C/SCA/21230/2016 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 21230 of 2016 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? RAJESH SHANTILAL SHAH Petitioner(s) Versus INCOME TAX OFFICER, WARD 3 (3) (4) Respondent(s) Appearance: MR SN DIVATIA, ADVOCATE for Petitioner(s) No. 1 MR NITIN K MEHTA, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 16/08/2017 Page 1 of 8 HC-NIC Page 1 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. petitioner has challenged notice dated 31.03.2016 seeking to reopen petitioner s assessment for assessment year 2009-10. 2. Brief facts are as under: 2.1 Petitioner is individual and engaged in business of land brokerage. For assessment year 2009-10, petitioner had filed return of income on 30.09.2009 declaring total income of Rs.4.07 lakhs. return was taken in scrutiny. Assessing Officer passed order under Section 143(3) of Act on 31.08.2011 assessing total income at Rs.4.65 lakhs. 2.2 To reopen such assessment, Assessing Officer issued the4 impugned notice. In order to do so, he had recorded following reasons: assessee has filed his return of income for A.Y. 2009-10 declaring total income of Rs.4,07,400/- on 30/09/2009. return of income was processed u/s. 143(1) of I.T. Act, 1961. Thereafter, assessment was completed u/s.143(3) of I.T. Act and total income determined at Rs.4,65,692/-. 2. As per details available on record, search and seizure action 132 of I.T. Act was carried out in case of Shri Ashokbhai I Prajapati on 08.12.2009. During course of search action, incriminating documents were found and seized. Page 2 of 8 HC-NIC Page 2 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT 2.1 On perusal of Page.no. 52-53 of Annexure-2, it reveals that Shri Ashok Prajapati has received Rs.3,32,50,000/- from Milan H Mehta through his agent Shri Rajubhai (Rajesh Shantilal Shah) and Shri Andesh Navganbhai Bharwad, Shri Ashokbhai I Prajapati has admitted that cash of Rs.3,32,50,000/- was received by him from Shri Milan H Mehta towards sale of 100 bighas of land at rate of Rs.11,11,111/- per bigha. However, in statement recorded subsequent to search during assessment proceedings, Shri Ashokbhai I Prajapati replied to question no.7,8 & 9 has confirmed that he has received Rs.3,35,00,000/- from Shri Rajubhai (Rajesh Shantilal Shah) on behalf of Shri Milan H Mehta. However, in statement recorded subsequent to search Shri Milan H Mehta admitted having paid cash of Rs.1,07,50,000/- only as against figure of Rs.3,32,50,000/-. 2.2 Thereafter, assessment order of both case i.e. Shri Ashokbhai I Prajapati and Shri Milan H Mehta was passed by ACIT. Central Circle 2(2), Ahmedabad. In assessment order of Shri Milan H Mehta passed by A.O. in 2009-10, protective addition of Rs.1,58,00,000/- is differential amount of Rs.2,15,00,000/- (the amount appearing seized paper during F.Y. 2008- 09). Thereafter, appeal was filed before Ld.CIA(A). Ld. CIA(A) who vide order dated 04.05.2012 has remarked that is not Shri Milan H Mehta but Shri Rajubhai (Rajesh Shantilal Shah)should be liable to explain sources of cash as appearing on page. No. 52 of Annexure A/2. In view of above, it is therefore, source of cash of Rs.1,58,00,000/- paid by Rajesh Shantilal Shah to Shri Ashok Prajapati (the amount appearing in seized paper during F.Y. 2008- 09) remains unexplained. In view of above, I have reasons to believe that income chargeable to tax of Rs.1,58,00,000/- has escaped assessment which is more that Rs.1,00,000/- within meaning of Page 3 of 8 HC-NIC Page 3 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT provisions of section 149(b) of IT Act, 1961 and I am satisfied, this is fit case for reopening assessment u/s. 147 r.w.s. 148 of IT Act, 1961 for A.Y. 2009-10. 2.3 After being supplied with reasons, assessee raised objections to notice of reopening under communication dated 28.11.2016. Such objections were rejected by Assessing Officer by order dated 07.12.2016. Hence, this petition. 3. From documents on record, it can be seen that notice of reopening has been issued beyond period of four years from end of relevant assessment year in case where original assessment was framed after scrutiny. cursory perusal of reasons recorded would show that Assessing Officer wanted to tax in hands of assessee, sum of Rs.1.58 crores allegedly paid by him to one Ashok Prajapati towards land deal. basis of formation of this belief of Assessing Officer was certain observations made by Commissioner (Appeals) in appellate proceedings in case of one Shri Milan Mehta, purchaser of land in question. 4. In context of these facts, learned counsel for petitioner submitted that Assessing Officer had no reason to believe that in case of asessee, income chargeable to tax had escaped assessment. CIT(A) had never directed that such income be taxed in hands of assessee. He took us extensively through appellate order to contend that it was not even suggestion of appellate commissioner that amount was paid by petitioner. Page 4 of 8 HC-NIC Page 4 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT 5. On other hand, learned advocate Shri Nitin Mehta for department opposed petition contending that Assessing Officer had tangible material to enable him to form belief that income chargeable to tax had escaped assessment. Such material was not disclosed by assessee in original return and notice of reopening even beyond period of four years would therefore be valid. He lastly contended that sufficiency of reasons of Assessing Officer would not be subjected to judicial review that too at this stage. 