is incumbent on respondent no.3 to specifically allege in the reasons recorded that income chargeable to tax has escaped assessment on account of failure of petitioner to disclose fully and truly all material facts. Since respondent no.3 has not specifically averred so in the reasons recorded, respondent no.3 had no jurisdiction to reopen the assessment.
g) In the assessment order dated 7th September 2021, respondent no.3 has stated that quantum of share premium as per information received is only Rs.2,50,00,000/-, whereas the assessment has been finalized by addition of higher amount on account of same share premium to the tune of 3,00,00,000/-. The amount of addition on account of share premium in question made during the course of scrutiny proceeding is much more than the amount as per the information received. It is not clear from where these information have been obtained because nothing of this nature is disclosed in the reasons to believe.
h) The Revenue has challenged the order of ITAT before this court. Thus a parallel litigation for the same issue i.e. share capital and share premium received from SHPL and SCPL has been initiated by respondent no.3 by issuing a notice under Section 148 of the Act. The notice issued under section 148 of the Act by respondent no.3 seeks to re-agitate the issue on which petitioner has already succeeded before the appellate authorities. The action of issuing notice to reopen the assessment on the same grounds on which the respondents have suffered adverse orders, is subversive of the provisions of the Act as also the norms of judicial discipline and is wholly contrary to the judicial process.
9 Mr. Suresh Kumar, learned counsel for Revenue, in response, submitted that there was no change of opinion. The information that the two companies SHPL and SCPL are shell companies was not available at the time of original assessment. This was fresh additional information at the hands of respondent no.3 and hence material that was not considered during the original assessment proceedings under Section 143(3) of the Act. At the time of original scrutiny, it is true that the AO had made investigation about the claim of share premium receipt from SHPL and SCPL in the order under Section 143(3) of the Act. The genuineness of the transaction was not proved and hence AO had added Rs.3,00,00,000/- claimed by assessee as share premium receipt under Section 68 of the Act. Fresh information received by respondent no.3 clearly establishes that SHPL and SCPL are shell companies and assessee is one of the beneficiaries who has taken accommodation entry in the form of share capital/premium. At the time of filing the return of income and also during the course of scrutiny proceedings under Section 143(3) of the Act, assessee was well aware of the fact which shows assessee has failed to disclose fully and truly all material facts necessary for the assessment of that assessment year. There was nothing vague or unspecific in the reasons to believe because reasons to believe for re-opening may come from external sources or even from material on record or may be derived from fresh facts. The notice has been issued following due process of law as prescribed in the Act.
FINDINGS:-
10 Admittedly, re-opening is proposed more than 4 years after the end of the relevant assessment year. First proviso in Section 147 of the Act as was then in force, provides that where an assessment under sub-Section 3 of Section 143 has been made for the relevant assessment year (here it has been done), no action shall be taken under Section 147 of the Act after the expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.
We have to therefore examine from the reasons to believe what was the material fact that petitioner was required to disclose fully and truly.
11 It would be useful to reproduce the relevant portions of the reasons to believe and it reads as under:
“Reasons for re-opening of the assessment u/s 147 r.w.s. 148
The assessee is a corporate entity and filed its Return of Income for AY 2012-13 on 21.09.2012 declaring total Income of Rs.1,05,318. The return was processed u/s 143(1), Scrutiny assessment was completed u/s 143(3) on 30.03.2015 assessing total income at Rs 3,01,05,320/-.
2. Information in this case has been received from DCIT, CC3(1),Kolkata vide letter DCIT/CC-3(1)/PKA/Kol/2018-19/5096 dated 01.03.2019 in respect of shell companies floated by Shri Praveen Agarwal (Entry Operator). He has enclosed letter no F.No.35/2012- 13/3606-3614 dated 06.02.2013 from DIT(Inv), Kolkata. As per the information a search and seizure operation u/s 132 of IT Act 1961 was conducted at the business & residential premises of Shri Praveen Agarwal and his group companies at Kolkata on 13.09.2012. Shri Praveen Agarwal is one of the known entry operators of Kolkata. In his statement recorded in course of search, Shri Praveen Agarwal has accepted on oath that he had registered a large number of paper companies for providing various accommodation entries. M/s Subhdristi Complex Pvt Ltd & M/s Subhshree Hirise Pvt Ltd are two such paper company floated by Shri Praveen Agarwal. As per information the assessee company is one of the beneficiaries who has taken accommodation entry in form of bogus share capital/premium from the bogus paper companies namely M/s Subhdristi Complex Pvt Ltd & M/s Subhshree Hirise Pvt Ltd. Details are as under:
