BACKBONE PROJECTS LIMITED V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)

SCA/22613/2019

AI Insights

Backbone Projects Limited challenged the reopening of its assessment for the assessment year 2012-13 by the Assistant Commissioner of Income Tax, Circle 1(1), under sections 147/148 of the Income Tax Act, 1961. The reopening was based on information from the DDIT (Investigation) that the petitioner was involved in bogus transactions or accommodation entries. The court examined whether the Assessing Officer had the jurisdiction to reopen the assessment based on this new information and found that the reopening was justified as the petitioner had not disclosed all material facts at the time of the original assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 680604 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-08-2021
• Assessment Year: misc
• Other Referred Cases: Calcutta Discount Company Ltd. versus Income-Tax Officer, New Delhi Television Ltd. versus Deputy Commissioner of Income Tax, Manan Exports (P.) Ltd. versus Income-Tax Officer, Hynoup Food & Oil Industries Ltd. versus Assistant Commissioner of Income Tax, Sumati Dayal vs Commissioner Of Income-Tax, Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers Pvt. Ltd., Income-Tax Officer, Calcutta versus M/s. Selected Dalurband Coal Co. Pvt. Ltd., Raymond Woollen Mills Ltd. vs Income-Tax Officer And Ors., Phool Chand Bajrang Lal versus Income Tax Officer, Ess Kay Engineering Co. (P) Ltd. versus Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: M R BHATT; KARAN SANGHANI; MAUNA BHATT
• Assessee Lawyers: DARSHAN PATEL
• Keywords: Accommodation entries; Bogus transactions; Income Tax; Jurisdiction under Section 147/148; Reopening of assessment
• Section: 147; 148; 143(3); 132; 133(6)

Judgement Text

"C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 22613 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDI Sd/- and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Sd/- ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ========================================================== BACKBONE PROJECTS LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1) ========================================================== Appearance: MR. DARSHAN R PATEL(8486) for the Petitioner(s) No. 1 MR. M.R. BHATT, SENIOR ADVOCATE WITH MR. KARAN SANGHANI, ADVOCATE FOR MRS MAUNA M BHATT, SENIOR STANDING COUNSEL (174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDI and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Date : 06/08/2021 CAV JUDGMENT (PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI) Page 1 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 1. The vexed issue as to whether the Assessing Officer could have assumed the jurisdiction under section 147/148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the said Act’) for reopening the assessment on the basis of the subsequent reliable and creditworthy information received by him from the investigating wings, unearthing the bogus transactions or accommodation entries involving the assessee, has cropped up in this petition. 2. The petitioner company by way of present petition filed under Article 226 of the Constitution of India has challenged the action of the respondent in reopening of the assessment for the A.Y. 2012-13 under section 147 of the Income Tax Act, 1961 vide the notice dated 27.03.2019 issued under section 148 of the said Act thereof, as also the order dated 13.12.2019 passed by the respondent rejecting the objections filed by the petitioner against the reopening of the assessment. 3. The conspectus of the case as emerging from the record is that the petitioner had filed its return of income along with the audit report for the A.Y. 2012-13 on 31.03.2013. The assessment order in that regard was passed by the then Assessing Officer after making thorough scrutiny Page 2 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 under section 143(3) of the said Act on 16.03.2015. The petitioner thereafter was served with the notice under section 133(6) of the said Act on 21.03.2019 (Annexure E), whereby the petitioner was called upon to furnish the information as mentioned therein in respect of the A.Y. 2012-13, however, it appears that the assessee did not respond to the said notice. The petitioner thereafter was served with the impugned notice dated 27.03.2019 (Annexure F) under section 148 of the said Act, whereby the petitioner was called upon to file the return in the prescribed form for the A.Y. 2012-13 on the ground that the Assessing Officer had reason to believe that the income chargeable to tax for the A.Y. 2012-13 had escaped assessment within the meaning of section 147 of the said Act. The assessee therefore filed its return of income for the A.Y. 2012-13 on 15.07.2019 declaring its total income at Rs. 1,50,23,831/-. The petitioner thereafter was provided with a copy of reasons recorded for reopening of the assessment vide the letter dated 12.11.2019 (Annexure G), to which the petitioner had filed the objections on 22.11.2019 (Annexure H). The respondent vide the impugned order dated 13.12.2019 (Annexure I) disposed of the said objections, which is under challenge before this Court by way of present petition. 