6. More minute perusal of reasons recorded by Assessing Officer would show that as per department one Ashok Prajapati had sold land to one Shri Milan Mehta in which petitioner Rajesh Shah and one Andesh Bharwad had acted as brokers. Search and seizure operation was carried out in case of Ashok Prajapati on 08.12.2009 during which incriminating documents were found and seized. One of documents recorded that Shri Ashok Prajapati had received sum of Rs.3.32 crores from Shri Milan Mehta through his agents Rajesh Shah i.e. petitioner and Shri Andesh Bharwad. Ashok Prajapati had admitted receipt of such cash from Shri Milan Mehta towards sale of Rs.100 bighas of land. In statement of Shri Milan Mehta he admitted only having paid sum of Rs.1.07 crores. Assessments in cases of Shri Ashok Prajapati and Shri Milan Mehta were carried out. In case of Shri Milan Mehta for assessment year 2009-10, Assessing Officer had made protective addition of Rs.1.58 crores. Shri Milan Mehta challenged such order before Commissioner (Appeals). Page 5 of 8 HC-NIC Page 5 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT According to Assessing Officer in reasons recorded in such appellate proceedings Commissioner remarked that it is not Milan Mehta but petitioner who would be liable to explain source of such cash. This is foundation of reasons recorded by Assessing Officer for issuing notice. 7. We have perused appellate order of Commissioner in case of Shri Milan Mehta. We do not find that Commissioner in such order ever intended to convey even by way of prima facie suggestion that it is petitioner Rajesh Shah who should be assessed for such differential amount. In fact Appellate Commissioner had given detailed reasons for discarding entries made in documents regarding receipt of sum of Rs.3.32 crores from Milan Mehta through his agents. Commissioner preferred to believe statement of Milan Mehta that all in all sum of Rs.1.07 crores was paid for such land deal. In fact all along case of department has been that Ashok Prajapati was seller of land which was purchased by Milan Mehta and Rajesh Shah had acted as his broker. amounts in cash were paid by Rajesh Shah at all stages for and on behalf of Milan Mehta. Appellate Commissioner also observed that none of brokers namely Rajesh Shah and Andesh Bharwad had confirmed that they have paid cash on behalf of Milan Mehta to Ashok Prajapati over and above amount of Rs.1.07 crores admitted by appellant . In process Appellate Commissioner made passing remark as under: ...The cash of Rs.2.99 crores is shown as received from Shri Rajubhai who had filed affidavit saying that total amount of Rs.1.07 crores was paid Page 6 of 8 HC-NIC Page 6 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT to Shri Ashok Prajapati on behalf of appellant for purchase of land. In other words, even if contents of seized papers are presumed to be correct, then also Shri Rajubhai and not appellant is liable to explain source of entries of cash as appearing on page number 52 of Annexure A/2. In absence of any evidence, no addition can be made in hands of appellant even on protective basis. 8. Thus, as recorded earlier, Appellate Commissioner did not even by way of prima facie impression convey that differential amount was paid by Raju Shah. His conclusions were that Milan Mehta paid total cash amount of Rs.1.07 crores. observations noted above are merely in nature of passing remarks. Even case of department all along has been that petitioner is broker. He is not shown in sale deed or any other document to have any interest in land in any capacity. There is no prima facie suggestion as to why would he pay cash of Rs.1.58 crores when he stands to gain nothing out of deal. Assessing Officer has mechanically adopted observations of CIT(A), taking them out of context and making basis of formation of his belief that income chargeable to tax in hands of assessee has escaped assessment. To link observations of CIT(A) he has not referred to any other material at his command which would even prima facie suggest that petitioner had paid such sum. We are conscious that we are at stage of testing confirmation of belief by Assessing Officer and not certainty of his observations. Nevertheless, when belief is founded on no material whatsoever same would be open to interference. In other words, if material at command of Assessing Officer was so inadequate as no prudent person Page 7 of 8 HC-NIC Page 7 of 8 Created On Wed Aug 23 10:06:52 IST 2017 C/SCA/21230/2016 JUDGMENT would form belief that income chargeable to tax had escaped assessment, court certainly even at this stage would interject. 9. In result, impugned notice dated 31.03.2016 is set aside. Petition is accordingly allowed. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) divya Page 8 of 8 HC-NIC Page 8 of 8 Created On Wed Aug 23 10:06:52 IST 2017 Rajesh Shantilal Shah v. Income-tax Officer, Ward 3 (3) (4)