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Case Name : Bharatkumar Kalubhai Ghadiya Vs ACIT (Gujarat High Court)
Appeal Number : Special Civil Application No. 7743 of 2021
Date of Judgement/Order : 19/08/2021
Related Assessment Year : 2013-14

Bharatkumar Kalubhai Ghadiya Vs ACIT (Gujarat High Court)

In the case on hand also, the Assessing Officer has reason to believe that the petitioner is a beneficiary of accommodation entry and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Ahmedabad and report thereof. The reasons for the formation of the belief by the Assessing Officer in the instant case, appear to have a rational connection with or relevant bearing on the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. Accordingly, no interference is called for at the hands of this Court in this petition under Article 226 of the Constitution of India.

It is observed that, ‘the reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts’. However, the Apex Court has further held that, ‘it is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment’. In the present case, from the information received and inquiries made and documents collected, it cannot be said that on the basis of vague and far­fetched material, the reopening is sought as some tangible material is found, which go to the root of the matter. Accordingly, this decision would also be not applicable to the facts of the present case.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. This petition, under Article 226 of the Constitution of India, is filed by the petitioner – assessee seeking to quash and set aside the Notice dated 18.03.2020 issued by the respondent authority under section 148 of the Income Tax Act, 1961 (herein after referred to as “the Act”) for the Assessment Year 2013-14, as it has reason to believe that the income chargeable to tax for the assessment year under consideration has escaped assessment within the meaning of section 147 of the Act.

Reopening after enquiries valid if Assessee is beneficiary of accommodation entries

2. The facts in brief of the case of the petitioner are that the petitioner, who is an individual, had, filed Return of Income (RoI) on 17.03.2021 at net taxable income of Rs.23,30,760/-. The assessment under section 143(3) r/w. section 153A of the Act was finalized on 31.12.2015. However, thereafter, the impugned notice under section 148 of the Act had been issued to the petitioner. The RoI for the Assessing Officer 2013-14 was filed on 21.03.2014 earlier, and there was submission dated 23.12.2015, filed before the Assessing Officer. The petitioner also furnished the information as was asked for. Thereafter, the assessment under section 143(3), r/w. section 153A of the Act was framed vide Assessment Order dated 31.12.2015. After filing RoI on 17.03.2021, based on proceedings under section 148 of the Act, the Assessing Officer supplied the reasons for reopening vide communication dated 24.03.2021. The notice under section 142(1) of the Act was issued on 08.04.2021. Against the reasons accorded, the petitioner, vide letter dated 22.04.2021, raised objections against reopening on factual as well as the legal grounds and certain submissions along with accompaniments thereto, were also filed vide communication dated 03.05.2021, however, the respondent authority disposed of the said objections raised by the petitioner vide order dated 10.05.2021 inter alia holding that the reopening is justified and valid in the eye of law. Thereafter, a show-cause notice dated 25.05.2021 was issued against the petitioner fixing the date of hearing on 31.05.2021, which were replied by the petitioner by communication dated 26.05.2021 raising some contentions with regard to the identical matter etc. and grant of interim relief by this Court. Accordingly, the petitioner is before this Court by way of this petition.

3. We have heard, learned advocate Mr. Ketan Shah for the petitioner and learned senior advocate Mr. M. R. Bhatt for learned advocate Mrs. Mauna M. Bhatt for the respondent.

3.1 The learned advocate for the petitioner has vehemently and fervently argued that in the present case, the assessee has neither contacted, nor has remote contact with Shri Jignesh Shah as mentioned in the so-called list and therefore, the notice under section 148 of the Act is bad in law. It is submitted that there is no application of mind by the Assessing Officer and hence, the impugned notice deserves to be set aside.

3.2 It is further contended by the learned advocate for the petitioner that even the list filed by Shri Jignesh Shah does not contain the name of the petitioner herein. The learned advocate for the petitioner further drew our attention to the letter dated 18.12.2014, and submitted that it was noticed by CBDT that the assessee were coerced to admit undisclosed income during searches/surveys conducted by the department and therefore, such practice was deprecated by the CBDT. He submitted every citizen has right to transact in share and make purchase and sale the same in the market, and thereby, there is nothing wrong in availing the benefit/profit from the same. Further, it is submitted that whatever Shri Jignesh Shah has done, cannot be taken as accommodation entry by the assessee and therefore, the impugned notice under section 148 of the Act is bad in law.

