High Court examines reopening of assessment based on share capital from shell companies, issues temporary notice pending judicial review

The Gujarat High Court, through Justice Harsha Devani, addressed the reopening of assessment for the year 2011-12 based on share capital received from shell companies in a previous year. The petitioner argued that the assessing officer's jurisdiction under section 147 was flawed due to factual inaccuracies. The Court issued a notice returnable on 7.1.2019, allowing the respondent to proceed temporarily but withholding final orders until judicial review was completed to prevent irreversible actions.

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Issues Involved:
Reopening of assessment based on share capital received from shell companies in a different assessment year.

Analysis:
The judgment by the Gujarat High Court, delivered by Honourable Ms. Justice Harsha Devani, addressed the issue of reopening the assessment for the year 2011-12 based on the grounds that the assessee had received a total share capital of Rs. 40,00,000 from two Kolkata based shell companies, Prime Vyapar Private Limited and Asha Apartment Private Limited. The petitioner contended that they did not receive any amount from these companies in the year under consideration but had received share capital money from them in the previous year, i.e., financial year 2009-10 corresponding to assessment year 2010-11. It was highlighted that the amounts received from both companies were Rs. 10,00,000 each and not Rs. 20,00,000. Additionally, it was pointed out that in the assessment year 2010-11, there was a scrutiny assessment under section 143(3) of the Income Tax Act, where the share application money received from these companies was accepted as genuine after verification. The petitioner argued that the assessing officer proceeded on a factually incorrect premise and, therefore, could not have formed the belief that income chargeable to tax had escaped assessment for the year under consideration. The petitioner contended that the assumption of jurisdiction under section 147 of the Act was without authority of law due to the absence of a requisite belief by the assessing officer.

The Court, after considering the submissions made by the petitioner's advocate, issued a notice returnable on 7.1.2019. As an ad-interim relief, the respondent was permitted to proceed further pursuant to the impugned notice; however, the final order could not be passed without the permission of the Court. This interim measure aimed to maintain the status quo while the matter was under judicial review, ensuring that no irreversible actions were taken based on the impugned notice until the Court had an opportunity to delve deeper into the legal arguments and evidence presented.

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