C/SCA/14514/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 14514 of 2019 MEGHAVI MINERALS PVT. LTD Versus INCOME TAX OFFICER-WARD-3(1) Appearance: MR DARSHAN B GANDHI(9771) for Petitioner(s) No. 1 MR SP MAJMUDAR(3456) for Petitioner(s) No. 1 for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 27/08/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of Constitution of India, writ applicant has prayed for following reliefs: (i) This Hon'ble Court may be pleased to issue writ of certiorari or any other appropriate writ, order or direction quashing reasons for reopening at Annexure -D, impugned notice issued under section 148 of Act Annexure-B and impugned order rejecting objection at Annexure-F. (ii) Pending hearing and final disposal of this application, this Hon'ble Court be pleased to stay reassessment proceedings pursuant to issuance of notice under section 148 at Annexure-B. (iii) This Hon'ble Court be pleased to grant any further or other relief as this Hon'ble Court deems just and proper in interest of justice, and Page 1 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER (iv) This Hon'ble Court be pleased to allow this application with costs against respondent. 2. writ applicant seeks to challenge legality and validity of notice issued by respondent under Section 148 of Income Tax Act, 1961 (for short Act, 1961 ) for assessment year 2012-13 for purpose of reopening assessment. reasons assigned by respondent for reopening of assessment are as under: Reason for reopening of assessment for u/s147 of Income Tax Act. 1. Brief details of assessee: assessee has e- filed his Return of Income vide Ack No.1065559691130214 on 13.02.2014 after due date. It is seen that assessee had declared total income of Rs.48,500/- 2. Brief details of information collected/received by AO: In this case, information has been received from ITO, Wd-3(2), Jamnagar and said information received from Investigation, Jamnagar that assessee has obtained accommodation entries to extent of Rs.1,20,00,000/- during year under consideration. 3. Analysis of information collected/received: accommodation entries received by assessee is beneficiaries from Pravinkumar Jain to extent of Rs.1,20,00,000/- during year under consideration. 4. Enquiries made by AO as sequel to information collected /received: notice has been issued to assessee. However, assessee has not furnished any details of any such accommodation entries has been obtained extent of Rs.1,20,00,000/- and other relevant documents called for same has not been furnished. 5. Findings of AO: On perusal of e-filed Return of Income, it is noticed that said return has been Page 2 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER processed by CPC. Further, on perusal of R.O.I filed it is noticed and found that assessee had borrowed unsecured loan to extent of Rs.8,51,724/-. assessee not come forward to provide details called for and no explanation for such accommodation entries as beneficiaries disclosed. 6. Basis of forming reason to believe and details of escapement of income: On basis of ROI and ITS data particulars of information as discussed above has been noticed and found. On perusal of Return of Income filed assessee company has obtained accommodation entries received as beneficiaries to extent of Rs.1,20,00,000/-. assessee not come forward to provide details called for and no explanation for such accommodation entries received as beneficiaries has been explained. 7. Sixth paragraph will provide 'basis of reason to believe'. Though no material regarding accommodation entries as beneficiaries of Rs.1,20,00,000/- has been explained. assessee has not disclosed accommodation entries as mentioned above which has escaped assessment of Rs.1,20,00,000/- 8. Applicability of provisions of section 147/151 to facts of case: In this case return of income ws filed and for year under consideration, but assessee has not furnished documentary evidence for such accommodation entries to extent of Rs.1,20,00,000/-. In absence of details and documentary evidence, only requirement to initiate proceedings u/s147 is reason to believe which has been recorded above in para 6 & 7. It is pertinent to mention here that in this case assessee has chosen not to disclose clear and true facts in his return of income for year under consideration. As such assessee has been given opportunity to reply and explain details and documents/clarification/explanation called for. However, assessee voluntary not come forward to explain and clarified same. In view of above, provisions of clause (b) of Explanation 2 to section 147 are applicable to fact of this case and assessment year under consideration is deemed to be case where Page 3 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER income chargeable to tax has escaped assessment. In this case more than four years have lapsed from end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 will be obtained separately from Principal Commissioner of Income Tax, Jamnagar as per provisions of section 151 of