KAYATHWAL ESTATE PVT. LTD. V. INCOME TAX OFFICER

SCA/19454/2019

AI Insights

The case involves Kayathwal Estate Pvt. Ltd., which challenged a notice issued by the Income Tax Officer for reopening its income tax assessment for the assessment year 2012-13. The notice was based on information from a search and seizure operation related to another individual, Pravin Kumar Jain, who was implicated in providing accommodation entries. The Assessing Officer believed that the company had received a bogus unsecured loan from a concern managed by Jain. The High Court examined whether the reopening of the assessment was justified, considering the time elapsed since the original assessment and the nature of the new information presented.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 682318 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 02-02-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: KALPANA RAVAL
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Accommodation entry; Bogus Transaction; Income tax reassessment; Scrutiny assessment; Unsecured loan
• Section: 147; 148; 143(3); 143(1); 151; 226

Judgement Text

"C/SCA/19454/2019 ORDER DATED: 02/02/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19454 of 2019 ================================================================ KAYATHWAL ESTATE PVT. LTD. Versus INCOME TAX OFFICER ================================================================ Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 02/02/2021 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, seeks to challenge the Notice dated 28.03.2019, issued by the respondent under Section of the Income Tax Act, 1961 (‘the Act’ for short), seeking to reopen the writ applicant’s income tax assessment for the A.Y. 2012-13. 2. The assessee being a Private Limited Company filed its return of income on 24.09.2012, declaring total income of Rs.88,770/- and capital gain of Rs.2,73,431/-. Initially the return was processed under Section 143(1) of the Act and thereafter, the case was selected for scrutiny assessment. During scrutiny proceedings, the details called for were placed on record. The Assessing Officer had asked the details regarding unsecured loan taken by the assessee during the year under consideration. The assessee furnished details as called for. The Assessing Officer after perusing the details so Page 1 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 furnished by the assessee, passed an order dated 08.10.2014 under Section 143(3) of the Act by making addition and final determined the income at Rs.3,62,200/-. 3. The Assessing Officer reopened the assessment under Section 147 of the Act by issuing impugned notice dated 28.03.2019 under Section 148 of the Act. Pursuant to the notice, the assessee filed return of income on 16.04.2019 and vide letter dated 17.04.2019, requested the revenue to supply copy of reasons for reopening. On 16.05.2019, the respondent supplied the copy of reasons, which reads thus:- Reasons recorded : “2. The assessee company filed its return of income for the A.Y. 2012-13 on 24.09.2012 declaring total income at Rs.3,62,200/Assessment in the case of the assessee was completed w/s 143(3) on 31.03.2015 by accepting Returned Income 2.1 As per available information received in this office from O/o the DGIT (Investigation), Mumbai through proper channel, a search and seizure action was carried out by the Investigation wing, Mumbai in the case of Shri Pravin kumar Jain and his group based in Mumbai on 01.10.2013. The search action resulted into collection of evidences and other findings which conclusively proved that the assessee through a web of concerns run and operated by him, is engaged in providing accommodation entries of various nature like bogus unsecured loans, bogus share application and bogus sales (purchases for the beneficiaries) etc. Page 2 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 During the course of the search various premises which were shown by the assessee group to be the place of operations and registered addresses as per the Income Tax Returns, MCA website and Bank documents were covered. However, it was found that + entities were non- existing at these addresses and no genuine business was being carried out at any of these premises: Pre-search enquiries had revealed that the various persons shown to be the directors/proprietors of different concerns were non-existent on the given addresses. However, in . certain cases the directors’ addresses were located and they were covered in the action w/s 132 of the 1 T Act, 1961. During the course of the statements recorded u/s 132(4V/131 of the IT Act. 1961 these directors /proprietors admitted that they were merely dummy directors and used to sign different papers for nominal consideration given by Shri Pravin Kumar Jain. They were unaware of the place of operations, books of accounts and the businesses being carried out by the concerns where they were directors/proprietors. After perusal of such documents/statement, it was found that Praveen Jain himself is a director in few concerns only. However, through various dummy directors/proprietors, he controls, operates, and manages a large no of concerns. All Such concerns are not carrying out any genuine business. They do not have any physical stock of goods, which they claimed