Wednesday, 30 October 2013

Whether when AO had no occasion to verify shares transactions, which were considered as bogus based on inputs from Investigation wing and for which full particulars were not furnished in original proceedings, it can still be stated that there was change of opinion while issuing notice u/s 148 - NO: HC

THE issue before the Bench is - Whether when the assessing officer did not have any occasion to verify the shares transactions, which were considered as bogus based on the information from investigation wing and for which full particulars were not furnished by the assessee in original assessment proceedings, it can still be stated that there was change of opinion while issuing notice u/s 148 of the Income tax Act. NO is the HC's answer.

Facts of the case

The
AO made assessment u/s 143(3) r.w.s. 147 but did not deem it fit and appropriate to make any addition in respect of share transactions which was subject matter of second reassessment notice. Petitioner contended that it was a case of change of opinion after application of mind. The details of the questioned share transactions/consideration were specifically enclosed in form of a chart with the return of the income and also filed with the AO, with letter/objections raised before the AO. The investigating wing of department furnished list of beneficiaries of accommodation entries ascertained from the account of the alleged operators which was available with AO at the time of passing first reassessment order. There had been full and true disclosure of all material facts. The question could and should had been examined and addition could had been made during the first round of the reassessment proceedings. AO could had examined all transactions/credits in books, including cases not mentioned in the reasons to believe recorded on the first occasion, when the first re-assessment order was passed.

The CIT (A) accepted the claim of petitioner and deleted the addition made by AO. Revenue had accepted the said decision and therefore, the present reassessment proceedings were based on surmises and conjectures as CIT (A) had held that the share transfer transactions were genuine.

After hearing both the parties, the High Court held that,


++ in the peculiar facts of the present case we are inclined to accept that during the earlier proceeding the AO had not applied his mind and had not formed any opinion regarding the transactions in question. From the chart submitted by the petitioner giving details of long term capital gains/short term capital gains in respect of five companies, it does not transpire that the transactions were brokered or the sale consideration was received from ‘M’. There was no reason or cause for the AO to assume that these transactions of long term/short term capital gains were with ‘M’ or there were also bogus sales. When AO specifically asked regarding the transactions with ‘M’ and to submit the bills and invoices, petitioner kept silent on the numerous transactions made through five other companies with ‘M’ and no details of these transactions were furnished. The documents i.e. the chart, placed on record and on which assessee excessively relies prove that the petitioner had furnished the relevant information but was cautious and careful not to mention about any other transactions of ‘M’. The petitioner did not mention or state that there were other sale transactions with ‘M’ in any of the letters, communications and correspondence with AO. Had that been the case, the position would have been different. AO in the first round had only examined the transactions of ‘O’ and had not gone into any other transactions. Thus it can be safely stated that it is not a case of change of opinion as propounded and argued on behalf of the petitioner;

++ regarding the contention that AO in first round had information from Investigation wing, it is observed that the disc from Investigation Wing had data that had to be scanned, sifted through and then the details of alleged transactions, including company name, persons involved etc., had to be fully ascertained. The assessing officers were required to scan through thousands of entries to discern and determine which of their assessee, if any, has been a beneficiary of an accommodation entry. From this, it is not possible to know that the AO had information in his possession and was aware that the five other companies had also entered into transactions with ‘M’ but he has chosen to ignore and had deliberately not gone into the said aspect. Thus, when the said facts were not in knowledge of the Assessing Officer during the first reassessment proceedings before him to form an opinion on the transactions now in question, it would be a fallacy to argue that the second reassessment was change of opinion;

++ the contention of the petitioner that the issue or subject matter of the first reassessment was broad enough and included the transactions which are subject matter of the second reassessment proceedings, is incorrect. The first reassessment notice was very specific and did the cover the transaction as mentioned in reopening proceedings in second round;

++ the reasons are fairly detailed and refer to comprehensive investigation carried out by the Investigating Wing for identification of entry operators engaged in money laundering. The reasons record that the transactions between the transferor company i.e. the assessee and the transferee company, i.e. ‘M’ who was an entry operator, was not disclosed during the first round of reassessment proceedings and the prima facie conclusion that income on account of the said bogus transactions had escaped assessment. Thus, the information regarding these transactions were not the subject matter of the earlier re-assessment proceedings and details provided fresh material for the Assessing Officer to initiate second reassessment proceedings;

++ the appellate authority concluded that AO had relied upon information received from the Investigation Wing which was collected behind the back of the assessee, but he was not confronted. The Directors of ‘M’ were not produced or allowed to be cross-examined. It is in light of the said facts the CIT (Appeals) observed that the assessee had discharged the initial onus and AO ignoring evidence, without further investigation or inquiry, had made the addition without appropriately bringing on record adverse material and without confronting or giving opportunity to the assessee to meet the adverse material. The appellate order, therefore, proceeded on its own basis and factual matrix in the said case, cannot be regarded as order giving complete clean chit that transactions with ‘M’ were genuine or not bogus transactions or accommodation entries. At the stage of issue of notice u/s 148 only formation of tentative, prima facie view is required. The final opinion and authoritative opinion is formed when the assessment order is passed. Thus, the order passed by the CIT (Appeals) does not authoritatively records or proves that transactions with ‘M’ were genuine business or commercial transactions. The said order refers to the failure of the AO in the said proceedings and effect thereof which can by no stretch of imagination be construed that the petitioner did not indulge in bogus sales transactions;

++ mere submission of the chart that the five other companies had entered into sale transactions by itself would not amount to disclosure. The disclosure was neither full nor true. Full and true disclosures cannot be garbled or hidden behind the cervices of the documentary material. The assesse must act with candor and there cannot be suppression of facts. The disclosure must be truthful and fair in all respects and assessee who seeks the benefit of the proviso to Section 147 must make a full and true disclosure of all primary facts. However, here the assessee has not specifically pointed out at the time of the first reassessment that there were other transactions between amalgamated companies and ‘M’. Thus, the assessee did not come with clean hands and did not discharge the onus of disclosing true and full material facts.

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