CEMACH MACHINERIES LTD V. THE INCOME TAX OFFICER WARD 1(1)(3)

SCA/19901/2018

AI Insights

Cemach Machineries Ltd. challenged the notice issued by the Income Tax Officer for reopening their assessment for AY 2011-12, claiming it was based on insufficient and vague information. The notice was issued following the discovery of alleged bogus billing activities involving the company and other entities. The court examined the evidence presented, including bank transactions and statements from involved parties, and concluded that there was a reasonable belief that income had escaped assessment due to these bogus transactions. The court emphasized that the Assessing Officer had sufficient material and had independently verified the information before issuing the notice.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 680560 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 18-02-2021
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Rajesh Jhaveri Stock Broker, ITO Vs. Selected Dalurbaned Col Company (P) Ltd, Inductotherm (India) Pvt. Ltd. vs. M. Gopalan, Deputy Commissioner of Income Tax, CIT Vs. Kelvinator, Raymond Woolen Mills ltd. Vs Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: AMAN SHAH
• Keywords: Accommodation entries; Bogus billing; Income escaped assessment; Reopening of assessment; Writ application
• Section: 147; 148; 143(3); 142(1); 143(1); 131; 133(6); 151; 226

Judgement Text

"C/SCA/19901/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19901 of 2018 ========================================================== CEMACH MACHINERIES LTD Versus THE INCOME TAX OFFICER WARD 1(1)(3) ========================================================== Appearance: MR. AMAN K SHAH(9992) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 18/02/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this writ application under Article 226 of the Constitution of India, the writ applicant has assailed the legality and validity of the issuance of impugned notice dated 20.03.2018 issued by the Assessing Officer, under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961”), whereby, the Assessment for the year 2011-2012 is sought to be reopened in exercise of the powers under Section 147 of the Act, 1961. 2. The brief facts can be summarized as under: 2.1 The writ-applicant Assessee-Cemach Machineries Limited had filed its return of income on 30.05.2011 for the AY 2011-12 declaring total income Rs.29,80,240/- and then same was processed under Section 143(1) of the Act, 1961. 2.2 The Assessing Officer has issued notice under Section 148 of the Act, 1961 based on the reason recorded dated 30.08.2018. In response to the impugned notices, the Page 1 of 13 C/SCA/19901/2018 ORDER Assessee- Company filed its return of income on 06.08.2018. A copy of the reason recorded provided to the Assessee-Company. The Assessee-Company had raised an objection vide letter dated 04.09.2018, which was disposed of by passing speaking order dated 10.09.2018. Notices under Section 143(3) and 142(1) of the Act were issued, asking the Assessee-Company to submit its reply with respect to questioning contained therein. The Assessee- Company has not responded to the notice issued under the Act, 1961. 2.3 The reason for reopening recorded by the Assessee- Company reads as under;- 2. The erstwhile ITO, Ward-12(4), now ITO. Ward-6(1)(5), Ahmedabad has forwarded the information pertaining to Cemach Machineries Ltd. Gathered while finalizing the assessment of Smr. Harshaben Rashikbharti Gosai prop. Of Mahavir enterprise for A.Y. 2011-2012. During the course of assessment proceedings in the case of Smt. Harsahaben Rashikbharti Gosai prop. of Mahavir Enterprise. It is established that she in connivance with Shree Kandan Mudaliar, bearing PAN;ACHPM8252 prop. Of Marshall Enterprise residing at 75/76 Gujarat Housing Board, Khokhara, Ahmedabad has provided accommodation entries through bogus billing activity (both purchase and sales billing) for many business concerns. In the statement recorded under Section 131 of the Act on 10.03.2014 and 12.03.2014, Shree Kandan Mudaliar, admitted that he had actually filed the ROI of Smt. Harshaben Rashikbharti Gosai and also provided the details of beneficiaries who had carried out bogus billing activity directly or indirectly with Mahavir Enterprise. Shree Kandan Mudaliar further confessed that bogus billing activities were carried out through banking channels of the beneficiaries and operations in these accounts were controlled by him. As per the details provided by him, Cemach Machineries Ltd., assessed to this ward is one of the beneficiaries. Page 2 of 13 C/SCA/19901/2018 ORDER The then Ito Ward-12(4), Ahmedabad after extensive verification of bank statements of all concerns whose name appeared in the bank statement of Mahavir Enterprise disseminated the date of Cemach Machineries Ltd assessed to this ward. 3. According to the disseminated data, during AY 2011-12, Cemach Machineries has received payment of Rs. 2,08,49,490/- from P.M.& Co & made payment of Rs.96,28,150/- to J.K. Enterprise. From the bank statement of Mahavir Enterprise provided along with information passed on, it is seen that P.M.& Co. and J.K.Enterprise has made direct bank transaction with Mahavir Enterprise. 