Chandrika Dhansukhlal Gandhi Vs ACIT (Gujarat High Court)
Summary: The Gujarat High Court, in Chandrika Dhansukhlal Gandhi Vs Assistant Commissioner of Income Tax, R/Special Civil Application No. 14391 of 2021, decided on 23 September 2024, examined the validity of reassessment proceedings under Sections 147 and 148 of the Income Tax Act, 1961, for Assessment Year 2013-14. The assessee had filed her return on 30 July 2013, declaring income of ₹5,98,540. Following information received from the Investigation Wing concerning transactions on the National Spot Exchange Limited (NSEL), the Assessing Officer issued a notice dated 20 March 2020 under Section 148. The recorded reasons alleged that the assessee had undertaken purchases of ₹16,80,47,529 and sales of ₹17,20,79,120.50, aggregating to ₹34,01,26,649.50, through Twenty20 Commodities Private Limited in transactions involving Euro Asia Infracon Private Limited. The Assessing Officer treated the alleged purchase turnover of ₹16,80,47,529 as unexplained investment representing income escaping assessment.
The assessee challenged the factual foundation of the reopening. In objections dated 14 October 2020, she specifically denied having traded through Twenty20 Commodities Private Limited or having undertaken the alleged transactions with Euro Asia Infracon Private Limited. She explained that her NSEL transactions were conducted through K. R. Chocksey Commodity Brokers Private Limited and sub-broker Babulal Hiralal and Company. The assessee also maintained that the relevant transactions were reflected in her books and that the profits had been offered to tax. Nevertheless, the Assessing Officer rejected the objections on 8 September 2021, referring generally to investigations concerning the NSEL scam and stating that the transactions disclosed by the assessee were not reflected in her demat account.
The assessee relied on Kapadia Money Changers Private Limited Vs Assistant Commissioner of Income Tax, [2020] 423 ITR 633 (Gujarat), to contend that consideration of objections to reopening is a substantive statutory safeguard rather than an empty formality. The Revenue maintained that the Investigation Wing had supplied specific information concerning the transactions and that the assessee could explain her position during reassessment proceedings or pursue an appellate remedy after assessment.
The High Court found that the Assessing Officer had formed the belief of escapement of income on the basis of the alleged transactions involving Twenty20 Commodities Private Limited and Euro Asia Infracon Private Limited. The assessee had expressly disputed those transactions, but the Assessing Officer had brushed aside her objections without examining the supporting details. The Court followed the reasoning in GKN Driveshafts (India) Ltd. Vs ITO, as discussed in Kapadia Money Changers, that the opportunity to object to reopening must be meaningful and the Assessing Officer must apply independent judgment to the explanation furnished.
The High Court held that the Assessing Officer had failed to establish a sustainable reason to believe that income had escaped assessment after considering the assessee’s objections. Consequently, it allowed the writ petition and quashed the notice dated 20 March 2020 issued under Section 148. No order as to costs was made. The judgment establishes that specific factual objections challenging the very transactions forming the basis of reassessment cannot be rejected through vague observations or mechanical reliance on investigation information.
Cases Discussed
- Kapadia Money Changers Private Limited Vs Assistant Commissioner of Income Tax (Gujarat High Court), [2020] 423 ITR 633 (Gujarat) — Relied upon by the petitioner and followed by the Court; objections to reassessment must be examined meaningfully, with due consideration of the assessee’s explanation and reconciliation.
- GKN Driveshafts (India) Ltd. Vs Income Tax Officer (Supreme Court), (2003) 259 ITR 19 — Referred to in the passage from Kapadia Money Changers reproduced by the High Court; establishes the procedure for furnishing reopening reasons and deciding the assessee’s objections.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Mr.Manish J. Shah for the petitioner and learned Senior Standing Counsel Mr.Karan Sanghani for learned advocate Mrs.Kalpana K. Raval for the respondent No.1.
2.Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Karan Sanghani waives service of notice of rule for and on behalf of the respondent No.1.
3. Having regard to the controversy in narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing.
4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the the validity and legality of the notice issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) for Assessment Year 2013-14.
5. The brief facts of the case are as under:
5.1. The petitioner filed her return of income declaring the total income of Rs.5,98,540/- on 30th July, 2013 for Assessment Year 2013-14.
5.2. Thereafter, the petitioner received a summons under Section 131(1A) of the Act to remain present and give submissions with regard to the queries raised as per the questionnaire asking the petitioner to furnish the details with regard to the transaction carried out by her in the National Spot Exchange Limited (for short ‘the NSEL’). The petitioner by letter dated 17.04.2017 submitted the details.
