Case Law Details
Akshat Pramodkumar Chaudhary Vs DCIT (Gujarat High Court)
Gujarat High Court held that in case reopening of assessment based on material which satisfied to harbour reasons to believe that there was escapement of income, then, such reopening of assessment is justifiable.
Facts- The assessee received income from business and profession and interest income for the year 2012-13. The assessee also received proceeds from sale from share of Twenty First Century (I) Limited. The assessee filed its return of income for A.Y. 2012-13, by declaring gross total income at Rs.16,56,922/-.
On 26.03.2019, the respondent authority issued a notice u/s. 148 of the Act for re-assessing the income of the petitioner. The petitioner objected to the re-opening of the assessment.
The respondent rejected the objections raised by the petitioner by observing that the information received from Investigation Wing related to penny scrips in which various beneficiaries had transacted. The report was received from the Investigation Wing, Kolkata along with the detailed investigation report of penny scrips, relevant details, and a list of beneficiaries.
According to IT Authorities, the assessee has traded in penny scrips of M/s. Twenty-First Century (I) Limited for an amount of Rs.6,49,000/- during the financial year 2011-12. As per the investigation carried out as regards scrip, it was established that the said scrip proved to be penny scrip and trading in the same having utilized by the beneficiaries in accommodation entries.
Conclusion- It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at this stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under Sections 147, 148 of the Income Tax Act, 1961, no fault can be found.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Heard learned advocate Mr. Hardik Vora for the petitioner and learned advocate Mr. Karan Sanghani with learned advocate Mrs. Kalpanak Raval for the respondent – department.
2. By way of the present Special Civil Application, the petitioner has challenged a notice dated 26.03.2019 under Section 148 of the Income Tax Act, 1961, for the assessment year 2012-13 seeking to quash the same.
3. The brief facts of the case are as under:-
3.1 The assessee received income from business and profession and interest income for the year 2012-13. The assessee also received proceeds from sale from share of Twenty First Century (I) Limited. The assessee filed its return of income for the assessment year 2012-13, by declaring gross total income at Rs.16,56,922/-.
3.2 On 26.03.2019, the respondent authority issued a notice under section 148 of the Act for re-assessing the income of the petitioner. The assessee vide reply dated 18.04.2019 asked for the reasons for reopening of the assessment. The main objections of the petitioner against the re-assessment proceedings are three fold:-
(i) The main reason as can be curled out from the reasons recorded is that as per the information communicated from the Investigation wing, the petitioner has traded in penny scrips for the amount of Rs.6,49,000/- whereas the correct transaction value is Rs.6,49,295/-.
(ii) It is objected that during the Scrutiny Assessment, the purchase of said shares stood accepted under section 143(3) and hence, the sale thereof cannot be held fully taxable in the subsequent year. Reasons are factually incorrect also for the reason that assessee has purchased the shares more than 5 years ago through demate account and payment has been made by debiting bank account through account payee demand draft.
(iii) It is settled law that reopening cannot be made by solely and mechanically relying upon the information received from other sources, unless an independent opinion is formed by Assessing officer on the basis of material on record.
3.3 The respondent vide order dated 18.11.2019 rejected the objections raised by the petitioner by observing that the information received from Investigation Wing related to penny scrips in which various beneficiaries had transacted. The report was received from the Investigation Wing, Kolkata along with the detailed investigation report of penny scrips, relevant details and list of beneficiaries.
3.4 According tot he Income Tax Authorities, the assessee has traded in penny scrips of M/s. Twenty First Century (I) Limited for an amount of Rs.6,49,000/- during the financial year 2011-12. As per the investigation carried out as regards scrip, it was established that the said scrip proved to be penny scrip and trading in the same having utilized by the beneficiaries in the nature of accommodation entries. The report of Investigation Wing, Kolkata also took into consideration the statement given by Mr. Anil Kumar Khemka under section 131 of the Income Tax Act, 1961. The respondent authority after perusal and having verified the findings of Investigation Wing, Kolkata was of the view that the assessee received accommodation entry in the penny scrip, which was bogus in nature and addition was required to the total income of assessee.
3.5 Pursuant to this, a notice came to be issued by the authority on 26.03.2019 under section 148 of the Income Tax Act, 1961.
4. Learned advocate for the petitioner has submitted that the purchase of shares of Twenty First Century (I) Limited was before more than 7 years and the income tax returns were submitted and accepted without scrutiny. Hence, there is no question of doubting the purchase of the aforementioned shares of the company. He has also submitted that the assessee has been dealing with different securities since many years.