3.3 The learned advocate for the petitioner further submitted that in the case on hand, the reopening is based on mere change of opinion as it is reopened on the basis of the so-called information dated 24.03.2019, which is after passing of the assessment order dated 31.12.2015, however, in the order disposing of the objections raised by the petitioner, the respondent had admitted that there was no name of the petitioner herein mentioned by the person namely Sanjay Shah and others whose premises had been searched on 11.09.2018.

3.4 The learned advocate for the petitioner submitted that in the order dated 10.05.2021, disposing of the objections raised by the petitioner, there was a reference of statement under section 131 of the Act dated 16.11.2018 made by Shri Jignesh Shah, wherein, he had admitted that he had provided the accommodation entry to various companies including Safal Herb Ltd. (earlier known as, Parikh Herbal Ltd.), however, such fact is incorrect for the reason that the petitioner is not provided with any such accommodation entry. Therefore, the reasons recorded are based on vague information and on conjectures and surmises. He submitted that this amounts to ‘reason to suspect’ and not ‘reason to believe’. It is submitted that the very foundation to exercise jurisdiction under section 148 of the Act is based on information in the case of Shri Jignesh Shah and the statements made by him. However, since he has denied that he had not given the name of the petitioner and that, the petitioner was not a beneficiary, the question of proceeding further by way of impugned notice, does not arise.

3.5 In support, the learned advocate for the petitioner has relied upon following decisions:

i) United Electrical Company (P) Ltd. v. Commissioner of Income-Tax, [2002] 125 Taxman 775 (Delhi) : 258 ITR 317 ;

ii) S.P. Agarwalla @ Sukhdeo v. Income-Tax Officer, [1981] 5 Taxman 299 (Cal.);

iii) ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437: 1976 (3) SCC 757];

3.6 The learned advocate for the petitioner submitted that even otherwise, the statement of a tainted party cannot be considered as tangible material so as to have reason to believe that the income chargeable to tax has escaped assessment. He submitted that the reopening is based on mere change of opinion of the Assessing Officer inasmuch as notice under section 148 of the Act can be issued only if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment and for such formation of belief, there should be some tangible material and act, which is lacking in the case on hand. He submitted that the case of the petitioner was selected for scrutiny assessment and the issue on hand was examined threadbare at the original assessment and accordingly, merely because the Assessing Officer happens to change his opinion, action under section 147 of the Act cannot be taken. It is contended and argued by the learned advocate for the petitioner that the assessment for the year under consideration was found to be proper and the same was admitted by the Assessing Officer and therefore, if creditworthiness was found in the transactions, the impugned reopening, merely relying upon the information received from the DDIT (Inv.), Unit 1(3), Ahmedabad, sans any independent satisfaction of the Assessing Officer, only on borrowed satisfaction, is illegal and bad in law and it cannot be said that the petitioner has failed to disclose fully and truly all material facts relevant for the assessment.

3.7 The learned advocate for the petitioner further submitted that there is no statement on record to show that the accommodation entry has been provided to the petitioner and only on the basis of generalize information, the case of the petitioner cannot be reopened. There is also no material on record to show that the name of the petitioner was disclosed by either Shri Sanjay Shah or Shri Jignesh Shah in his statement under section 131 / 132(4). He further submitted that unless any supportive material is there, even such a statement has no evidentiary value. It is submitted that even if it is presumed that there is an accommodation entry in respect of sell of scrip of M/s. Parikh Herbals, there is no documentary evidence or information received, has been confronted or brought on record.

3.8 The learned advocate for the petitioner further submitted that there is no approval under section 151 of the Act on record and therefore also, the proceedings are bad in law.

3.9 Making above submissions, it is urged by the learned advocate for the petitioner to allow the present petition and to quash and set aside the impugned notice.