4. The petition has been resisted by the Page 3 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 respondent by filing an affidavit-in-reply in which it has been contended inter alia that the respondent had received the information from two sources – firstly, from DDIT (Investigation), Unit 1(2), Ahmedabad, who had reported that the petitioner - assessee was one of the beneficiaries of the accommodation entries to the tune of Rs. 20 lacs for the A.Y. 2012-13, as one Manojbhai H. Patel, proprietor of M/s. Kamdhenu Marketing of Ahmedabad had provided bogus sales entries to the petitioner. The other information received was from the DDIT (Investigation), Unit 1(3), Ahmedabad, who had reported that pursuant to the search action conducted under section 132 of the said Act on 11.09.2018 in case of Shri Jignesh Shah, Ahmedabad, it was found that Shri Jignesh Shah was an accommodation entry provider and the petitioner assessee had received accommodation entries to the tune of Rs. 1,05,00,000/- during F.Y. 2011-12 relevant to A.Y. 2012-13 from one M/s. Arihant Enterprise Ltd. controlled by the said Jignesh Shah. It is further contended that on the basis of said tangible material, having live link with the aspect of escapement of income by the petitioner, the assessment was sought to be reopened under section 147 of the said Act. The petitioner has filed an affidavit-in-rejoinder to rebut the contentions of the respondent. Page 4 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 5. The learned advocate Mr. D.R. Patel appearing for the petitioner vehemently submitted that the petitioner had disclosed fully and truly all material facts necessary for the assessment for A.Y. 2012-13 which was framed under section 143(3) of the said Act. According to him, the assessment was sought to be reopened on the basis of false allegations and incorrect facts, inasmuch as the petitioner had borrowed Rs. 1,05,00,000/- from Arihant Enterprise Ltd., which was controlled by Dhiren Shah and family, and at the relevant time, Shri Jignesh Shah had no interest in the said company as Shri Jignesh Shah took over the affairs of the said company after Shri Dhiren Shah resigned in 2015, and subsequent to the taking over by Shri Jignesh Shah, the petitioner had no transaction with Arihant Enterprise Ltd. He further submitted that the assessment could not have been reopened on the basis of the borrowed belief received by the respondent from the investigating wing units, without verifying the material. It is submitted by Mr. D.R. Patel that it is the duty of the assessee to disclose fully and truly all material facts which are primary facts, and non- disclosure of other facts which are secondary facts, could not be said to be failure on the part of the petitioner in not disclosing true and full facts. In this regard, he has relied upon the decision of Supreme Court in the case of Calcutta Discount Company Ltd. versus Income- Page 5 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 Tax Officer reported in AIR 1961 SC 372 and in case of New Delhi Television Ltd. versus Deputy Commissioner of Income Tax reported in 424 ITR 607. Reliance has also been placed by Mr. D.R. Patel on the judgment of this Court in the case of Manan Exports (P.) Ltd. versus Income-Tax Officer reported in (2017) 78 taxmann.com 225 (Gujarat), to submit that the reopening of the assessment was not permissible merely because the subsequent Assessing Officer had a different view on the material already placed before the Assessing Officer at the time of original assessment. Mr. Patel has also relied upon the decision of this Court in the case of Hynoup Food & Oil Industries Ltd. versus Assistant Commissioner of Income Tax reported in (2008) 175 Taxman 331 (Gujarat), to buttress his submission that only the Assessing Officer who had issued the notice under section 148 of the said Act has to record the reasons, and in the instant case, the reasons have been recorded by the Assessing Officer different from the Officer who had issued notice under section 148 of the said Act. 6. Per contra, the learned Senior Advocate Mr. M.R. Bhatt submitted that the two investigating teams having given credible information to the respondent, the petitioner was called upon to furnish the details by issuing notice under section 133(6) of the said Act, however, the Page 6 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 petitioner did not respond to the said notice and thereafter the respondent authority had issued the notice under section 148 for reopening of the assessment for the reasons recorded as per Annexure G. He further submitted that there being tangible material in the form of credible information received from two investigating wings, the assessment was sought to be reopened. According to Mr. Bhatt, the petitioner had concealed and hidden from the department, material facts which were unearthed during the search proceedings carried out at the premises of Shri Jignesh Shah, and it was further revealed that a huge racket of providing accommodation entries to evade taxes, was being carried out by Shri Jignesh Shah who was controlling multiple companies and concerns, and that the petitioner was one of the beneficiaries who had obtained accommodation entries from M/s. Arihant Enterprise Ltd., which was a company controlled by said Jignesh Shah. Thus, runs the submission of Mr. Bhatt, the respondent having acquired fresh information, specific in nature and reliable in character, which prima facie exposed the falsity of the statement made by the assessee at the time of original assessment, had rightly assumed the jurisdiction under section 147 as he had reason to believe that the petitioner had not disclosed fully and truly all material facts at the time of original assessment. According to him, such reopening Page 7 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 could not be said to be change of opinion by the subsequent Assessing Officer. Mr. Bhatt tried to distinguish the decisions relied upon by Mr. D.R. Patel, and submitted that the “accommodation entries” being very difficult to cull out from the books of accounts maintained in ordinary course of business of the assessee, the Assessing Officer is empowered to reopen the assessment on the receipt of the tangible and credible material falsifying the material placed by the assessee at the time of original assessment. 