4. In order to verify the information received, after taking due approval from Pr. CIT-I, Ahmedabad to call for information under Section 133(6) of the Act, copy of bank statement of P.M.& Co. & J.K.Enterprise were obtained from Kotak Mahindra Bank. The bank statement was received vide letter dated 14.03.2018. On verification of the bank statement it is seen that Cemach Machineries has made following transactions with theses concerns during FY 2010-11. Entries reflected in the bank statement of P.M. & Com. (A/c No. 670011005606) No Date Amount received from P.M.& Company (Rs.) Paid to P & M & Company (Rs.) 1 10.03.2011 18,43,120/- - 2 11.03.2011 49,09,870/- - 3. 16.03.2011 45,69,500/- - 4. 16.03.2011 37,54,500/- - 5 17.03.2011 65,72,500/- - Total Rs.2,16,49,490/- Entries reflected in the bank statement of J.K. Enterprise (A/c No.670011005614) Page 3 of 13 C/SCA/19901/2018 ORDER No Date Amount received from P.M.& Company (Rs.) Paid to P & M & Company (Rs.) 1. 16.03.2011 - 13,00,650/- 2. 16.03.2011 - 37,55,000/- 3. 17.03.2011 - 45,72,500/- Total 96,28,150/- 5. The returned income of Cemach Machineries Ltd. For AY 2011-12 is Rs.29,80,240/- and profit from business amounts to Rs.38,24,505/-. Gross purchases during the year is Rs.22,12,70,888/- which is 109% of immediate previous year and sales amount Rs.26,34,96,951/- is approximately 80% more than that of AY 2010-11. Opening stock is Rs.6,88,61,000/-. From the bank statements of P.M. & Co. & J.K.Enterprise, it is seen that the assessee has made transaction with these concerns which in turn route it to the bank a/c of Mahavir enterprise . Smt. Harshaben Rahikbharti Gosai, who carries out bogus billing for commission. As it is proven that no actual purchase/sales takes place, the sales/purchases shown in the books of assessee are nothing but its unaccounted money brought into its books. Since, it has been established that Smt. Harshaben Rashikbharti Gosai is engaged in the business of providing accommodation entries through bogus entry, bank transactions aggregating to Rs.3,12,77,640/- (Rs.,16,49,490/- +96,28,150/-) and the income earned from these transactions has escaped assessment. Accordingly, in this case no assessment was made and only requirement to initiate proceedings under Section 147 of the Act is that income from transactions aggregating to Rs.3,12,77,640/- has escaped assessment. 6. In view of the above findings, I have reasons to believe that the transactions chargeable to tax to the extent of Rs.3,12,77,640/- has escaped assessment in the case of Cemach Machineries Ltd. For the AY 2011-12 within the meaning of Section 147 of the Act, 1961 and it is a fit case for issuing notice under Section 148 of the Act, 1961. Page 4 of 13 C/SCA/19901/2018 ORDER 7. Regarding escapement of income chargeable to tax in relation to assets (including financial interest in any entity) located outside India, the same is not applicable as no such assets are identified so far in this case. 3. The case of the revenue is that based in the information received from ITO Ward No. 6(1)(5), Ahmedabad, the assessee company was the beneficiaries of the accommodation entries provided by PM & Company and J.K. Enterprise and the income amounting Rs. 3,12,77,640/- has escaped assessment. The information further reveals that the proprietor of Mahavir Enterprise one Mrs. Harshaben Gosai in connivance with Kundan Mudlaliar, whose statement was recorded on oath under Section 131 (1)(a) of the Act, they are alleged to have provided accommodation entries through bogus billing activities to many business concerns and assessee was one of the beneficiaries and after verification it was further found that the name of Mahavir Enterprise was found in the bank statements of two above entities and during A.Y. 2011-12, the assessee company received payment of Rs.2,08,49,490/- from PM & Co. and made payment of Rs.76,28,150/- to J.K. Enterprise and there was a direct monetary transaction by all the companies. After receiving that information, the Assessing Officer had verified the data of the assessee company and called for information under Section 133(6) of the Act and also obtained bank statements of PM & Co and J.K. Enterprise, wherein, the aforesaid transactions made by the assessee company was found bogus, without actual delivery of the goods and the money doubted to the bank account of Mahavir Enterprise, who managed to provide accommodation entries through bogus billing activities and the assessee has received Page 5 of 13 C/SCA/19901/2018 ORDER the benefit of bogus entry and the income earned from this transactions has escaped assessment. 4. Being aggrieved with the proceedings of reopening of the AY 2011-12, the writ applicant has come up before this Court by filing this writ-application. 5. We have heard Mr. K.M.Shah, the learned counsel appearing for the writ-applicant and Mrs. Mauna Bhatt, the learned Senior Standing Counsel appearing for the revenue. 