Act. 3. writ applicant responded to notice, referred to above, by addressing letter to respondent, stating as under: We have received copy of reasons recorded for initiating proceedings u/s. 148 of I.T Act. As per reasons for re-opening of assessment u/s. 147, para 2,3,4,5, 7 and 8, it is stated that Rs. 1.20 crore received from Pravinkumar Jain and same was basis for re-opening of assessment. It is only reason for re-opening of assessment. We would like to submit that assessee has not received any loan from Pravinkumar Jain during year A.Y.2012-13. It seems that information on basis of which you intended to reopen assessment is factually incorrect. In view of above facts it seems that you have no jurisdiction to reopen assessment on basis of factually incorrect reasons recorded. We humbly believe that proceeding U/s. 148 of I.T Act, requires to be drop down. 4. respondent passed speaking order, overruling objections raised by writ applicant as regards reopening of assessment. order reads thus: Further, Praveen kumar Jain has admitted in his statement recorded on oath U/s. 132[4] of I.T Act 1961 on 01.10.2013 that he is indulged in providing accommodation entries and also explained complete modus operandi of providing such entries. In continuation, he had admitted in Question No.75 and furnished name of 13 company In which he is director and list of name of 39 companies in which he managed Page 4 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER and controlled by him. Further, concerned persons/firm/company/proprietorship concerned controlled by him and one of company managed and controlled by Praveen kumar Jain is Josh Trading Pvt. Ltd having [PAN NO AACJ4233] and assessee Company Meghavi Minerals Pvt. Ltd. Obtained accommodation entries has been provided through broker to extent of Rs.1,00,00,000/- and Rs.20,00,000/- respectively by Praveenkumar Jain self. [Copy of extract same is hereby provided to assessee company-5] [5] How said material and case record were sent to PCIT for his approval along with assessing officer's prescribed form of satisfaction and your forwarding letter. As mentioned in reply to objection No.1. [6] As per CI. 4 of reason recorded it is stated that notice has been issued to assesses. Please provide us Xerox copy of receipted notice. With due respect, it is to inform that said Notice U/s. 148 of I.T Act 1961 issued to assessee company official address "Prabhu Nivas, Ratanbai Masjid, Vazir Fali, Jamnagar through R.P.A.D and same has been received by Deepa K. Mehta [Copy of RPAD received] 5. Further, it is to inform that in response to Notice U/s. 148 of I.T Act,1961 A.R. of assessee Shri V.P.Sutaria, Charted Accountant has replied dtd. 03.04.2019 received in this office on 8.04.2019 furnished his Letter of Authority as mentioned in Para No. 3 of this order. Thereby as objection raised by A.R. of assesses dtd. 03.05.2019 on 6 points as discussed in above para has been cleared and copy of relevant document as called for same has been provided 6 Thereafter, Notice U/s. 143[2] of I.T. Act, 1961 issued on 21.05.2019 through R.P.A.D and same was received by Virendra Doshi one of director of company and hearing was fixed on 27.05.2019. Page 5 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER In response to Notice U/s. 143[2] of I.T. Act, 1961 A.R. of assesses made application through tapal for adjournment stated he is going out of station hence it will not be possible to remain present on hearing date and requested to please adjourn matter and oblige. 7. It is pertinent to note that on same date 23.05.2019 A.R. of assessee has again filed objection against reopening for A.Y.2012-13. same is reproduced as under: We have received copy of reasons recorded for initiating proceedings u/s.148 of I.T. Act, 1961. As per reasons for reopening of assessment u/s.147, para 2,3,4,6,7 and 8, it is stated that Rs.1.20 crore received from Praveenkumar Jain and same was basis for reopening of assessment. It is only reason for reopening of assessment. 7.1 Yes, reason for reopening security assessment of A.Y. 2012-13, it is main reason is that assessee company has obtained accommodation entries from Praveenkumar Jain, who controlled and managed 39 companies in which one of company Josh Trading Pvt. Ltd having [Pan No:AACCJ4233H] and assessee company Meghavi Minerals Pvt. Ltd obtained accommodation entries and same has been provided through broker to extent of Rs.1,00,00,.000/- and Rs.20,00,000/- respectively by Praveenkumar Jain self. [Copy of extract same is hereby provided to assessee company] as mentioned in para-4 of this order. We would like to submit that assessee has not received any loan from Praveeenkumar Jain during year A.Y.2012-13. It seems that information on basis of which you intended to re-open assessment is factually incorrect. In view of above facts it seems that you have no jurisdiction to reopen assessment on basis of factually incorrect reasons recorded. We humbly believe that proceedings u/s. 148 of I.T. Act, Page 6 