Allahabad High Court
M/S Pankaj Hospital Ltd. vs Commissioner Of Income Tax And Another on 12 February, 2014
Author: Dilip Gupta
Bench: Dilip Gupta
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Chief Justice's Court Case :- WRIT TAX No. - 83 of 2014 Petitioner :- M/S Pankaj Hospital Ltd. Respondent :- Commissioner Of Income Tax And Another Counsel for Petitioner :- Rajiv Singhal Counsel for Respondent :- C.S.C., It Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice Hon'ble Dilip Gupta,J.
The petition under Article 226 of the Constitution is directed against a notice issued to the petitioner under Section 148 of the Income Tax Act, 1961 on 11 March 2013 by the Income Tax Officer-4(3), Agra for reopening the assessment for the Assessment Year 2006-07 under Section 147.
The assessee filed a return of income for the Assessment Year 2006-07. The case was selected for scrutiny. An order of assessment was passed under Section 143(3) on 2 December 2008 accepting a NIL return. A notice was issued to the assessee on 11 March 2013 under Section 148 and in response to the request made by the assessee for disclosure of reasons recorded under Section 148, the Assessing Officer issued the reasons on the basis of which the assessment was sought to be reopened. The reasons postulate that information was received from the Additional Director of Income Tax (Investigation) by the letter dated 6/8 April 2009 through the communication dated 27 January 2010 of the Additional CIT, Range 4, Agra that a search was conducted on the office premises of the Chartered Accountant, Tarun Goyal on 15 September 2008. During the course of search, it was admitted by the Chartered Accountant that he had created as many as 90 bogus private limited companies and firms for providing accommodation entries to the beneficiaries. The Directors of these companies were his employees who had worked in his office as peons and receptionists. A number of bank accounts were opened in the name of these companies and its employees in which huge cash deposits were made. Cheques were then issued to certain beneficiaries, disguising the transactions as genuine. The ADIT (Investigation) prepared a list of beneficiaries of such accommodation entries for the Assessment Years 2004-05 upto 2009-10. In this context, the reasons which have been recorded under Section 148 state that the petitioner-M/s. Pankaj Hospital Ltd. is one of the beneficiaries which had taken the benefit of accommodation entries during the Financial Year 2005-06 relevant to the Assessment Year 2006-07 from four bogus companies created by Tarun Goyal in lieu of cash deposits in equal amounts plus premium thereon. The total amount involved is Rs.2,21,50,000/-. Consequently the assessment was sought to be reopened on the ground that the petitioner had arranged accommodation entries of a total amount of Rs.2.21 crores from the aforesaid four bogus companies created by the Chartered Accountant in lieu of cash deposits of equal amounts plus premiums which were not disclosed to the Income Tax Department. On this basis, the assessment was sought to be reopened as there was reason to believe that the income had escaped assessment in the Assessment Year 2006-07. In pursuance of the judgment of the Supreme Court in G.K.N. Driveshafts (India) Ltd. Vs. Income Tax Officer1, the objection which was raised by the assessee has been disposed of by the order dated 24 September 2013. The assessee has challenged the reopening of the assessment.
Learned counsel appearing on behalf of the petitioner submits that during the course of the assessment under Section 143(3), the Assessing Officer had issued a notice under Section 142 on 5 June 2008 requiring the assessee inter alia to furnish a disclosure in respect of the share applicants, the amounts received and the source, the mode in which payments were received together with confirmatory letters and PAN card details of the investors. It has been stated that in response thereto the assessee had by its letter (Annexure 3) made a disclosure including that in regard to the four companies which are now alleged to be bogus. Hence, it has been submitted that there was no failure on the part of the assessee to disclose fully and truly all the necessary facts relevant to the assessment and in view of the proviso to Section 147(1), the reopening of the assessment beyond the period of four years is contrary to law. Moreover, it has been urged that when a search had been conducted on the office of the Chartered Accountant in 2008, there was no justification for the department to wait for a period of more than four years before reopening the assessment.