4. Per contra, learned senior advocate Mr. M. R. Bhatt for the respondent authority, while opposing the present petition, drew our attention to the reasons recorded for reopening of assessment dated 24.03.2021, and submitted that how the petitioner is involved is very clear. He submitted that in the reasons recorded, it was mentioned that some common facts/patterns such as Cyclic Rise & Fall of price without any change in market and/or fundamentals of the company and large volume and trades occurred in very small time window were observed by the DDIT (inv.), Unit 1(3), Ahmedabad in almost all scrip analysis, which indicates that the scrips are used for bogus LTCG (Long Term Capital Gain). Further, in the identical case of M/s. Zaveri & Co., the petitioner had purchased the share of Re.1/- and sold at Rs.1/20 and ultimately, availed the profit of Rs.57 lakh, which is also doubtful. It is submitted that earlier it was Parikh Herbals Ltd. and now it is Safal Herbs Ltd. He submitted that since the petitioner had purchased the share from so-called Safal Herbs Ltd., which is not in existence and therefore, there is live link between the petitioner – assessee and so-called Shri Jignesh Shah (Safal Herbs Ltd.). He submitted that in the reasons recorded, it is clearly stated that, “on verification of share trading details of the assessee, it is found that the assessee has also purchased and sold the shares of M/s. Safal Herbs Ltd. and has earned long term capital gain which has been claimed exempt in the return of income filed for AY 2013-14. The assessee had purchased 51900 shares of M/s. Parikh Herbals Ltd. (now known as M/s. Safal Herbs Ltd.) at rate of Rs.1 per share on 01.04.2011 through broker M/s. Vijay Bhagwandas and Co. The said purchase was through offline mode without STT and payment of Rs.51900/- was made in cash. On 12.05.2012, the assessee got these shares converted to demat form through M/s. Prudent Broking Services Ltd. After gap of one year, the assessee sold 14000 shares in May 2012 for aggregate amount of Rs.48,31,835/-, making a profit of Rs.48,17,835/-. Subsequently, there was share split of shares of M/s. Safal Herbs Ltd. in ratio of 1:10 which resulted in increase of remaining 37900 shares to 379000 (37900*10) in assessee account. Further, on 08.03.2013, the assessee sold 2800 shares for Rs.8,88,386/-, making profit of Rs.8,85,586/-. Hence, from an investment of Rs.14,280/-, the assessee made unmatched profit of Rs.57,03,421/- The said profit has been claimed exempt under section 10(38) of the Act”.

4.1 The learned senior advocate for the respondent further submitted that, in the reasons recorded, it is further averred that, “Considering the above facts and on the basis of tangible material in the form of information received from the investigation wing in consequence to search action in the case of Jignesh Shah and Sanjay Shah group (JSSS hereinafter), intimating claim of bogus exempt share profit from shares of M/s. Safal Herbs Ltd. by the assessee, the case for AY 2013-14 was reopened for reassessment.

4.2 The learned senior advocate for the respondent further drew the attention to the reasons recorded to submit that, Shri Jignesh Shah, in his statement recorded under section 131 of the Act on 16.11.2018 has accepted that he facilitated accommodation entries on long term capital gains through Sanjay Shah and Tushar Shah in companies such as Safal Herbs Ltd. (earlier Parikh Herbals Ltd.), Citizen Yarns Ltd., Noble Polymers Ltd., Dhyana Finstock Ltd., etc. The relevant part of statement of Jignesh Shah was also reproduced with the reasons recorded.

4.3 So far as the reliance placed by the learned advocate for the petitioner on the decision in United Electrical Company (P) Ltd./258 ITR 317 (supra), the learned senior advocate for the respondent submitted that the same is not applicable in the case on hand for the reason that the same is prior to the amendment. Eventually, he submitted that it was found from the detailed investigation report, based on documentary evidence and statements under sections 131 / 132(4) of the Act of the entry providers, recorded during the course of search/ survey/ enquiry action, the petitioner was found to be beneficiary of the accommodation entry, which clearly shows that the income chargeable to tax has escaped assessment. Accordingly, the notice under section 148 of the Act has been rightly issued and that, it cannot be said that merely, on the basis of change of opinion, the same is issued. He submitted that the case of the petitioner is sought to be reopened on the basis of some tangible material available and on the established fact the transactions were bogus in nature, and all the relevant information available with the department at the time of recording the reasons for reopening have been duly discussed in the reasons.

4.4 It is further submitted by the learned senior advocate for the respondent that thorough inquiry was carried out by the Investigation Wing, Ahmedabad and after verifying all the aspects regarding the incriminating documents unearthed during the course of search action, it declared the transactions were accommodation entries provided by the bogus companies and thus, there is tangible material on record.