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER requires to be drop down. We will be pleased to furnish any other information required by your good self. 7.2 Further objection raised that assessee company has not received any money from Praveenkumar Jain and reopened assessment if factually incorrect. In this regard, fact and circumstances of case and concrete evidence as statement recorded during course search by department Praveenkumar admitted and confirmed that he had managed and controlled various companies for providing accommodation entries to various person/proprietorship firm/ and company. It is crystal clear that he has provided accommodation through Josh Trading Pvt. Ltd same wsa managed and controlled by Praveenkumar Jain to various parties and one of them is assessee company Meghavi Minerals Pvt. Ltd provided accommodation entry of Rs.1,20,00,000/- 8. Therefore re-oening has been done after verifying Return of Income at PART-A Point No.2 [b] Loan funds [A] in which you had shown unsecured loan from others to extent of Rs. 8,51,59,724/-. However, details of interest received and paid has not been claimed Profit & Loss account, therby it shows that such huge amount borrowed and no interest expenses claimed or received has not been either shown in Profit and loss account. Further, assessee company has obtained accommodation entry to extent of Rs.1,20,00,000/ has not been recorded in books of accounts. Therefore, various details and information gathered regarding transaction carried by assessee company and appraising of facts as mentioned in objection treated as without any base and fact. Further, same is consider as willful attempt to avoid facts in your case and negligence on your part and hiding relevant facts obtain and gathered by this office and same has already been informed to you alongwith copy of reason provided. 9. In this connection, on this issue declaration made Page 7 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER in application by you, it is indicate that you had known to fact that such transaction has been carried out during year under consideration and you had not shown as well. On perusal of Return of income filed on 13.02.2014 after due date declared Returned income of Rs.48,500/ only. Your self declaration in Return of Income by your self it self proved wrong, than no further comments are required. Objection raised by you in application is far from fact in your case. 10. Furthermore, it is true that you have filedoriginal ROI u/s. 139 on 13/02/2014 after due date and income declared in ROI as per your computation. reason recorded for re-opening, it is Obvious that information pertains may after due verification and information are examination of details and information gathered and thereafter conclusion of facts and evidence leads to finding of reason recorded before re- opening assessment. There are instance that person having PAN number but not filed ROI and information received in case is also re-opened in case of non- filers. 11. On this issue, reason to believe arrived at after verifying facts and figure and thereafter, concrete conclusion before framing reopening case. In which it appears that such income has escaped assessment. In this regards, reopening proceedings are not based on any borrowed satisfaction and not independent opinion has been formed. Further, case has been re-opened after verifying Return of income and gathered information/details same has been classified verified and cross examined issue. fact and evidence on records same has been lead to independent opinion before framing reason for re-opening scrutiny assessment. 13. Therefore, objection raised by A.R. of assessee s company for relevant period regarding F.Y. 2011-12 is not justified and action taken for A.Y. 2012-13 is correct it is pertinent to mentioned here that merely denying fact and evidence and stated that this transactions has not been done by assesse company has no relevance in eyes of law and does not means Page 8 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER that observation, verification and examination details in Return of Income as well additional information gathered which leads to conclusion to form concrete reason that assessee company has hide fact of such huge amount Obtained from promoters/operator/broker and which has been admitted and confirmed by provider as well. Even though assessee company repetedly denied fact which against law. Those who derives benefit sustain burden. 5. Mr. Gandhi, learned counsel appearing for writ applicant vehemently submitted that impugned notice issued by respondent under Section 148 of Act is quite vague. He submitted that Assessing Officer failed to narrate facts in details. He submitted that order passed by Assessing Officer, overruling objections raised by writ applicant to notice under section 148, travels beyond scope of contents of notice under Section 148. He submitted that there is no live link between tangible material and formation of belief or reason to believe that income has escaped assessment. 