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. Page 8 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 For routing the unaccounted income, the tax- evaders 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 tax- evaders. 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, Page 9 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 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. 8. It is also well settled proposition of law that in order to assume the jurisdiction under section 147 of the said Act, more particularly, after expiry of four years from the end of relevant assessment year, the Assessing Officer must have reason to believe that the income chargeable to tax had escaped assessment for the assessment year under consideration, and that such escapement had occurred by reason of failure on the part of the assessee either to make a return under section 139 of the said Act or in response to a notice issued under sub- section (1) of Section 142 or section 148, or to disclose fully and truly all material facts necessary for his assessment for that assessment year. 9. So far as facts of the present case are concerned, the assessment of the petitioner – assessee is sought to be reopened for the reasons recorded in the letter dated 12.11.2019 (Annexure – G). The first and formal submission made by the learned advocate Mr. D.R. Patel for Page 10 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 the petitioner is that the Assessing Officer having framed the original assessment after thorough scrutiny under section 143(3) on 16.03.2015 and the petitioner having produced all the relevant documents i.e. the primary facts pertaining to the relevant assessment year at the time of filing original return, it could not be said that the petitioner had not made full and true disclosure. According to him, there was no fresh tangible material which would enable the Assessing Officer to invoke the jurisdiction under section 147 of the said Act. Now as transpiring from the reasons recorded, the information received by the Assessing Officer from the DDIT (Inv.) Unit 1(2) was that one Manojbhai H. Patel, proprietor of M/s. Kamdhenu Marketing of Ahmedabad had given bogus sales entries of Rs. 20 lacs to the petitioner through his bank account and had transferred large amount to various entities through various linked account by RTGS, and that the assessee was one of the beneficiaries of the said accommodation entries to the tune of Rs. 20 lacs. Another information received from DDIT (Inv.) Unit 1(3) by the Assessing Officer was that during the search action conducted under section 132 of the said Act on 11.09.2018 in case of Jignesh Shah, it was found that Jignesh Shah was managing and controlling multiple companies and concerns, which were not carrying out any genuine business activities, but were Page 11 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 providing accommodation entries like unsecured loan, share premium, bogus LTCG / STCG, contrived losses etc., and that such concerns were infact non-existent at their addresses. It was also found that the Directors of the said companies / persons in whose names the concerns were registered, had filed their affidavits that they were not carrying on any genuine business activities and were engaged into providing accommodation entries through Shri Jignesh Shah. It was also found that the petitioner – assesseee had received accommodation entries to the tune of Rs. 1,05,00,000/- during the F.Y. 2011-12 from one of the such companies i.e. M/s. Arihant Enterprise Ltd., which was controlled by Shri Jignesh Shah. 10. It may be noted that in order to verify the genuineness of the information and after taking prior approval of Pr. CIT-1, Rajkot, the Assessing Officer had issued a notice under section 133(6) of the said Act to the petitioner, however, the petitioner did not respond to the said notice. Thus, on the basis of the information received from the two investigating teams and after making inquiry under section 133(6) of the Act, the Assessing Officer had formed an opinion and had reason to believe that the petitioner had received accommodation entries to the tune of Rs. 1,25,00,000/- and the said income had escaped Page 12 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 assessment as the petitioner had not made full and true disclosure of facts in the RoI. As settled by the Supreme Court in catena of decisions, the expression “reason to believe” cannot be read to mean that Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The term “reason to believe” would mean cause or justification. This is so because the formation of believe by the Assessing Officer is within the realm of subjective satisfaction. