By TIOL News Service

NEW DELHI, SEPT 28, 2017: THE ISSUE BEFORE THE BENCH IS - Whether mere allegation that companies having transaction with Assessee are 'paper companies', is by itself sufficient to reopen assessments that stand closed after passing of orders u/s 143(3), when such companies are duly assessed to tax. NO is the verdict.

Facts of the case:

The Assessee company, engaged in the business of real estate & property development, filed its return declaring total income of Rs.59,83,183/-. Consequently, a questionnaire was issued seeking details with respect to 'share application money received, if any, during the year'. In response, the Assessee disclosed the details of share capital allotted during the AY in toto of Rs.2,00,00,000/-. The Assessee also submitted the confirmation from the five companies along with their ITRs and PAN Cards. The AO accepted the information furnished by Assessee and raised no queries in respect to the same. Subsequently, a credible information was received from the ITO (Inv.), Jhandewalan Extension, New Delhi, stating that during the investigation carried out by the DDIT(Inv.) Kolkata, the statement of Sh. Navneet Kumar Singhania, s/o Late Jawala Prasad Singhania, Purbasha Housing Estate, Kolkata was recorded on oath u/s 131, wherein he admitted of being an entry operator. He also admitted that his source of income was from commission earned in lieu of giving service in the form of giving cheques to his clients in return for cash.

Since in the light of new facts, it was established that the companies, from whom share premium had been received by M/s Sabh Infrastructure Limited were not genuine, the AO was of the view non disclosure of same in income tax return resulted in under assessment of income of Rs.1,00,00,000/- on account of share premium. Accordingly, the AO issue reopening notice to Assessee.

High Court held that,

++ a perusal of the order disposing of the objections reveals that it proceeds on the basis that information sought for by the Assessee which formed the basis for reasons to believe, including the evidence collected, was required to be provided only in the further assessment proceedings. The said order overlooks the fact that the reasons for reopening do not mention as to what fact or information was not disclosed by Assessee. An allegation that companies in transaction are 'paper companies' without further facts is by itself insufficient to reopen assessments that stand closed after passing of assessment orders u/s 143(3). The assessment proceedings, especially those u/s 143(3), have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. In this case, the reasons failed to mention what facts or information was withheld by the Assessee. Merely relying upon the statement of Mr. Navneet Kumar Singhania that the companies in question were 'paper companies', by itself, is insufficient to reopen the assessment, unless the AO had further information that these companies were non-existent after making further inquiries into the matter;

++ the Revenue's counsel submission that this Court cannot dictate the manner and content of what is to be written in the reasons to believe is correct as a legal proposition. However, the Court has to examine the reasons to believe to see if it satisfies the rigour of the provisions. In the facts of this case, the primary facts have not been shown to be false. The five companies do exist. They did subscribe to the share capital of the Assessee and pay the money to it. The reasons to believe rely upon a letter received from the Investigation Wing and the counsel submits that this letter was in fact an investigation report. The report does not form part of the reasons and neither was it annexed to the reasons. Interestingly, even the counter affidavit is silent as to the material which has not been disclosed by the Assessee. This being a jurisdictional issue, the assumption of jurisdiction u/s 147 and 148 was erroneous;

++ this court has also observed that on a routine basis, a large number of writ petitions are filed challenging reopening of assessments by the Revenue, and despite numerous judgments on this issue, the same errors are repeated by the Revenue authorities. In this background, this Court would like the Revenue to adhere to various guidelines in matters of reopening of assessments, such as: (i) while communicating the reasons for reopening, a copy of the approval obtained from Superior Officer, apart from merely stating the reasons in a letter, should be provided to Assessee; (ii) the reasons to believe must spell out all the reasons, including any investigation report or any enquiry conducted by the AO, especially in those cases where the first proviso to Section 147 is attracted; and (iii) the order disposing of the objections must deal with each objection and give proper reasons for the conclusion.

(See 2017-TIOL-2041-HC-DEL-IT)