6. Having heard learned counsel appearing for parties and having gone through materials on record, only question that falls for our consideration is whether impugned notice under Section 148 of Act for purpose of reopening of assessment deserves to be quashed and set aside. 7. principles of law, governing subject of reopening of assessment under Section 147 of Act, may be summarized as under: (i) Court should be guided by reasons recorded for reassessment and not by reasons or explanation given Page 9 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER by Assessing Officer at later stage in respect of notice of reassessment. To put it in other words, having regard to entire scheme and purpose of Act, validity of assumption of jurisdiction under Section 147 can be tested only by reference to reasons recorded under Section 148(2) of Act and Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from records. Assessing Officer is confined to recorded reasons to support assumption of jurisdiction. He cannot record only some of reasons and keep others upto his sleeves to be disclosed before Court if his action is ever challenged in court of law. (ii) At time of commencement of reassessment proceedings, Assessing Officer has to see whether there is prima facie material, on basis of which, department would be justified in reopening case. sufficiency or correctness of material is not thing to be considered at that stage. (iii) validity of reopening of assessment shall have to be determined with reference to reasons recorded for reopening of assessment. (iv) basic requirement of law for reopening and assessment is application of mind by Assessing Officer, to materials produced prior to reopening of assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied-a postmortem exercise of analysing materials produced subsequent to reopening will not make inherently defective reassessment Page 10 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER order valid. (v) crucial link between information made available to Assessing Officer and formation of belief should be present. reasons must be self evident, they must speak for themselves. (vi) tangible material which forms basis for belief that income has escaped assessment must be evident from reading of reasons. entire material need not be set out. To put it in other words, something therein, which is critical to formation of belief must be referred to. Otherwise, link would go missing. (vii) reopening of assessment under Section 147 is potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If original assessment is processed under Section 143(1) of Act and not Section 143(3) of Act, proviso to Section 147 will not apply. In other words, although reopening may be after expiry of four years from end of relevant assessment year, yet it would not be necessary for Assessing Officer to show that there was any failure to disclose fully or truly all material facts necessary for assessment. (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two conditions are required to be satisfied; (i) Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on part of assessee either (a) to make return of income Page 11 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER under section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all material facts necessary for his assessment for that purpose. (x) Assessing Officer, being quasi judicial authority is expected to arrive at subjective satisfaction independently on objective criteria. (xi) While report of Investigation Wing might constitute material, on basis of which, Assessing Officer forms reasons to believe, process of arriving at such satisfaction should not be mere repetition of report of investigation. reasons to believe must demonstrate some link between tangible material and formation of belief or reason to believe that income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables Assessing Officer to form belief that income chargeable to tax has escaped assessment, formed part of original assessment record, per se would not bar Assessing Officer from reopening assessment on basis of such material. expression tangible material does not mean material alien to original record. (xiii) order, disposing of objections or any counter affidavit filed during writ proceedings before Court cannot be substituted for reasons to believe. (xiv) decision to reopen assessment on basis of report of Investigation Wing cannot always be condemned or dubbed as fishing or roving inquiry. expression reason to believe appearing in Section 147 Page 12 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER suggests that if Income Tax Officer acts as reasonable and prudent man on basis of information secured by him that there is case for reopening, then Section 147 can well be pressed into service and assessments be reopened. As consequence of such reopening, certain other facts may come to light. There is no ban or any legal embargo under Section 147 for Assessing Officer to take