4.1 In support of his submissions, learned advocate for the petitioner has relied upon the case of Surani Steel Tubes Limited v. Income Tax Officer [(2022) 136 taxmann.com 139 (Gujarat)]. Paragraph Nos.10, 11 and 12 of the said judgment are reproduced hereunder:
“10. This Court has also taken into consideration the affidavit-in-reply filed by the Income Tax Officer, Ward -1, Gandhinagar. On appreciation of contents of the same, we could note that the entire base for reopening assessment is on the premise that there was “information” supplied by the Investigation Wing and the Assessing Officer has made cursorily reference to high value transaction of Rs.26,42,027/- as well as also referred to accommodation entry entered upon by the petitioner Company by way of bogus sales / purchases / fictitious loans etc. Thus, it appears that the reasons for reopening of the assessment in the case of petitioner Company for annual assessment year 2014-15/2015-16 by the Assessing Officer is based on the borrowed satisfaction and the Assessing Officer has not applied his independent mind to arrive at the conclusion that there was failure on the part of the assessee to disclose fully and truly all material facts. In fact, the Assessing Officer is under obligation to arrive at such conclusion that the assessee has failed to disclose all material facts and has to form independent opinion resulting into “reason to believe” with regard to escapement of income chargeable to tax in case of the petitioner. During the course of hearing, learned Senior Advocate for the Department has tried to improvise by referring to the original file of the Department to emphasize that there is tangible material on record to show that the petitioner Company has made purchase transaction of Rs.26,42,027/- and has availed accommodation entry by way of bogus sales / purchases / fictitious loans etc. with Disman Group of Company. In our opinion, in absence of specific details as regards particulars of nature of transaction basic details of information, clarity with regard to name of person with whom such transaction has been entered into, goes to the very root of the matter. The sole object of providing reasons for reopening of the assessment is to prima facie supply the relevant material to the assessee to meet with his case and at the same time, it reflects the basic ingredients of “reason to believe” for Assessing Officer to assume the jurisdiction under Section 147 and 148 of the Income Tax Act. At the same time, such non-recording of specific details lead us to belief that without proper application of mind, the Assessing Officer has solely and mechanically relying upon the information received from Investigation Wing, has issued impugned notice. Thus we are not convinced with the manner in which satisfaction is arrived at by the respondent, as recorded in the reasons supplied to the petitioner Company, for assuming jurisdiction to reopen the assessment of relevant A.Y. 2014-15/2015-16.
11. In our opinion, the condition precedent for resorting to the reopening of assessment under Section 147 of the Act are not satisfied in the present case. In overall view of the matter, we are not convinced with regard to the satisfaction arrived at by the respondent Assessing Officer to make out the case for reopening of assessment under Section 147 of the Act for relevant A.Y. 2014- 15/2015-16.
12. In the result, both the writ applications succeeds and is hereby allowed. The impugned notices dated 31.03.2021 / 30.03.2021 are hereby quashed and set aside.”
4.2. Learned advocate for the petitioner has further relied upon the case of Principal Commissioner of Income Tax-12 v. Smt. Krishna Devi [(2021) 126 taxmann.com 80 (Delhi)]. Paragraph Nos.11 and 13 of the said decision are reproduced hereunder:
“11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of www.taxguru.in ITA 125/2020 and connected matters Page 8 of 10 providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient inquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the www.taxguru.in ITA 125/2020 and connected matters Page 9 of 10 ITAT to take a different view.
Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.
13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.”
5. So far as the case of Surani Steel Tubes Limited (Supra) is concerned, the ratio laid down in the said judgment is not applicable to the facts of this case. In the said decision, it has been observed that during the course of hearing, the department tried to improvise there stand by referring to the original file of the department to emphasize that there is tangible material on record to show that the petitioner company has made purchase transactions. It has also been opined that specific details were absent as regards particulars of nature of transaction.
5.1. Whereas, in the present case, the revenue authority has taken into consideration the statement of Mr. Anil Kumar Khemka and on the basis of that statement and other material, notice came to be issued.
6. In the case of Principal Commissioner of Income Tax-12 (Supra), the finding of the Assessing Officer was purely on assessment basis. Further it was the case against the order passed by the Income Tax Appellate Tribunal.
6.1. Whereas, in the present case the assessment order is yet to be passed and only a notice has been issued for reopening of the assessment for the year under consideration On this count, both the judgments cited by the learned advocate for the petitioner are not applicable to the facts of the case.