6. Mr. A.K. Shah, the learned counsel appearing for the writ- applicant has raised the following contentions. A) It was submitted that, the impugned notice is bad in law and the respondent, while issuing the notice, has acted illegally and without jurisdiction as the reopening is mainly based on the information received, cannot be said to be tangible material and after receiving the information the Assessing Officer has not applied his mind independently or made any inquiry before forming the belief that the income has escaped assessment. B) It was further submitted that the impugned Notice under Section 148 of the Act, 1961 can be issued, if, the Assessing Officer has reasoned to believe that any income chargeable tax has escaped income and satisfaction of the Officer must be recorded with regard to chargeable tax has escaped assessment. On the facts of the case, it was pointed out that the Assessee-Company has never entered into any transaction with Mahavir Enterprise and the amount received from two entities having already been recorded in Page 6 of 13 C/SCA/19901/2018 ORDER books of account. Therefore, it cannot be said that the income has escaped assessment chargeable to tax. C) It was submitted that the Assessing Officer mechanically based on the vague information as well as information of third party which has no relevance with the case of the assessee recorded reasons for reopening of the assessment for investigation and verification purpose which cannot be permissible and on this ground, the reopening is not justified. D) It was further pointed out that the approval under Section 151 of the Act, has been accorded by the authority mechanically without there being any satisfaction on the part of the authority and therefore, the impugned notice under Section 148 of the Act, 1961 is bad in law. 7. In support of the above contentions, Mr. A. K. Shah, the learned counsel appearing for the writ-applicant has placed reliance on the following judgments. (i) Shankarlal Nagji 322 ITR 90 (Guj), (ii) Simplex Mills Ltd, 48 ITR 182 (SC), (iii) Chhugalmal Rajpa 79 ITR 603(SC), (iv) Batra Bhatta 321 ITR 526 (Delhi), (v) Sheonath Singh 82 ITR 147 (SC) , (vi) Sarthak Securities 329 ITR 110 (Delhi), (vii) Orient Craft 354 ITR 536 (Del) ; and (viii) Meenakshi Overseas (P) Ltd, 395 ITR 677 (Del). 8. In view of the above, Mr. K.M.Shah, the learned counsel appearing for the writ-applicant prays that the writ-application may be allowed. Page 7 of 13 C/SCA/19901/2018 ORDER 9. Mrs. Mauna Bhatt, the learned Senior Standing Counsel appearing for the revenue has vehemently opposed the present writ application. She would submits that the authority is justified in reopening of the assessment as having enough material to substantiate to reopening and for forming a reasonable belief that income has escaped assessment. 10. Referring to the replied affidavit, she would submits that the transactions reflected in the bank account of the Assessee are not genuine and the entries during the year under consideration were provided by main two entities i.e. PM & Co. and J.K. Enterprise, who have direct linked with the Mahavir Enterprise as the name of two entities were appeared in the bank statement of the Mahavir Enterprise. In this circumstance, the Assessing Officer having rightly concluded that the Assessee had received the amount of Rs.3,12,77,640/- by way of bogus sales / purchase through bogus invoice/ vouchers and has reason to believe that the income for the year under consideration has escaped assessment within the meaning of Section 147 of the Act, 1961. 11. In view of the above contentions, learned Senior Standing Counsel appearing for the revenue urged that the writ application has not any merits and may not be entertained. 12. We have carefully considered the rival submission and also placed material placed on record. 13.It is settled law that Section 147 of the Act authorizes and permit the Assessing Officer to assess or reassess income chargeable to tax, if he has reason to believe that the income for any assessment year has escaped assessment. The Page 8 of 13 C/SCA/19901/2018 ORDER expression 'reason to believe' has been explained by the Apex Court in the case of CIT Vs. Rajesh Jhaveri Stock Broker (2008) 14 SCC 208. It was held that the expression 'reason to believe' cannot be read to mean that Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. 14.In case of ITO In the case of ITO Vs. Selected Dalurbaned Col Company (P) Ltd, (1997) 10 SCC 68, held that whether the material would conclusively prove the escapement is not the concerned at that stage. This is so, because, the formation of belief by the Assessing Officer is within the realm is subjective satisfaction. 15.In Inductotherm (India) Pvt. Ltd. vs. M. Gopalan, Deputy Commissioner of Income Tax, reported in (2013) 356 ITR 481, wherein, it was held as under: “even in case of reopening of an assessment which was previously accepted under Section 143(1) of the Act without scrutiny, the Assessing Officer would have the power to reopen the assessment provided, he had some tangible material, on the basis of which he could form a reason to believe that the income chargeable to tax had escaped assessment. 16.In CIT Vs. Kelvinator (2010) 2 SCC 723, the requirement of issuance of valid notice under Section 147 of the Act, the Apex Court held that “hence after 1.4.1989, the Assessing Officer has power to reopen, provide there is “tangible material”to come to the conclusion that there is escapement of income from assessment. Reasons must have live link with the formation of belief. Page 9 of 13 C/SCA/19901/2018 ORDER 17. It is an undisputed fact that the return of income of the assessee was processed under Section 143(1) of the Act and was accepted without any scrutiny and no assessment stipulated under Section 2(40) of the Act was made. The record indicates that notices under Section 143(2) and 142(1) dated 28.09.2018 and 22.11.2018 respectively had been served upon the assessee and the assessee did not have responded to the notices and failed to furnish necessary information called for by the revenue. 