4.5 It is further submitted that there is no procedural lapse and/ or deviation from procedure prescribed in reopening and the reasons recorded do not lack validity as all the procedures, laid down under the Act, have been duly followed and necessary approvals from the competent authority are received.

4.6 So far as the contention of the petitioner that the case is reopened beyond a period of four years from the end of the relevant assessment year is concerned, the learned advocate for the respondent submitted that all the requirements under section 147 of the Act to initiate the proceedings are fulfilled. Further, the case of the petitioner was reopened on account of information received from the Investigation Wing, Ahmedabad, as referred to herein above and from the information disseminated by the Investigation Wing, Ahmedabad, it is evident that the assessee has failed to furnish fully and truly, all material facts before the Assessing Officer.

4.7 Making above submissions, it is urged that the Court may not interfere in the impugned notice and requested to dismiss the petition.

5. We have heard the learned advocates for the respective parties and perused the material placed on record. The issue centered in the present petition is the issuance of the impugned notice under section 148 of the Act seeking to reopen the assessment of the petitioner for the year under consideration i.e. Assessment Year 2013-14. The challenge to the said action on the part of the department by the petitioner is on the count that when jurisdictional facts are not established, the department cannot assume the jurisdiction and reopen the assessment. According to the petitioner, at the relevant time, the petitioner had disclosed fully and truly, all material facts, relevant for the assessment and hence, merely, on the basis of change of opinion, the impugned notice is issued, which is not tenable in the eye of law.

5.1 At this juncture, it would be apt to refer to the observations made by us with regard to the scope and ambit of section 147 of the Act in paragraphs 7, 8, 9 and 10 of CAV Judgement dated 05.07.2021 rendered in Special Civil Application No. 19821 of 2019, which are as under:

“7. At the outset, it may be noted that as per the settled legal position, two conditions have to be satisfied before the Assessing Officer invokes his jurisdiction to reopen the assessment under section 147 of the said Act after the expiry of four years from the end of the relevant assessment year – firstly, that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment for the concerned assessment year, and secondly, such escapement of assessment was by reason of failure on the part of the assessee to make the return under section 139, or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all the material facts necessary for his assessment for that assessment year. So far as the case of the present petitioner is concerned, the assessment for the A.Y. 2012-13 is sought to be reopened by the Assessing Officer under section 147/148 of the said Act, on his having arrived at a satisfaction that the income for the said assessment year had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.

8. It is pertinent to note that as held by the Supreme Court in catena of decisions, the formation of belief by the Assessing Officer at the stage of initiation of action under section 147 of the Act is within the realm of subjective satisfaction. The Supreme Court in the case of Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500(SC), had an occasion to deal with the scope and effect of section 147 as substituted w.e.f. April 1st, 1989, in which the Court has observed as under : –

“Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word “reason” in the phrase “reason to believe” would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is “reason to believe”, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal P. Ltd. [1996] 217 ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).

The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147.”

9. In the case of Raymond Woollen Mills Ltd. Versus Income-Tax Officer and others reported in 1999 236 ITR 34(SC), the Supreme Court observed that the Court has only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.

10. It is very pertinent to note that in the case of Phool Chand Bajrang Lal versus Income-Tax Officer reported in 203 ITR 456 (SC), it was observed that the acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment, which went to expose the falsity of the statement made by the assessee at the time of original assessment was different from drawing fresh inference from the same facts and material which was available with the Income-Tax Officer at the time of the original assessment proceedings. Where the transaction itself on the basis of the subsequent information was found to be a bogus transaction, the mere disclosure of that transaction at the time of original proceedings could not be said to be disclosure of the true and full facts, and the Officer would have the jurisdiction to reopen the concluded assessment in such a case. The precise observation made by the Supreme Court in the said case may be reproduced as under : –

“In the present case as already noticed, the Income-Tax Officer, Azamgarh, subsequent to the completion of the original assessment proceedings, on making an enquiry from the jurisdictional Income-Tax Officer at Calcutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of Rs. 50,000/- in cash had not really lent any money but only its name to cover up a bogus transaction and, after recording his satisfaction as required by the provisions of section 147 of the Act, proposed to reopen the assessment proceedings. The present is thus not a case where the Income-Tax Officer sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment, which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing fresh inference from the same facts and material which were available with the Income-Tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the “true” and “full” facts in the case and the Income-Tax Officer would have the jurisdiction to reopen the concluded assessment in such a case.”