to be dealing in. All such concerns have no employed persons except the few common accountants who manage accounts and banking transactions of all such concerns and all such concerns are indulged in the activity of providing accommodation entries only. Page 3 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 2.2 In the course of search/survey proceedings, Sh. Pravin Kumar Jain categorically admitted in his statement that he was indulged in providing of accommodation entries to the beneficiaries according to their need of share application/share capital money/loan/ purchase and sale bills etc. He further named the companies/firms on his own of or through other brokers through which he is providing accommodation entries to its clients in lieu of some commission. In this regard he categorically admitted that he is in the business of giving accommodation entries which are routed through the companies under his control. All the companies either owned by him or directly/indirectly under his control are paper companies with no real business transactions. In most of the cases various brokers who operate in the field of providing accommodation entries approach him when they want a certain type of accommodation entry like bogus unsecured loan, bogus LTCG etc. 2.3 From the above detailed investigation based on documentary evidences and admission of the entry provider and associated persons, it is clear that Sh. Pravin Kumar Jain was indulged in providing of accommodation entries through various concerns as identified by the investigation wing to the various beneficiaries according to their need of share application/share capital money/loan/purchase and sale bills etc. As per details available, it is found that the assessee has taken accommodation entry of unsecured loan Rs. 15,00,000/from M/s Ramdev Share & Securities Pvt Limited, which is paper concern managed and controlled by entry operator i.e Shri Pravin Kumar Jain. Page 4 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 3, The information/details so available are perused. On perusal of information, it is found that the assessee has taken unsecured loan of Rs. 15,00,000/from M/s Ramdev Share & Securities one of the bogus concern and claimed bogus expenditure of Rs.1,03,932/-. 4, In view of above facts, it is clear that this amount of unsecured loan shown to be taken of Rs. 15,00,000/- by the assessee is nothing but its unaccounted income credited in its books of account which comes in the ambit of Section 68 of the IT Act and also interest expenditure of Rs.1,03,903,932/- is not allowable expenditure, 5. The above facts leads to the belief that there is a default on the part of the assessee to disclose full and truly all material facts in respect of its assessment during i.e year under consideration and, therefore, I have reason to believe that the income to the extent of Rs.16,03,932/- has escaped assessment within the meaning of Explanation 2(c) of Section 147 of the .T. Act, for which the case of the assessee for the A.Y. 2012-13 needs to be reopened w/s 147 of the IT. Act. 6. Applicability of provisions of Section 147/151 to the facts of the case. It is pertinent to mention here that in this case the assessee has filed return of income for the year and assessment has been completed w/s 143(3) of the IT Act on 08.10.2014. Since 4 year has from the end of the relevant assessment year has expired in this case, the requirements to initiate proceedings w/s 147 of the Act are reason to believe that Income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose - fully and Page 5 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 truly all material facts necessary for his assessment for the year under consideration. It is pertinent to mention here that reasons to believe that Income has escaped assessment for the year under consideration have been recorded above in paras 2 to 5. I have carefully gone through the records containing the submission made by the assessee in response of various notices issued during the course of assessment proceedings and noticed that the assessee has not fully and truly disclosed the material facts necessary for his assessment for the year under consideration. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary for its assessment for the year under consideration thereby necessitating reopening u/s 147 of the IT Act. In this case more than four years have lapsed from the end of assessment year under consideration, Hence necessary sanction to issue notice u/s 148 has been obtained separately from Principal Commissioner of Income-tax as per the provisions of Section 151 of the Act.” 4. The assessee raised objections vide its communication dated 01.06.2019 and same came to be rejected by the revenue vide order dated 23.04.2019. 5. Being aggrieved by the order disposal of the objections, against the notice for reopening of the assessment, the writ applicant has come up before this Court by filing the present writ applicant. 6. We have heard learned Senior Counsel Mr. Tushar Hemani, assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for Page 6 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 the writ applicant and Mrs. Kalpana Raval, the learned Standing Counsel assisted by Mr. Nikunt Raval, the learned advocate appearing for the revenue. 