On the other hand, it has been submitted on behalf of the revenue that at the present stage, the test is not as to whether there has been an escapement of income but whether there was a reason to believe that the income chargeable to tax had escaped assessment. The facts would indicate that the basis of the reopening was the information which was gathered by the revenue during the course of investigation on the Chartered Accountant, Tarun Goyal who was found involved in setting up of as many as 90 bogus companies through whom funds were routed through various beneficiaries against deposits made in cash. The beneficiaries include the petitioner to whom accommodation entries in the amount of Rs.2.21 crores were provided by four such companies. In the present case, it has been submitted that the mere disclosure by the assessee during the course of the assessment of the date of the payment, the amount of the payment, the mode of payment and the PAN details of the companies would not establish that the transaction was genuine and as a matter of fact there was virtually no application of mind by the Assessing Officer to the genuineness of the transaction or the credit worthiness of the companies as a bare reading of the order would indicate.
The reopening of the assessment in the present case is under the provisions of Section 147(1). The Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for the Assessment Year in question. The expression 'reason', as the Supreme Court in Assistant CIT Vs. Rajesh Jhaveri Stock Broker Pvt. Ltd.2 has held, means a cause or justification. If the Assessing Officer has a cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The Supreme Court has held that the expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. At that stage what is required is 'reason to believe' and not the establishment of escapement of income. Whether the materials would conclusively prove an escapement of income is not the concern at that stage.
Now, it is true that during the course of the assessment proceedings, the Assessing Officer had required the assessee to disclose information pertaining to the share applicants, the amounts and their source, the mode in which payment was made and confirmatory letters together with PAN details. For the purpose of these proceedings, the Court must proceed on the basis of the reply furnished by the assessee to the notice under Section 142(1). The assessee had indicated the names of the companies, their addresses, the application money, date of payment, mode of payment and PAN details. But it is also trite law that for such cases three important aspects have to be considered by the Assessing Officer, namely (i) the identity of the investors; (ii) the credit worthiness of the applicants; and (iii) the genuineness of the transaction.
Ex-facie, the order of assessment which was passed by the Assessing Officer under Section 143(3) on 2 December 2008 (Annexure 5) does not indicate that the Assessing Officer had brought his mind to bear on either of these aspects. In fact there is nothing in the reply filed by the assessee to the notice under Section 142(1) that would indicate a full disclosure of facts in regard to either the credit worthiness of the companies which made the investments or the genuineness of the transaction. A cloud was cast on the genuineness of the transaction once a search took place at the premises of the Chartered Accountant who, according to the Department, has stated that he had set up 90 bogus companies, all within his control and in which the Directors were his own employees only for the purpose of providing accommodation entries in favour of various beneficiaries. Among the beneficiaries is the petitioner to whom a payment of Rs.2.21 crores was made through the four companies which created a conduit. Whether it is actually so, is a matter of fact which would have to be determined in the course of the proceedings after the assessment is reopened. At this stage, the only issue before the Court is to whether there was reason to believe that any income chargeable to tax had escaped assessment. From the reply which was furnished by the assessee during the course of the assessment proceedings, it does not emerge that the assessee had discharged the onus of establishing the credit worthiness of the companies which had ostensibly invested the amount or in regard to the genuineness of the transaction. Hence, though the reopening of the assessment in the present case is beyond the period of four years but the Assessing Officer was satisfied that the condition stipulated in the first proviso to Section 147 was duly fulfilled. We, however, clarify that these observations are only for the purposes of determining as to whether the notice reopening the assessment proceedings is valid or otherwise. Undoubtedly, the Assessing Officer in the course of the reopening of the assessment will be at liberty to make an appropriate determination since these are all matters of fact which are to be decided in the course of assessment.
In the circumstances, we find no illegality in the order of the Assessing Officer or in the notice issued under Section 148 read with Section 147.
The petition shall stand dismissed. There shall be no order as to costs.
Order Date :- 12.2.2014 GS (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.)