5.2 Further, the term “reason to believe”, however, is not defined in the Act but it can be gathered and available from the information, leading the Assessing Officer to reopen the assessment. The term itself is suggestive of its prima facie characteristics and not established or conclusive facts or information. Meaning thereby, it is the Assessing Officer’s prima facie belief, of course, derived from the some material / information, etc. leading him to reopen the assessment.

5.3 The ambit and import of the term “reason to believe” has been examined in numerous cases, notably in ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437: 1976 (3) SCC 757]. The Apex Court held that, “the reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment”.

5.4 It would also be worthwhile to refer to the observations made by us in the CAV Judgment dated 06.08.2021 Special Civil Application No. 22613 of 2019, which read as under:

“7. As stated hereinabove, the often posed question as to whether the Assessing Officer could have assumed the jurisdiction under Section 147/148 of the said Act on the basis of the information / material received from the investigating wings unearthing the bogus transactions or accommodation entries involving the assessee, has been again posed before this Court. Before adverting the submissions made by the learned advocates for the parties, it may be noted that the words “accommodation entries” have not been defined anywhere in the Act, however, in catena of decisions, the Courts have dealt with the issue of “accommodation entries”. It cannot be gainsaid that the tax-evaders in order to bring back their unaccounted income to their books of accounts without paying any tax thereon, use numerous methods and techniques. For routing the unaccounted income, the taxevaders under the guise of loan entries or share capital entries or other camouflage entries create an appearance of legitimate transactions in their books of accounts. Such well recognized rackets are controlled and conducted by the persons known as “accommodation entry providers”, and the “accommodation entries” are provided by them to the persons who are the taxevaders. The entries on paper apparently may appear to be of routine nature, but the trail of money transited through the layers would be subsequently unearthed during the search and seizure operations conducted either at the assessee’s premises or his associate’s premises or at the premises of some third party, who may be an accommodation entry provider. Under the circumstances, when the material is brought to the notice of the Assessing Officer, which would prima facie discredit or impeach the genuineness of the particulars furnished by the assessee at the time of original assessment, and when it prima facie establishes the link between the assessee and the third party who is an accommodation entry provider, the Assessing Officer is empowered rather duty bound to make further inquiry / investigation to unearth such camouflage or wrong or illegal dealings of the assessee. As observed by the Supreme Court in the case of Sumati Dayal vs Commissioner Of Income-Tax reported in AIR 1995 SC 2109, apparent must be considered as real until it is shown that there are reasons to believe that apparent is not real, and that the Taxing Officers are entitled to look into the surrounding circumstances to find out the reality, and the matter has to be considered by applying the test of human probabilities.”

6. In the aforesaid prelude, if the facts of the case are dealt with, the respondent has sought to reopen the assessment of the petitioner mainly on the basis of the information received from the DDIT (Inv.), Unit 1(3), Ahmedabad, while carrying out search on 11.09.2018 in the case of Shri Sanjay Shah and Shri Jignesh Shah and that, as per the information, they had provided accommodation entries to petitioner, which was admitted by them in statements under section 131 of the Act.