7. Assailing the notice issued under Section 148 of the Act, Mr. Tushar Hemani, the learned Senior Counsel appearing for the writ applicant, urged the following submissions : (a)Impugned notice is absolutely bad in law and against the provision of the statute, more particularly, under Section 147 of the Act. (b)The impugned notice has been issued on 28.03.2019 in relation to the AY 2012-13, which is clearly beyond the period of 4 years from the end of relevant year and as such, in absence of any failure on the part of the writ applicant, disclosed fully and truly all material facts, the assumption of jurisdiction by the Assessing Officer under Section 147 is invalid. In this context, it was submitted that the assessment for the year under consideration was framed under Section 143 of the Act and during the assessment proceedings, the Assessing Officer had called for various details including the details pertaining to unsecured loans and same was furnished vide letter dated 15.4.2014 and after perusing the details, the Assessing Officer conclusively did not make any addition in respect of unsecured loan received from M/s. Ramdev Shares and Securities Pvt. Ltd. It is therefore submitted that it is evident that at the time of filing the return of income and during the course of assessment proceedings, all the material facts having been truly and fully disclosed by the assessee and therefore, the condition precedent for exercise of power under Section 147 after expiry of period of 4 years from the end of relevant assessment year are Page 7 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 clearly not satisfied and the issuance of notice after expiry of period of 4 years is without authority of law. (c)It was submitted that during the course of assessment proceedings, the Assessing Officer had examined the alleged transaction and interest expenses accrued thereon and at relevant time, the department was in possession of the information in the form of evidences collected during the course of search carried out in the case of Shri Pravin Jain on 01.10.2013.Thus, at the relevant time, the Assessing Officer thought not fit to make any addition with respect to unsecured loan. Therefore, the information as referred in the reasons recorded cannot be termed as tangible material to reopen the concluded assessment. (d)It was also submitted that during the course of scrutiny assessment, the Assessing Officer had gone into the issue and did not have made any addition with respect to unsecured loan and interest thereon. Hence, the action on the part of the revenue to reopen the assessment is nothing but it is a change of opinion on the part of the Assessing Officer, which cannot be permitted in eye of law. (e)Referring to reasons recorded, it was submitted that the respondent has merely relied upon the information received from the investigating wing, which seems to be a vague as there is no reference of the assessee that Mr. Jain has provided the accommodation entry to the writ applicant in the form of unsecured loan. Under such circumstances, it was submitted that reopening cannot be permitted for carrying out roving and/or fishing inquiry or investigation without there being a specific finding as to escapement of income. Page 8 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 (f) Lastly, it was submitted that the notice under Section 148 can be issued if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment, for which, the Assessing Officer, at all applied his mind independently so as to reach a conclusion that income has escaped assessment. Thus, in the present case, the Assessing Officer has initiated the proceedings of reopening merely based on borrowed satisfaction i.e. the information received from the concerned department. 8. In view of the aforesaid contentions, the learned Senior Counsel appearing for the writ applicant submitted that the reopening of the assessment is without jurisdiction and hence the impugned notice deserves to be quashed and set aside. 9. On the other hand, learned Standing Counsel Mrs. Kalpana Raval, reiterated the stand adopted by the revenue in the affidavit in reply as well as in the order disposing of the objections, submitted that the action taken by the Assessing Officer is just, legal and proper and does not warrant any interference. It was submitted that the assessee did not have disclosed true and correct details with regard to unsecured loan provided by M/s. Ramdev Shares and Securities Pvt. Ltd, the information received from the department was not available to the Assessing Officer at the time of original assessment and therefore, Assessing Officer has duly recorded satisfaction for the purpose of reopening the assessment which is based upon the tangible material and prima-facie he came to the conclusion that transaction made by the assessee with M/s. Ramdev Shares and Securities Pvt. Ltd is nothing but an accommodation entry provided by M/s. Ramdev Shares and Securities Pvt. Ltd, which is paper concern, having no actual Page 9 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 business and the amount of Rs.15 lakhs and interest expenses Rs.1,03,932/- is liable to tax as escape assessment. 10. In view of the aforesaid submissions, Mrs. Kalpana Raval, learned Standing Counsel submits that there being no merits in the writ application, same deserves to be dismissed. 