Reopening of assessment – Information of shell companies – Right to cross-examination – Violation of the principle of natural justice – These pleas to be raised at time of reassessment – Reopening justified

Reopening of assessment – Information of shell companies – Right to cross-examination – Violation of the principle of natural justice – These pleas to be raised at time of reassessment – Reopening justified

The petitioner filed its return of income for the A.Y. 2012-13 electronically on 28th September, 2012 disclosing a total income of Rs. 34,80,490. These tax returns were subjected to scrutiny under CASS and an assessment order was passed u/s 143(3) on 15th November, 2014 by the A.O. purportedly being satisfied with the genuineness of the transactions and documents, etc., disclosed by the petitioner.

Being aggrieved by certain disallowances of expenses in the aforementioned assessment order, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals). Thereafter, the impugned notice u/s 147 was issued to the petitioner by the A.O. on 29th March, 2019 pursuant to which the petitioner sought the reasons for such reopening. The petitioner filed objections on 18th June, 2019. On 26th June, 2019, the A.O. rejected the objections and on 26th July, 2019 issued a notice u/s 142(1) seeking further details from the petitioner. The petitioner then filed the writ petition against the rejection order.

The petitioner submitted that the reopening was based on a mere change of opinion of the A.O. and, therefore, was bad in law. The reasons for which the assessment was sought to be reopened had already been considered in detail by the A.O. in the original assessment order.

On behalf of the Income-tax Department, it was submitted that the objections of the petitioner had been considered
in sufficient detail by the A.O. and had been rightly rejected.

The Court observed that the reasons for reopening of the assessment, as disclosed by the Department in its communication dated 17th May, 2019, inter alia state how the DTIT Investigating Unit-1, Kolkata in its letter dated 15th January, 2019 passed on information in the case of beneficiaries identified in the ‘Banka Group of Cases’. Apparently, a search and seizure / survey operation was conducted in the case of the Banka Group on 21st May, 2018. It was found that there were various paper / shell companies controlled by one Mr. Mukesh Banka for the purpose of providing accommodation entries in the nature of unsecured loans or in other forms. It appeared that the petitioner firm was one of the beneficiaries who had obtained accommodation entries in the financial year 2013-14 from two such paper companies controlled by the said Mr. Mukesh Banka, the details of which had been set out in the reasons for reopening the assessment as furnished to the petitioner.

The said information appears to have been analysed by the Department vis-à-vis the case record of the petitioner for the A.Y. 2012-13. It transpired that in the original assessment proceedings the petitioner had furnished the ledger accounts of both the above ‘shell’ companies for the financial year 2011-12 and these showed that the petitioner had taken loans of Rs. 15 lakhs from them. The statement made by Mr. Mukesh Banka u/s 132(4) was also set out in the reasons for the reopening. It needs to be noted that while the original assessment u/s 143(3) was completed on 15th November, 2014 and an assessment order passed, the information gathered by the Department pursuant to the search and seizure operation on the Banka Group of Companies emerged only on 21st May, 2018 and thereafter. Clearly, this information was not available with the Department earlier. Prima facie, therefore, it does not appear that the reassessment was triggered by a mere change of opinion by the A.O. Further, it is not possible to accept the plea of the petitioner that such opinion was based on the very same material that was available with the A.O. The fact of the matter is that there was no occasion for the A.O. to have known of the transactions involving the petitioner and the shell companies controlled by Mr. Mukesh Banka.

It was then contended by the petitioner that despite the petitioner asking for copies of the statement of Mr. Mukesh Banka and seeking cross-examination, this was denied to him and, therefore, there was violation of the principle of natural justice.

The Court observed that the non-supply of the copy of Mr. Banka’s statement (which incidentally has been extracted in full in the reasons for reopening), or not providing an opportunity to cross-examine Mr. Banka at the stage of objections, shall not vitiate the reopening of the assessment. Such opportunity would be provided, if sought by the petitioner and if so permitted in law, in the reassessment proceedings. Consequently, the Court reserved the right of the petitioner to raise all the defences available to it in accordance with law in the reassessment proceedings, including the right to cross-examine the deponents of the statements relied upon by the Department in the reassessment proceedings, The writ petition is accordingly dismissed.