5.3. The respondent thereafter, issued the impugned notice dated 20th March, 2020 under Section 148 of the Act forming the reason to believe that income has escaped assessment asking the petitioner to file return on income which was filed on 31.07.2020. The respondent thereafter provided the copy of the reasons recorded along with the notice issued underth Section 143(2) of the Act dated 20 September, 2020. The reasons recorded for reopening the assessment reads as under:
“2. Brief details of information collected/received by the AO: Information has been received from DDIT (Investigation)-II, Surat vide letter bearing No.SRT/DDIT(INV.-2/NSEL/nformatio n/2018-19/723 dated 15.03.2019 wherein findings of enquiry of assessee involved in large scale tax evasion & money laundering through brokers in National Spot Exchange Ltd(NSEL) has been disseminated. In the information it was communicated that the assessee has traded with Euro Asia Infracon Private on national spot exchange limited through broker Twenty20 Commodities Pvt. Ltd, during the year under consideration. In this information, total buy turnover, sale turnover and total turnover reported are as under:-
| Buy Turnover | Sell Turnover | Total Turnover |
|---|---|---|
| 16,80,47,529.00 | 17,20,79,120.50 | 34,01,26,649.50 |
3 & 4. Analysis of information collected/ received: / Enquiries made by the AO as sequel to information collected/ received
The information as well as details available has been perused and analyzed and it is strongly believed that NSEL exchange platform was misused and exploited by unscrupulous brokers and traders have launder huge sum of black money. The assessee had traded with Euro Asia Infracon Private on NSEL exchange platform through Twenty20 Commodities Pvt. Ltd. (Broker Code: 37,550). The purchase and sales turnover of the assessee during the FY 2012-13 relevant to AY 20123-14 in the NSEL platform traded is as under:-
| Buy Turnover | Sell Turnover | Total Turnover |
|---|---|---|
| 16,80,47,529.00 | 17,20,79,120.50 | 34,01,26,649.50 |
The return of income filed for the year under consideration has been analysed and it is found that assessee has shown total income of Rs.5,98,540/-. Therefore, Income and investment appearing in return of income for the year under consideration does not match with the huge turnover on NSEL platform.
5&6 Findings of the AO: / Basis of forming reason to believe and details of escapement of income
The information as well as details available has been perused and analyzed and it is strongly believed that NSEL exchange platform was misused and exploited by unscrupulous brokers and traders have launder huge sum of black money. The assessee had traded with Euro Asia Infracon Private on NSEL exchange platform through Twenty20 Commodities Pvt. Lid. (Broker Code: 37,550). The purchase and sales turnover of the assessee during the FY 2012-13 relevant to AY 20123-14 in the NSEL platform traded is as under:-
| Buy Turnover | Sell Turnover | Total Turnover |
|---|---|---|
| 16,80,47,529.00 | 17,20,79,120.50 | 34,01,26,649.50 |
From the income details filed it is noticed that there is serious mismatch between the income shown by the assessee before the income tax department and its exposure on NSEL exchange. On perusal of the return of income for the year under consideration, it is found that income and investment shown by the assessee does not commensurate with the huge turnover on National Spot Exchange Limited. Therefore source of investment as discussed above to the tune of Rs. 16,80,47,529/-remains unexplained. In view of these facts and findings, the buy turnover to the tune of Rs. 16,80,47,529/- carried out by the assessee on NSEL Platform clearly represent income escaped assessment for the year under consideration and needs to be reopened within the meaning of section Uls 147 of the I.T.Act.”
5.4. The petitioner thereafter filed the objections dated 14.10.2020 stating that the reasons recorded are based upon the wrong factual facts as the petitioner never had any trade through the broker Twenty20 Commodities Private Limited but had carried out the transactions with broker K. R. Chocksey Commodity Brokers Private Limited and sub- broker Babulal Hiralal and Company. It was also stated in the objections that the petitioner never carried out the transaction with Euro Asia Infracon Private Limited on National Spot Exchange Limited through broker Twenty20 Commodities Private Limited.
5.5. The respondent by the order dated 08.09.2021 disposed of the objections observing as under:
“7.The SEBI and various enforcement agencies have carried out detailed investigation on the NSEL scam and have come out with similar findings that the NSEL platform has been misused by traders and brokers for evading taxes and money laundering. The assessee’s mere objection that she has not traded with M/s Euro Asia Infracon Pvt Ltd without providing any documentary evidence is not acceptable. Even the transactions declared by her in the financials are not reflected in her DeMAT account. The AO had materials in his possession to form a reasonable belief that income has escaped assessment.”