7. Per contra, the contention of the respondent is that the survey action was conducted by the Directorate of Investigation Wing, Kolkata, on various shares brokers during which the share brokers have accepted their role in the entire scheme of providing accommodation entry of bogus LTCG – STCL (Long Term Capital Gain – Short Term Capital Gain).
7.1 Learned advocate appearing for the respondent has contended that the case was reopened after recording the reasons to believe of reopening by the respondent and has also taking necessary approval from the Competent Authority, he has also submitted that the plea of the petitioner is baseless and far from truth. It was further submitted that before issuance of notice to reopen the assessment, statement of Anil Kumar Khemka was recorded and was also taken into consideration.
7.2 Learned advocate for the respondent has also submitted that a due procedure was done as prior permission of the Principal Commissioner of Income Tax, Surat-1 has been taken and the same has been granted vide Letter No.SRT / Pr.CIT-1 / HQ / Reopening / Rangel (1) / 121-124 / 2018-19 dated 15.03.2019.
7.3. In support of the contention of the respondent authority, learned advocate for the respondent has relied upon a case of Purviben Snehalbhai Panchhigar vs. Assistant Commissioner of Income Tax [(2019) 101 taxman.com 393, (Guj.)], wherein similar facts and circumstances arose before the Hon’ble Court and while dismissing the petition of the petitioner, the Court has observed in paras 6 and 8 as under:-
“6. The return filed by the assessee were accepted without scrutiny. Since there was no scrutiny assessment, the Assessing Officer had no occasion to firm any opinion on any of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application. It is equally well settled that at the stage of re-opening of the assessment, the court would not minutely examine the possible additions which Assessing Officer wishes to make. The scrutiny at that stage would be limited to examine whether the Assessing Officer had formed a valid belief on the basis of the material available with him that income chargeable to tax had escaped assessment. Both these aspects have been examined by the Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 161 Taxman 316/291 ITR 500 of which following: observations may be noted:
“16. 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 Delhi High 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 Pvt Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC).”
8. In the present case the Assessing Officer has heard the material on record which would prima facie suggest that the assessee had sold number of shares of a company which was found to be indulging in providing bogus claim of long term and short term capital gain. The company was pirma facie was found to be a shell company. The assessee had claimed exempt of long term capital gain of Rs.1.33 crores by way of sale of share of such company. The judgment in the case of Pr. CIT v. Gokul Ceramics [2016] 71 taxmann.com341/241 taxman 1 (Guj.), the Division Bench had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made following observations in para 9 which read thus:-
“It can thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show-cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused. considered, applied his mind and recorded the finding of belief that income chargeable to tax hat escaped assessment, the re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue.”
8. The learned advocate for the respondent has also relied upon the decision of Pushpa Uttamchand Vs. Income Tax Officer Return [(2022) 139 taxman. 409 (Gujarat)]. Paragraph No.14 of the said judgment has been relied upon by the respondent which is reproduced hereunder:
“14. In Phool Chand Bajrang Lal v. ITO [1993] 69 Taxman 627/203 ITR 456 (SC), after reviewing the previous case law, and concluding that a valid re-opening is one, preceded by specific, reliable and relevant information, and that the sufficiency of such reasons is not subject to judicial review-the only caveat being that the court can examine the record, if such material existed, it was held that the facts disclosed in the return, if found later to be unfounded or false, can always be the basis of a re-opening of assessment:
‘appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say “you accepted my lie, now your hands are tied and you can do nothing”. It would be travesty of justice to allow the assessee that latitude.”
9. In the facts and circumstances of the case, a notice under Section 148 of the Income Tax Act, 1961 was issued calling upon the petitioner to deliver a return in the prescribed form for the assessment year 2012-13. The authority received information from Investigation Wing, Kolkata during the year under consideration that the assessee made transaction in penny stock in the scrip of M/s Twenty First Century (I) Limited for an amount of Rs.6,49,000/-. It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at this stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under Sections 147, 148 of the Income Tax Act, 1961, no fault can be found.
10. This Court is in complete agreement with the aforesaid two decisions relied upon by the learned advocate appearing for the respondent- Authority namely; Purviben Snehalbhai Panchhigar (Supra) and Pushpa Uttamchand (Supra).
11. In view of the foregoing discussion and reasons, the Court is not inclined to entertain this Special Civil Application and the same deserves to be dismissed. Accordingly, it is dismissed.
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