Reopening of income tax assessment valid if there is tangible material: Supreme Court

The Supreme Court on Monday held that reopening of assessment under the Income Tax Act is valid if there is tangible material for the same and the sufficiency of such material cannot be subject to judicial review (Deputy Commissioner of Income Tax (Central) Cricle v. M/S MR Shah Logistics Pvt. Ltd.).A Bench of Justices Uday Umesh Lalit and Ravindra Bhat held that basis for a valid re-opening of assessment is availability of tangible material, which can lead the Assessing Officer (AO) to scrutinize the returns for the previous assessment year in question, to determine, whether a notice under Section 147 is called for"As long as there is objective tangible material (in the form of documents, relevant to the issue) the sufficiency of that material cannot dictate the validity of the notice," the Court said.The assessees having a reasonable explanation is not a ground for quashing a notice under Section 147 of the Act, the Bench observed with respect to the High Court order under challenge."The information or 'tangible material' which the assessing officer comes by enabling re-opening of an assessment, means that the entire assessment (for the concerned year) is at large; the revenue would then get to examine the returns for the previous year, on a clean slate as it were. Therefore, to hold as the High Court did, in this case, that since the assessee may have a reasonable explanation, is not a ground for quashing a notice under Section 147," the Court added. .The Gujarat High Court had quashed a notice issued under Sections 147 read with 148 (issue of notice where income has escaped assessment) of the Act seeking to re-open the respondent’s assessment, for the year 2010-11. In 2013, search proceedings were conducted by the revenue at the premises of one Shirish Chandrakant Shah and certain materials were found. After the analysis of the documents, the revenue department was of opinion that the person was providing accommodation entries through various companies controlled and managed by him, and the assessee was one of the beneficiaries of the business through bogus companies. The company of the assessee was controlled and managed by Shah. The AO sent a notice to re-assess the income of the assessee for Assessment year 2010-11 in the year 2017. .Accordingly in 2017, a notice was sent to assessee with reasons. The assessee objected to the reopening notice through a letter, which was rejected by the AO. The assessee then approached the High Court under Article 226 of the Constitution. .The Gujarat High Court allowed the writ petition of the assessee, reasoning that the AO was wrong in believing that recounting the background history of the assessee shifted the burden on to the assessee to say that the share application money received by it was not its unaccounted income.The High Court said there was no tangible material available or reason for the AO to reopen the assessment. The IT department then moved the Supreme Court in appeal. The Court observed at the outset that the returns filed by the assessee for the AY 2010-11 were not scrutinised, rather only an intimation that it was filed was issued by the AO. .“The “reasons to believe” forming part of the Section 147- in this case, clearly point to the fact that the reopening of assessment was based on information accessible by the AO that a substantial amount of unaccounted income of promoters/directors was introduced in the closely held companies of the assessee group through Shirish Chandrakant Shah, alleged to be a Mumbai based accommodation entry provider- through Pradeep Birewar, another accommodation entry provider based at Ahmedabad” the apex court judgment said. The basis for reopening the assessment in this case was the information from the material seized during search in cases of Shrish Chandrakant Shah and correlation with return of income of the assessee, the Bench observed..The apex court commented on the Income Declaration Scheme (IDS) introduced by Chapter IX of the 2016 Finance Act. “The objective of its provisions was to enable an assessee to declare her (or his) suppressed undisclosed income or properties acquired through such income. It is based on voluntary disclosure of untaxed income and the assessee’s acknowledging income tax liability”, the Supreme Court underscored. .The top court noted that Section 192 of the Act affords immunity to the declarant, not the assessee. Such immunity is only given for the limited purposes. Therefore, the High Court was wrong in holding that the sequitur to a declaration under the IDS can lead to immunity from taxation in the hands of a non-declarant, the Bench ruled. .The judgment of the High Court was thus set aside and the AO is at liberty to take steps to complete the reassessment..The appellant was represented by the Additional Solicitor General N Venkataraman. The Respondent-Assessee was represented by Senior Advocate Guru Krishnakumar. .[Read Judgment]