INCOME TAX ACT, 1961

Section 147, Proviso Section 148

Reassessment - Notice beyond four years - Reopening based on investigation report - Failure to disclose fully and truly all material facts

AO received information from Investigation Wing as a result of the search made by Office of DDIT (Inv.) Unit- 1(3), Ahmedabad conducted at the premises of Sanjay Shah and Jignesh Shah of Ahmedabad, and as a result of investigation carried out during search proceedings conducted by the office of Pr. DIT (Inv.), Unit- 2, Mumbai at the premises of Naresh Jain and his associates at Bombay that assessee company was one of beneficiaries of the accommodation entries as assessee had entered into transactions in penny stock namely Dhvanil Chemicals Ltd./Veronica Production Ltd., which companies were used for bogus LTCG and contrived losses. Accordingly, AO issued notice under section 148 after expiry of four years from the end of relevant assessment year so as to reopen assessment. Assessee challenged the notice by way of writ petition contending that AO initiated proceedings under section 147 on the basis of borrowed belief of investigation wings at Ahmedabad and Mumbai. Held: AO had received specific information from investigating wings outlining systemic evasion of taxes by assessee and others, and had, therefore, reason to believe that assessee had sold scrips to Veronica Production Ltd./Dhvanil Chemicals Ltd., which were penny stock to the extent of Rs. 97,13,809 during financial year 2011-12. Such satisfaction arrived at by AO being subjective in nature and based on the fresh material for coming to the prima facie conclusion that assessee had failed to disclose fully and truly all material facts necessary for assessment for the assessment year 2012-13, it could not be said that AO had initiated the proceedings under section 147 on the basis of incorrect facts or on the basis of borrowed belief of Investigation Wings. Therefore, notice issued under section 148 was sustained as valid.