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said that he has reason to believe that an income has escaped assessment. Beneficial reference of the judgments in the case of Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported in (2007) 291 ITR 500 (SC), in case of Income- Tax Officer, Calcutta versus M/s. Selected Dalurband Coal Co. Pvt. Ltd. reported in 1996 (217) ITR 597 (SC); in case of Raymond Woollen Mills Ltd. vs Income-Tax Officer And Ors. reported in (1999) 236 ITR 34 (SC), be made. 11. This is one of such cases, in which the Assessing Officer had received the reports from the investigating teams that the petitioner was the beneficiary of the accommodation entries to the tune of Rs. 1,25,00,000/- , and since there was no true and full disclosure on the part of Page 13 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 the petitioner – assessee with regard to the said entries in its books of accounts, there was an escapement of income to the tune of Rs. 1,25,00,000/- during the assessment year under consideration. Assumption of jurisdiction on the part of the Assessing Officer, is since based on fresh information specific and reliable and otherwise sustainable under the law, the challenge to reassessment proceedings can not be entertained. Though it was sought to be submitted by the learned advocate Mr. D.R. Patel that the petitioner had produced all the relevant and material documents before the Assessing Officer at the time of scrutiny assessment, and it was not open for the subsequent Assessing Officer to reopen the assessment under the guise of having received the information from the investigating teams, the Court does not find any substance in the said submission. Mere production of the books of accounts or the documents along with return of income could not be said to be full and true disclosure of all material facts, more particularly when it is subsequently found, on the basis of credible information and tangible material that the petitioner was the beneficiary of the accommodation entries provided by the entry provider Jignesh Shah. 12. Even in the case of New Delhi Television Ltd. versus Deputy Commissioner of Income Tax Page 14 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 (supra), relied upon by the learned advocate Mr. D.R. Patel, the Supreme Court after considering the various earlier decisions had held that at the stage of taking action under section 147 of the Act, on the basis of material disclosed in the assessment proceedings for the subsequent years as well as the other material placed on record, the Assessing Officer is required to form only a prima facie view that the income had escaped assessment. 13. In the case of Phool Chand Bajrang Lal versus Income Tax Officer reported in 1993 203 ITR 456 (SC), it has been observed as under : - “19……….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 original assessment is different from drawing a fresh inference from the same facts and material which was available with the I.-T.O at the time of 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 I.-T.O would have the jurisdiction to reopen the concluded assessment in such a, case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his Page 15 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 jurisdiction to act under S. 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.-T.O acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non- specific.” “26. .………One of the purposes of S. 147, appears to us to be, to ensure that a party cannot get away by wilfully 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.” (Emphasis supplied) 14. In the case of Ess Kay Engineering Co. (P) Ltd. versus Commissioner of Income Tax reported in 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. 15. It was also sought to be submitted by the learned advocate Mr. D.R. Patel for the petitioner that the reopening was sought to be done on the basis of false and incorrect material as no amount of Rs. 20 lacs was received from Kamdhenu Marketing, however, the petitioner had made purchases from Kamdhenu Marketing and had made payments against such Page 16 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 purchases, and that the alleged receipt of accommodation entry of Rs. 1,05,00,000/- from Jignesh Shah was also based on false information, inasmuch as, the petitioner had borrowed the said amount from Arihant Enterprise Ltd. at the relevant time when Shri Dhiren Shah was the Director of the Company and not Jignesh Shah. Apart from the fact that no such contention was raised by the petitioner in the objections filed by it on reopening of the assessment, nor in the memo of petition, and has been raised for the first time in the affidavit- in-rejoinder, such contention could not be taken into consideration at this juncture, it is also pertinent to note that the petitioner was issued a notice under section 133(6) of the said Act on 21.03.2019 requesting it to furnish the evidence to prove the genuineness of the transactions mentioned therein before the issuance of the impugned notice under section 148 of the said Act, however, the petitioner had chosen not to respond to the said notice. Be that as it may, the respondent has considered all the objections in detail raised by the petitioner in the impugned order dated 13.12.2019, which order being just and proper does not call for any interference. 16. In that view of the matter, the petition being devoid of merits is dismissed. Notice is Page 17 of 18 C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 discharged. Interim relief granted earlier stands vacated forthwith. Sd/- (BELA M. TRIVEDI, J) Sd/- (A. C. JOSHI,J) AMAR SINGH Page 18 of 18 "