into consideration such facts which come to light either by discovery or by fuller probe into matter and reassess assessee in detail if circumstances require. (xv) test of jurisdiction under Section 143 of Act is not ultimate result of inquiry but test is whether income tax officer entertained bona fide belief upon definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) concept of change of opinion has been treated as built in test to check abuse. If there is tangible material showing escapement of income, same would be sufficient for reopening assessment. (xvii) It is not necessary that Income Tax Officer should hold quasi judicial inquiry before acting under Section 147. It is enough if he on information received believes in good faith that assesee's profits have escaped assessment or have been assessed at low rate. However, nothing would preclude Income Tax Officer from conducting any formal inquiry under Section 133(6) of Act before proceeding for reassessment under Section 147 of Act. (xviii) full and true disclosure of material facts would not include that material, which is to be used for testing veracity of particulars mentioned in return. All such Page 13 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER facts would be expected to be elicited by Assessing Officer during course of assessment. disclosure required only reference to those material facts, which if not disclosed, would not allow Assessing Officer to make necessary inquiries. (xix) word information in Section 147 means instruction or knowledge derived from external source concerning facts or particulars or as to law relating to matter bearing on assessment. information anonymous is information from unknown authorship but nonetheless in given case, it may constitute information and not less information though anonymous. This is now recognized and accepted source for detection of large scale tax evasion. non-disclosure of source of information, by itself, may not reduce credibility of information. There may be good and substantial reasons for such anonymous disclosure, but real thing to be looked into is nature of information disclosed, whether it is mere gossip, suspicion or rumour. If it is none of these, but discovery of fresh facts or of new and important matters not present at time of assessment, which appears to be credible to honest and rational mind leading to scrutiny of facts indicating incorrect allowance of expense, such disclosure would constitute information as contemplated in clause (b) of Section 147. (xx) reasons recorded or material available on record must have nexus to subjective opinion formed by A.O. regarding escapement of income but then, while recording reasons for belief formed, A.O. is not required to finally ascertain factum of escapement of tax and it is sufficient that A.O had cause or justification to Page 14 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER know or suppose that income had escaped assessment [vide Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra)]. It is also well settled that sufficiency and adequacy of reasons which have led to formation of belief by Assessing Officer that income has escaped assessment cannot be examined by court. 8. Having regard to materials on record it cannot be said that there is total non-application of mind on part of Assessing Officer while recording reasons for reopening of assessment. It also cannot be said that his conclusion was merely based on observations and information received from Investigation Wing. Assessing Officer could be said to have applied his mind to same. Assessing Officer could not be said to have merely concluded without verifying facts that it is case of reopening of assessment. We do not find merit in vociferous submission of learned counsel appearing for writ applicant that contents of reasons recorded by Assessing Officer for reopening of assessment is merely introduction about investigations conducted by Investigation Wing, modus operandi of entry provided, summing up of inquiry of Investigation Wing, information received from Investigation Wing etc. We have examined belief of Assessing Officer to limited extent to look into whether there was sufficient material available on record for Assessing Officer to form reasonable belief and whether there was live link existing of material and income chargeable to tax that escaped assessment. case on hand is not one where it could be argued that Assessing Officer, on absolutely vague or Page 15 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 C/SCA/14514/2019 ORDER unspecific information, initiated proceedings of reassessment without taking pains to form his own belief in respect of such materials. 9. In overall view of matter, we are convinced that no case is made out by writ applicant for interference. 10. In result, this writ application fails and is hereby rejected. (J. B. PARDIWALA, J) (A. C. RAO, J) Vahid Page 16 of 16 Downloaded on : Mon Nov 11 10:43:53 IST 2019 Meghavi Minerals Pvt. Ltd. v. Income-tax Officer-Ward-3(1)