11.Having heard the learned counsel for the respective parties and having gone through the materials on record, the only question falls for our consideration is that whether the revenue is justified in reopening the assessment for the year under consideration. 12. Before adverting to the rival contentions raised by respective parties, it is relevant to refer the legal provisions. Section 147 of the Act deals with the income escape assessment. The section inter- alia provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to provisions of Sections 148 to 153 of the Act, the assessment or reassessment, the income chargeable to tax, however, it is subject to certain limitations. The first proviso to Section provides that whether an assessment under sub-section (3) of Section 143 has been made for the relevant assessment year, no action shall be taken under Section 147 after the expiry of 4 years from the end of relevant assessment year. Unless any income chargeable to tax has escaped assessment, failure on the part of the assessee to make a return under Section 139 or to disclose fully and truly all material facts, necessary for his assessment for that assessment year. 13. The record indicates that the assessee had disclosed the transactions of loan in their books of accounts and return of Page 10 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 income. It is also admitted facts that during the scrutiny assessment proceedings, the assessee had furnished all the details as called for including bank statement of parties from whom loan was taken. It is the case of the revenue that the information received from the concerned, M/s. Ramdev Shares and Securities Pvt. Ltd, is paper company, managed by Mr. Pravin Jain and he was found to be an accommodation entry provider and the alleged transaction is bogus transaction and therefore, the amount of unsecured loan and interest thereon is liable to tax and has escaped assessment. 14. After careful examination of the reasons recorded and the order of disposing of the objection, we find that on 08.10.2014, the scrutiny assessment was concluded. The search action carried out on 01.10.2013 in the case of Mr. Pravinkumar Jain. In the reasons recorded, it is nowhere mention that on which date the information was received by the department. Thus, we are of the considered view that the information as mentioned in the reasons recorded, cannot be termed as tangible material, as at the time of scrutiny assessment, it was very much available with the department. 15. In the present case, as noted above, the assessee vide letter dated 15.04.2014 and 23.05.2014 had furnished all the details with respect to loan transactions and further submitted the acknowledgment of return of income, bank statement of parties, from whom the loan was taken. Despite of the discloser of all the materials, the Assessing Officer did not have made any addition in the income It is a settled legal position that completed assessment cannot be reopened unless Assessing Officer received fresh tangible material subsequent to the framing of the assessment. In the present case, as we have held hereinabove, that the information Page 11 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 is not a tangible material and therefore, in the opinion of this Court, the attempt on the part of the Assessing Officer to reopen the assessment is nothing but it is his change of opinion based on the same facts., if it is so, then mere a change of opinion of the Assessing Officer, cannot be the ground for reopening of assessment. 16. In the present case, admittedly, the reopening is beyond 4 years from the end of relevant assessment year. It is provided that where an assessment under sub-section (3) of the Section 143 has been made for relevant assessment year, no action shall be taken under Section 147 after expiry of 4 years from, the end of relevant assessment year, unless any income chargeable to tax has escaped assessment . For such assessment year, by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Section 148 or to disclose fully and true material facts necessary for the assessment. 17. On the facts of present case, we find that the assessee had disclosed fully and truly material facts, with respect to loan transaction as well the interest paid on the loan. Admittedly, the loan was paid up by the assessee on 21.08.2014 with the interest, after deducting TDS thereon. The Assessing Officer at the time of scrutiny assessment, accepted the transaction. Under the circumstances, it cannot be said that the assessee had withheld the primary material and assessee failed to disclose truly and fully all material facts of the assessment. Thus, the conditions precedent for exercise of power under Section 147 after expiry of period of 4 years of relevant assessment year are not satisfied, as a result, we hold that assumption of jurisdiction on the part of the Assessing Page 12 of 13 C/SCA/19454/2019 ORDER DATED: 02/02/2021 Officer beyond a period of 4 years is invalid and without jurisdiction. Consequently, impugned notice dated 28.03.2019 is hereby quashed and set aside. 18. In view of the aforesaid discussions made hereinabove, the writ application is allowed. (J. B. PARDIWALA, J) (ILESH J. VORA,J) P.S. JOSHI Page 13 of 13 "