Whether when Revenue finds during investigation that assessee is beneficiary of accommodation entry it is sufficient to conclude absence of true and full disclosure of all facts by assessee - YES: HC

THE issue before the Bench is - Whether the fact revealed during investigation that the assessee is a beneficiary of an accommodation entry is sufficient for the AO to prima-facie conclude the absence of true and full disclosure of all facts - Whether a disclosure even if full may not be true. And the answer favours the Revenue.

Facts of the case

The assessee company was served notice u/s 148 for having taken accommodation entries by way of share capital. This was confirmed by one entry provider Mr. Praveen Kumar Jain during the Search that the same was provided as bogus accommodation entries to the beneficiary assessee company. Thus the assessment was reopened by the AO, pursuant to the notice u/s 148 which was issued although beyond the period of four years from the end of the relevant AY i.e. 2007-08. The assessee objected to the same on the ground that on the basis of a statement given by the third party it cannot be inferred that the share application money received by the assessee was in the form of accommodation entry. Besides, the assessee pointed out two of the seven names indicated in the reasons from whom accommodation entries were allegedly taken by the assessee do not even appear in the books of the assessee. This according to the assessee would itself make the information received suspicious and not authentic.

Having heard the parties, the High Court held that,

++ the reasons record that on investigation it is found that one Mr. Pravin Kumar Jain has claimed to have provided accommodation entries to the petitioner company in the name of the companies subscribing the shares of the petitioner company. This tangible material is specific information which would not require further investigation. This information is sufficient for the Assessing Officer to come to the conclusion that prima facie there has not been a true and full disclosure of all facts on the part of the petitioner assessee. The legislature has advisedly used the words true and full disclosure on the part of the assessee during the regular assessment proceedings. A disclosure even if full may not be true i.e. all information may be furnished which are necessary for assessment yet if this disclosure is not true, it would not satisfy the test of true and full disclosure. In this particular case, the receipt of money through banking channels by the applicant for shares of the petitioner company may be considered to be a full disclosure but it may not be a true and full disclosure if the facts alleged in the reasons are not found to be false during the proceeding for reassessment. In the present case this would be an issue which would be considered during the reassessment proceedings. Thus we find that in the present case it cannot be said that there is no basis to conclude that there has been a failure to disclose truly and fully all material facts necessary of assessment;

++ this Court in the matter of Allanasons Ltd. Vs. Deputy Commissioner of Income Tax, Circle 1(1) has held that the presence or absence of the averment "failure to disclose truly and fully" will not bestow or take away jurisdiction under Section 148 of the Act. The Court held that if on reading of the reasons as a whole it is found that it does indicate that there has been failure on the part of the petitioner to disclose truly and fully all material facts necessary for the assessment then the notice is without jurisdiction. In this case, on reading of the reason in support of the impugned notice as a whole, we find that it does bring out the failure on the part of petitioner to disclose fully and truly all material facts necessary for assessment;

++ the information received by the Assessing Officer on which basis the impugned notice is issued is specific. There is no ambiguity in the information which would require investigation. The information of accommodation entries has been given by a participant and this is reason enough to believe that income chargeable to tax has escaped assessment. At this stage, the Assessing Officer is not required to conclusively prove that the reasons in support of the impugned notice establish that the petitioner has taken accommodation entries. This is a matter which would be subject of further investigation during the reassessment proceeding;

++ in the light of above, we are not inclined to exercise our extraordinary jurisdiction under Article 226 of the Constitution of India and injunct the Revenue from proceeding further with the impugned notice for reassessment.