6.1 In this regard, if the material placed on record is seen, more particularly, the reasons recorded for reopening, it is stated therein that, “Furthermore, information from the O/o. The DDIT-(Inv.), Unit-1(3), Ahmedabad was received on 24-03-2019 on webmail. As per the information, search u/s. 132 was launched on 11.09.2018 in case of Sanjay Shah and Jignesh Shah of Ahmedabad (JSSS hereinafter). The search resulted into seizure of unaccounted cash of 19.37 Crores (related to accommodation entries and commission earned thereon) along with incriminating digital as well as documentary evidences. Clandestine record of unaccounted cash, synchronized trading, proving bogus LTCG in various BSE listed scrips and transport of such cash through angadiyas was found to be maintained in secret Tally Data file with company name “123”.  In this secret file, against transactions of shares on BSE platform, movement (angadiya) and delivery (recd) of cash is recorded. Furthermore, the receipt of commission in cash is also recorded under the head “LTG Commission”. The evidence manifest that this is the record of accommodation entries of LTCG against receipt of cash. The evidences demonstrate that accommodation entry provider duo has resorted to synchronized trading in shares of various listed companies because it is only through synchronized trading that the sellers are ensured accommodation entry of bogus LTCG against cash and the buyers are ensured delivery of cash against such pre-determined purchase of shares. The buy and sell parties are well planned in this transaction, as only in such scenario, the cash is assured to the buyer and sale proceeds of share are assured in the bank account linked with demat account of seller. This is conclusive evidence of bogus LTCG and synchronized trading. Furthermore, other kind of Digital Data including incriminating MS Excel files, incriminating Word Files, Whatsapp Chats/Images and documents including Khata Bahis were also found and duly analysed. Stamps and bank account of various persons were also found in possession of accommodation entry provider duo. During recording of their statements and by filing affidavits, various dummy directors admitted that they were merely signing documents on directions of operators. They admitted of being involved in providing accommodation entries of LTCG, Loss, Unsecured Loans etc. Data analysis coupled with circumstantial evidences led to discovery that 15 BSE listed scrips have been used for generating bogus LTCG and contrived losses. During investigation, sample trail of funds was also established wherein the infrastructure of shroifs and angadiyas was used by the duo for flouting unaccounted funds of beneficiaries. The duo also admitted being involved in providing accommodation entries including bogus LTCG and contrived losses. Based on reference to various scrips in the seized and impounded material, statements of various persons, BSE trade data and order data analysis of 15 scrips was carried out. Some common facts/patterns such as Cyclic Rise and Fall of Price without any change in market and/or Fundamentals of the company and large volume and trades occurred in very small­time window were observed by the DDIT (Inv.), Unit-1(3), Ahmedabad in almost all scrips analysis which indicates that the scrips are used for bogus LTCG……………….. ”. The reasons leading to finding that scrip is used for bogus LTCG and contrived losses in respect of scrips Safal Herbs Ltd. were given, which are as under:

i) Company does not exist at its address. Therefore, it lacks identity as well as genuineness;

ii) Evidences of exchange of cash against accommodation entries of bogus LTCG are found and impounded in the search case of JSSS, in respect of certain persons;

iii) Cyclic Rise and Fall of Price without any change in Market and/or Fundamentals of the company indicates fabricated trading;

iv) Incoherent Volume vs. Trades and their ratio. It happened in case of price manipulation;

v) Very high Delivery based Volume which indicates deliveries are deliberately taken for purpose of generating fake LTCG;

vi) Trades at Same Price during the day. on many trading It indicates fabricated trades;

vii) time Different Analysis lead to finding that large volume and trades occurred in very small-time window i.e. Time difference between passive order and trade. It indicates synchronized trading;

viii) Meagre Order vs. Trade ratio indicates synchronized trading;

ix) Selected group of clients making high trade volume in last 30 minutes indicates close price of the scrip was manipulated to move in a particular direction;

x) Small group of clients mainly responsible for intra-day price movement – both Higher side and/or Lower side;

xi) Many beneficiaries have traded in the scrip and contributed turnover of more than 100 Crores;

xii) SEBI has passed adverse orders w.r.t. shareholding of the scrip, which shows that its shareholding has been rigged to provide bogus LTCG and contrived losses;

xiii) Jignesh Shah and Umang Shah (accountant of Sanjay Shah) have admitted that the scrip has been used for providing accommodation entries of bogus LTCG against cash from beneficiaries.

Sum of Sell Quantity of Shares in FY 2012-13 42000
Sell TRADE VALUE in FY 2012-13 573440

6.3 In view of the above, the Assessing Officer opined that the assessee, the petitioner herein, had taken accommodation entry for claiming bogus capital gain. Further, on perusal of the RoI for A.Y. 2013-14, it was seen that the assessee, the petitioner herein, had taken accommodation entry of Rs.57,34,400/- in respect of his unaccounted income. Hence, there was an escapement of income of Rs.57,34,400/-. The Assessing Officer was of the view that the petitioner – assessee had not disclosed, fully and truly, all material facts necessary for his assessment and from the aforesaid, he opined that the income chargeable to tax has escaped assessment.

6.4 As stated earlier, thorough inquiry was carried out by the Investigation Wing, Ahmedabad and after being verifying all the aspects regarding the incriminating documents unearthed during the course of search action, it was declared that the transactions were accommodation entries provided by the bogus companies and tangible material appears to have been there on record. Thus, the contention of the learned advocate for the petitioner that merely on the basis of change of opinion, reopening is sought, stands nugatory.