6.1. Learned advocate Mr.Manish Shah for the petitioner submitted that pursuant to the order dated 10th September, 2024 the petitioner has placed on record the details filed along with the objections which were already produced before the Department in the reply to the summons issued under Section 131(1A) of the Act. It was also pointed out that from the details placed on record with the Additional Affidavit dated 13th September, 2024, there is no reference to the broker Twenty20 Commodities Private Limited. It was submitted that the respondent has also not considered the objections raised by the petitioner and merely rejected the same without application of mind by stating that the transactions of the petitioner with K. R. Chocksey Commodity Brokers Private Limited are not reflected in demat account only without considering that the same were already part of the books of the accounts and the profit earned by the petitioner is offered to tax in the return of income.
6.2. In support of his submissions, reliance was placed on the decision of this Court in case of Kapadia Money Changers Private Limited versus Assistant Commissioner of Income Tax reported in [2020] 423 ITR 633 (Gujarat) wherein, this Court has observed that the filing of objection and dealing with the same is not a mere empty formality and the Assessing Officer is required to consider the objections filed by the petitioner and if not found correct, the petitioner should be provided with the information with the Assessing Officer so as to enable the petitioner-assessee to submit the response to such information which may be disclosed by the Assessing Officer.
7.1. On the other hand, learned Senior Standing Counsel Mr.Karan Sanghani for the respondent No.1 reiterated the contention raised in the rejection order disposing the objections raised by the petitioner. It was further submitted that the respondent- Assessing Officer has the information with regard to the transactions carried out by the petitioner with Twenty20 Commodities along with the broker Code Number, etc. and therefore, the respondent has a reason to believe that the income has escaped the assessment in the case of the petitioner.
7.2. In support of his submissions, reliance was placed on the following averments made in the affidavit-in-reply filed on behalf of the respondent:
“6. With respect to contentions raised in para no. 2 it is submitted that it is seen from the communication available on record that the DDIT(Criminal Investigation-I), Mumbai had issued summons the assessee dated 10.12.2013 alongwith questionnaire seeking details of transactions made on NSEL during the F.Y.s 2010-11, 2011-12, 2012-13 and 2013-14 (till the date of summons) such as details of purchases / sales, brokers through which transactions were made, contract details, accounts of broker, NSEL, etc in the books of the assessee, details of brokerage, commission and other payments made on NSEL transactions, bank statements, accounting of NSEL transactions, profits / losses on such transactions and disclosure of the same in the income tax returns and sources of funds invested in NSEL. The assessee furnished her reply to the DDIT(Cr.I- 1), Mumbai on 17.12.2013 wherein it is stated that she has started trading on NSEL from December, 2012 and that the transactions were made through broker K.R. Choksey Commodity Brokers Pvt Ltd. The assessee further stated that the sources of investment were out of her own capital. The assessee had also contended that no separate brokerage / commission was paid but the same was considered in every contract amount and was deducted by the broker through payable or receivable amount. The assessee has not quantified the brokerage / commission paid on the transactions. Further, the reopening of the case of the assessee u/s 147 of the Act is independent of the enquiries which may have been carried out by Deputy Director of Income Tax (Criminal Investigation). As stated earlier, the case of the assessee was reopened based on specific information received from the CEO, NSEL vide its letter dated 16.09.2016 forwarded to the Assessing Officer by the DDIT(Inv.)-II, Surat vide letter dated 15.03.2019 where it was found that the buy and sell transactions amounting to Rs.16,80,47,529 & Rs.17,20,79,120.50 respectively, were carried out by the assessee with M/s Euro Asia Infracon Pvt Ltd through M/s Twenty20 Commodities Pvt Ltdand the same had not been disclosed by the assessee in the return of income filed for the AY 2013- 14. Thus, the enquiries initiated by DDIT(I&CI) have no bearing on the re- assessment proceedings in the case of the assessee and both are separate proceedings. It is pertinent to note that a copy of the SFIO letter dated 17.04.2017 and the duly filled in questionnaire was furnished by the assessee during the course of the assessment proceedings. However, no evidence regarding the reply submitted by the assessee to SFIO in respect of the said notice were furnished by the assessee. No covering letter or signed questionnaire was furnished by the assessee as per the records available with the FAO. Further, as widely reported in the mainstream news media, SFIO contacted almost 13,000 clients of almost 148 brokers engaged with NSEL (assessee is one such client) to gather certain preliminary information about the brokers. The subject of investigation was the alleged illegal activities carried out by the brokers resulting into unlawful gains to the brokers. The enquires were not against the clients. The same is clear from the contents of the questionnaire issued by the SFIO to the assessee which form Annexure D and E to the petition of the assessee. The same may also be inferred from the report of the SFIO. Kind reference is invited to the Order of SEBI vide no WTM/MPB/EFD1-DRA-IV/ 22/2019 Under Regulation 28 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 read with regulation 7 of Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 in the case of the Broker Anand Rathi Commodities Limited. In the said order, SEBI has acknowledged the involvement of brokers in the entire NSEL scam. Annexed herewtih and marked as Annexure R1 is a Copy of the news article. Thus, the intended claim of the assessee that enquiries in respect of its transactions on NSEL have been carried out and completed with SFIO without any adverse inference is baseless and misleading. Moreover, with regard to the satisfaction of the SFIO about the transactions carried out by the assessee on NSEL platform, it is reiterated that no such communication is available on record expressing such satisfaction.”