18. We have carefully examined the reasons for reopening more particularly, para-2 to 5. We find that the information received by the concerned department was specific, clear and unambiguous, so far the involvement of the assessee is concerned. The Assessing officer has observed that the main business of Harshaben Gosai and Kundan Mudaliar was to provide accommodation entries through bogus billing without actual delivery of goods and the assessee company was one of the beneficiaries amongst the other companies whose names were given by the Kundal Mudaliar. The Assessing Officer further observed that the name of assessee company was also found in the bank statement of Mahavir Enterprise. The Assessing Officer has further observed that the assessee company has received payment of Rs.2,08,49,490/- from PM & Co. and made the payment of Rs.9628150/- to J.K. Enterprise and the name of these two entities were also found in the bank statement of Mahavir Enterprise. 19. We find that the Assessing Officer after receiving the information had verified the details of the assessee and called for information under Section 133(6) of the Act and also Page 10 of 13 C/SCA/19901/2018 ORDER obtained bank statement of all concerned and finally observed that the transactions made with two entities through bank channels having direct link with Mahavir Enterprise as money has routed through the bank account of Mahavir Enterprise and Harshaben Gosai being a Proprietor of the Firm managed to provide accommodation entries through bogus billing and the sales and purchase shown in the books of assessee are bogus and the assessee has received the benefit of bogus entry and the income earned from this accommodation entries has escaped assessment. 20. In view of the reasons recorded and material relied by the Assessing Officer, it appears that the Assessing Officer himself was satisfied with regard to the information received and other material available with him and came to conclusion that the transactions reflected in the bank statement as well as in the books of accounts were false and bogus and two entities as well as assessee having direct link with the Mahavir Enterprise and routed the money in tune of Rs.3,12,77,640/-. 21. Having regard to the material on record, we are of the view that the Assessing Officer has initiated the proceedings not only on the information received from the concerned department but based upon his independent satisfaction and other available material to form a belief with regard to the escape assessment of income. 22. It would be profitable to refer to and rely upon the case of Raymond Woolen Mills ltd. Vs Income Tax Officer, (1999) 236 ITR 34, the Supreme Court has held that the Court is only required to see whether there is a some prima- facie material on the basis of which the revenue could reopen Page 11 of 13 C/SCA/19901/2018 ORDER the case. The sufficiency or correctness cannot be gone into at this stage. 23.Applying the law laid down by the Supreme Court and considering the material on record, we hold that, there was material to prima-facie come to conclusion that the assessee was beneficiaries of the accommodation entries as referred in the information received by the Assessing Officer and there was a live link between the material which suggested escapement of income and the information on the basis of which it could be concluded that income had escaped assessment. Therefore, we do not agree with the contention raised by the writ applicant that the Assessing Officer proceeded mechanically, without application of mind, based on the information received from the department. 24. The learned counsel appearing for the writ applicant raised the contention that the approval given under Section 151 is not legal and valid as it has been accorded without any satisfaction on the part of the authority. After perusal of the record, we find that the sanction order has not been placed by the assessee. There is no provision in the Act to provide a copy of the approval along with the reasons recorded. In absence of evidence, indicating that the authority concerned has mechanically accorded the sanction, the contention raised by the writ applicant cannot be accepted and has no merits. We have also examined the order disposing the objections. We find that the objections having been extensively dealt with by the authority and reasoned and speaking order has been passed. 25. In view of the aforesaid reasons and considering the peculiar facts and circumstance of the case, the Assessing Page 12 of 13 C/SCA/19901/2018 ORDER Officer is justified in reopening the assessment of the assessee and it could not be said to have that the impugned notice under Section 148 of the Act is without jurisdiction and contrary to Section 147 of the Act and/or bad in law. 26. For the aforesaid reasons, no case is made out and accordingly, writ application deserves to be dismissed and is hereby dismissed. Notice discharged. (J. B. PARDIWALA, J) (ILESH J. VORA,J) P.S. JOSHI Page 13 of 13 "