6.5 It was submitted that during scrutiny assessment proceeding carried out under section 143(3) of the Act, the petitioner had submitted all the details relevant for the assessment and thus, discharged the onus under section 68 of the Act, however, it appears that the Assessing Officer has found that the petitioner has not fully and truly disclosed all material facts necessary for assessment for the reason that the petitioner was found to be the beneficiary of the accommodation entry. Therefore, there is clear failure on the part of the assessee to fully and truly disclose all the facts necessary for assessment proceeding under section 143(3) of the Act.

6.6 Thus, considering the aforesaid facts and circumstances of the case, we are of the considered view that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment because such exercise of reopening has been made only after due inquiries and recording of statements of concerned persons, as referred to herein above, and on having found prima facie material, impugned notice is issued to the petitioner. It further appears that, no procedural lapse and/or deviation from procedure prescribed in reopening and the reasons recorded do not lack validity as necessary approvals from the competent authority appears to have been received.

6.7 In Peass Industrial Engineers (P.) Ltd. v. Deputy Commissioner of Income Tax, [2016] 76 Taxmann.com 106 (Gujarat), this Court has observed as under:

“9. On the basis of aforesaid proposition laid by series of decisions, we are of the opinion that when the Authority is armed with the tangible material in the form of specific information received by the Investigation Wing, Ahmedabad is thoroughly justified in issuing a notice for reassessment. It is revealed from the said additional material available on hand a reasonable belief is formed by the Assessing Authority that income of the petitioner has escaped assessment and therefore, once the reasonable belief is formulated by the Authority on the basis of cogent tangible material, the Authority is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion, we are of the opinion that function of the assessing authority at this stage is to  administer the statute  and what is required at this  stage is a reason to believe and not establish fact of escapement of income and therefore, looking to the  scope of Section 147 as also Sections 148 to 152 of the Act, even if scrutiny assessment has been  undertaken, if substantial new material is found in  the form of information on the basis of which the  assessing authority can form a belief that the  income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen  assessment. From the reasons which are recorded, it clearly emerges that the petitioner is the beneficiary of those entries by Kayan brothers, who are well known entry operators across the country and this fact has been unearthed on account of the information received by DGIT Investigation Branch and therefore, it cannot be said in any way that even if four years have been passed, it is not open for the Authority to reopen the assessment. In the present case, there was independent application of mind on behalf of the assessing authority in arriving at the conclusion that income had escaped assessment and therefore, the contentions raised by the petitioner are devoid of merits. Dealing with the contentions of the petitioner that the information received from DGIT, Investigation Branch, Ahmedabad, can never be said to be additional information. We are of the opinion that the information which has been received is on 26.3.2015 from the DGIT, Investigation Branch, Ahmedabad, whereby it has been revealed that present petitioner is also the beneficiaries of those Kayan brothers, who are in the activity of entry operation throughout the country and therefore, it cannot be said that this is not justifiable material to form a reason to belief by the Authority and therefore, this being a case, the Authority is justified in issuing notice under Section 148 of the Act to reopen the assessment and therefore, the challenge contained in the petition being devoid of merits, same deserves to be dismissed. As we found that for the exercise of power of reopening of assessment after a period of 4 years, a proper procedure is observed by the Authority, specific approval has been obtained from the competent Authority and upon perusal of original file, we have satisfied ourselves that the approval has been accorded in a proper manner by the competent Authority and since the notice is issued based upon substantial compliance of statutory provision, the Authority has acted well within the bounds of his powers and the Authority has issued notice. We found that the order which has been passed of rejecting the objections raised by the petitioner is also a well reasoned order passed after due exercise of jurisdiction and therefore, same is not, therefore, required to be interfered with.”

6.8 Thus, the function of the assessing authority at this stage is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking to the scope of Section 147 as also sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen the assessment.