7.3. Referring to the above, it was submitted that no interference be made as the petitioner will get adequate opportunity to place the facts before the Assessing Officer during the course of the assessment proceedings and there is an alternative remedy to challenge the Assessment Order before the CIT (Appeals) if the petitioner is aggrieved against the addition, if any, made in the Assessment Order.
8. Having heard the learned advocates for the respective parties, considering the facts of the case and on perusal of the reasons recorded which are reproduced hereinabove, it appears that the Assessing Officer has formed the reason to believe only on the basis of the information available with him with regard to the transactions carried out by the assessee with Twenty20 Commodities Private Limited in Euro Asia Infracon Private Limited on National Spot Exchange Limited.
9. It appears that the information available with the respondent-Assessing Officer has been denied by the petitioner and the same has only been brushed aside by the respondent-Assessing Officer while rejecting the objections filed by the petitioner without considering the same in detail. The respondent-Assessing Officer has only referred to such details by stating that the transactions disclosed by the petitioner are not reflected in the Demat account and the Assessing Officer had material in his possession to form a reasonable belief that the income has escaped assessment. Except such vague observations, the respondent-Assessing Officer has not dealt with the details submitted by the petitioner in the objections.
10. This Court in case of Kapadia Money Changers Private Limited (Supra) in such circumstances has observed as under:
“10. This is a classic case of total non application of mind on behalf of the respondent while passing an order rejecting the objections filed by the petitioner pursuant to the issuance of notice under section 148 of the Act. The respondent has brushed aside the justification, explanation and reconciliation furnished by the petitioner in the objections to the effect that the impugned notice is issued only considering the salary register of Navsari unit and the salary register of Bardoli unit has not been taken into consideration. In view of reconciliation furnished by the petitioner in the objections, any prudent person would have dropped the reopening proceedings. In facts of the case, the respondent while rejecting the objections, without considering the justification and reconciliation provided by the petitioner, has rejected the same as empty formality. The Apex Court in case of GKN Driveshafts India Ltd. (supra), has devised a mechanism to give an opportunity to an assessee by filing objections to be considered by the department in its true spirit so that an assessee does not have to undergo the gamut of reassessment proceedings unnecessarily. In facts of the case, a bare perusal of the reasons recorded and the justification, explanation and reconciliation provided by the petitioner in the objections would clearly lead to a conclusion that there is no escapement of income, irrespective of the aspect that claim of salary was scrutinised or not scrutinised during the course of original assessment. It appears from the order dated August 21, 2018 disposing the objections raised by the petitioner that the respondent has adopted a pedantic robotic approach ignoring the objections raised by the assessee petitioner in toto with only one object of rejecting the objections.
The Apex Court has not laid down the procedure for filing objections as a mere empty formality inasmuch as the very purpose of filing the objection is to see that an opportunity is given to an assessee to explain that there is no escapement of income and there is full and true disclosure by the assessee during the course of original assessment and, therefore, there is no need to reopen the assessment. The respondent is duty bound to consider and apply his mind to the objections raised. However, on perusal of the order dated August 21, 2018 whereby the objections raised by the petitioners are rejected, it transpires that reasons given for rejecting the objections are nothing but an eyewash as justification, explanation and reconciliation provided by the petitioner is not even referred to by the respondent. Such an approach of the respondent is required to be deprecated.”
11. In view of the above, we are of the opinion that the impugned notice issued under Section 148 of the Act is not tenable as the Assessing Officer has failed to form a reason to believe that income has escaped assessment without considering the objections raised by the petitioner.
12. The petition therefore succeeds and is accordingly allowed. The impugned noticeth issued under Section 148 of the Act dated 20 March, 2020 is hereby quashed and set aside.
Rule is made absolute to the aforesaid extent.
No orders as to cost.