6.9 Further, in the decision in Aaspas Multimedia Ltd. v. Deputy Commissioner of Income Tax, Circle 1(1), [2017] 83 Taxmann.com 82 (Gujarat), it is observed as under:

“…In the present case the reassessment proceedings have been initiated by the Assessing Officer on the basis of material provided by the Principal Director (Investigation). It is also required to be noted that the genuineness of the various companies who made share applications are doubted. The assessee is alleged to have been engaged in bogus share applications from various bogus concerns operated by PKJ. The assessee is the beneficiary of the said transactions of share application by those bogus concerns. In the wake of information received by the Assessing Officer, when the Assessing Officer formed a belief that the investment made from the funding of such companies which are bogus, the Assessing Officer has rightly assumed jurisdiction of initiating the reassessment proceedings. The Assessing Officer, on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier. In the present case, since both the necessary conditions to reopen the assessment have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. Information furnished at the time of original assessment, when by subsequent information received from the Principal Director (Investigation), itself found to be controverted, the objection to the notice of reassessment under section 147 must fail.”

6.10 In the case on hand also, the Assessing Officer has reason to believe that the petitioner is a beneficiary of accommodation entry and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Ahmedabad and report thereof. The reasons for the formation of the belief by the Assessing Officer in the instant case, appear to have a rational connection with or relevant bearing on the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. Accordingly, no interference is called for at the hands of this Court in this petition under Article 226 of the Constitution of India.

6.11 We may reiterate the observation made by the Apex Court in Raymond Woollen Mills Ltd. (supra) that, “at the time of recording the reason for satisfaction of AO, there should be prima facie some material on the basis of which, the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. It will be open to the assessee to prove that the assumption of fact made in the notice was erroneous at the time of assessment proceedings”.

6.12 Further, in the case of Ess Kay Engineering Co. (P) Ltd. v. Commissioner of Income Tax, 247 ITR 818 (SC), also it has been observed that the Assessing Officer is not precluded from reopening the assessment of an earlier year on the basis of fresh material discovered subsequently during the course of assessment of next assessment year.

6.13 The learned advocate for the petitioner has relied upon certain decisions as referred to herein above, one of which is, decision in United Electrical Company (P) Ltd. (supra), wherein, the Court has held that, ‘whether when a challenge is made to action under section 147 what Court is required to examine is whether some material exists on record for Assessing Officer to form requisite belief and reasons for belief have a rational nexus or a relevant bearing to formation of such belief and are not extraneous or irrelevant for purpose of said section’. According to the learned senior advocate for the respondent this decision is not applicable in the case on hand for the reason that the same is prior to the amendment. Nonetheless, in the instant case, it was found from the detailed investigation report, based on documentary evidence and statements under sections 131 / 132(4) of the Act of the entry providers, recorded during the course of search/ survey/ enquiry action, that the petitioner was found to be beneficiary of the accommodation entry, which clearly showed that the income chargeable to tax has escaped assessment. Accordingly, it cannot be said that merely, on the basis of change of opinion, the reopening is sought. The case of the petitioner appears to have been reopened on the basis of some tangible material available and on the established fact the transactions were bogus in nature. Accordingly, this decision would be of no help to the petitioner.

6.14 So far as the decision in S.P. Agarwalla @ Sukhdeo (supra) is concerned, it was held by the Court that, ‘in the absence of such a nexus or link, the said confessional statement could not constitute relevant material justifying the reopening of the assessment. Moreover, the assessee had disclosed in his return that he had obtained loan from P and produced confirmatory letters in support thereof, and the ITO had completed the assessment after satisfying himself about the genuineness of the loan transaction. This assessment could not be reopened on mere suspicion’. If the facts of the present case are seen, on the basis of some tangible material available and on the established facts, as discussed herein above, the reopening is sought. Accordingly, this decision also would be of no avail to the petitioner.

6.15 If the decision in Lakhmani Mewal Das (supra) is taken into consideration, it is observed that, ‘the reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts’. However, the Apex Court has further held that, ‘it is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment’. In the present case, from the information received and inquiries made and documents collected, it cannot be said that on the basis of vague and far­fetched material, the reopening is sought as some tangible material is found, which go to the root of the matter. Accordingly, this decision would also be not applicable to the facts of the present case.

6.16 So far as the letter of CBDT dated 18.12.2014, as referred to by the learned advocate for the petitioner is concerned, it is regarding coercion and undue influence upon the assessee for admission. Suffice it to say that, it is not the case herein.

7. In the backdrop as aforesaid, present petition fails and is dismissed accordingly. Notice is discharged. Ad-interim relief is vacated forthwith. No order as to costs.

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