KOTTENZ INDIA MANUFACTURING PRIVATE LIMITED THROUGH DIRECTOR SHASHANK ARVIND KABRA V. DEPUTY COMMSSIONER OF INCOME TAX CIRCLE 2(1)(2)

SCA/21109/2017

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Kottens India Manufacturing Private Limited, through its director Shashank Arvind Kabra, challenged a notice issued by the Deputy Commissioner of Income Tax to reopen their assessment for the year 2010-11. The reopening was based on information from the Directorate General of Income Tax (Investigation) that linked the company to a scheme of accommodation entries involving share application money from dubious entities. The petitioner contested the factual basis of the reopening, specifically denying receipt of the alleged share application money. The Assessing Officer's rejection of the petitioner's objections led to this writ petition. The High Court found that the Assessing Officer had not adequately addressed the specific factual contention raised by the petitioner and thus did not conclusively resolve the dispute, allowing the petitioner to raise the issue during the reassessment proceedings.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 753646 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 20-03-2018
• Assessment Year: misc
• Other Referred Cases: Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: DARSHAN PATEL
• Keywords: Bogus accommodation entries; Income escaped assessment; Reopening of assessment; Share Application Money
• Section: 147; 143(1)

Judgement Text

"C/SCA/21109/2017 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21109 of 2017 ========================================================== KOTTENZ INDIA MANUFACTURING PRIVATE LIMITED THROUGH DIRECTOR SHASHANK ARVIND KABRA Versus DEPUTY COMMSSIONER OF INCOME TAX CIRCLE 2(1)(2) ========================================================== Appearance: DARSHAN R PATEL(8486) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 20/03/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has challenged notice dated 27.03.2017 issued by the respondent­Assessing Officer to reopen the petitioner's assessment for the assessment year 2010­11. The petition arises in following background. 2. Petitioner is a private limited company. For the assessment year 2010­11, the petitioner had filed the return of income on 27.09.2010 declaring total income of Rs.29,740/­. This return was processed under section 143(1) of the Income Tax Act, 1961 ('the Act' for short) and accepted without scrutiny. Page 1 of 10 C/SCA/21109/2017 ORDER To reopen such assessment, impugned notice came to be issued. For such purpose, the Assessing Officer has recorded following reasons: “In this case, return of income was filed on 27.09.2010 declaring total income of Rs.29,740/­ which was processed u/s 143(1) of the Act on 28.04.2011. As per information shared by the DGIT(Investigation) Mumbai vide letter no.DGIT(Inv)/Information/PJ/2014­15 dated 03/07/2014 and forwarded by the DIT(Inv.) Ahmedabad vide letter dated 16.06.2015, a search and seizure action was carried out in Parveen Jain Group on 01/10/2013 in which evidences collected and the statements of various persons recorded including that of Shri Praveen Kumar Jain, established the modus operandi which led to detection of accommodation entries in the nature of sales, unsecured loans and share application money. It has been noticed that in the case of certain companies accommodation entries have been provided by Shri Praveen Kumar Jain. One of the assessee company viz. M/s Kottenz India Manufacturing Pvt. Ltd. bearing PAN AACCK7018B had received share application money from following corporate entities of Shri Praveen Kumar Jain Group. Name of the bogus concern of Shri Praveen Kumar Jain PAN of the bogus concern of Shri Praveen Kumar Jain Amount involved (in Rs.) Anchal Properties P. Ltd. AAGCA 0681 A 10,00,000/- Atharv Business P. Ltd. (Faststone Trade (I) P. Ltd. AAACF 9430 A 5,00,000/- Duke Business P. Ltd. (JPK Trading (I) P. Ltd. AABCJ 6245N 5,00,000/- Nakshatra Business P AABCH4279 G 5,00,000/- Page 2 of 10 C/SCA/21109/2017 ORDER Ltd. (Hema Trading Co. P Ltd.) Olive Overseas P Ltd. (Realgold Trading Co. P. Ltd.) AACCR 4512 K 5,00,000/- TOTAL 30,00,000/- Thus, the introducers of the share application money are found to be bogus by investigation wing. It is also seen (as tabulated below) from the returns of income (ROI)( of assessee company that in preceding and following assessment years, the assessee does not have profits to warrant such large amount of share application money. ” A.Y. Date of ROI filed ROI (in Rs.) 2007-08 02.11.2007 NIL 2008-09 27.09.2008 64,910/- 2009-10 27.09.2008 15,600/- 2011-12 29.09.2011 4,22,200/- In view of the above facts, I have reason to believe that there is failure on the part of the assessee company to disclose fully and truly all material facts for the assessment year under consideration. The above amount of Rs.30 Lakhs stated to have been received from above entities is merely accommodation entries and hence, income to the tune of Rs. 30 lakhs has escaped assessment for the A.Y. 2010­11. Therefore, it is a fit case for reopening of this assessment by invoking the provisions of section 147 of the the Income Tax Act, 1961.” 3. The petitioner raised objections to the notice of reopening under a letter dated 05.10.2017. In such objections, besides other grounds, the Page 3 of 10 C/SCA/21109/2017 ORDER petitioner had raised a ground that the reasons proceeded on erroneous factual background. In the reasons recorded, the Assessing Officer had referred to share application money of Rs.30 lakhs received by the assessee company from five different companies. According to him, these companies were providing bogus accommodation entries and thus, the said investment was not genuine transaction. According to the assessee however, the company had not received such share application money of Rs.30 lakhs from the said five entities during the relevant period. The assessee in the objections therefore raised a specific ground in this respect calling upon the Assessing Officer to supply any contrary material. 4. Such objections were however rejected by the Assessing Officer by an order dated 28.10.2017. Unfortunately in such order, the Assessing Officer did not address this specific factual contention of the petitioner. Be that as it may, when such objections were rejected, the petitioner has filed this petition. 5. We have heard learned advocates for the parties. Page 4 of 10 C/SCA/21109/2017 ORDER Notice for reopening has been issued in a case where no scrutiny assessment was originally framed. The Assessing Officer therefore as held and explained by Supreme Court in case of Assistant Commissioner of Income­tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500 (SC), would have much wider latitude in reopening the assessment as long as he has reason to believe that income chargeable to tax has escaped assessment. The reasons referred to the report of the investigation wing, in which, it was pointed out that one Praveen Kumar Jain had floated several companies through which bogus accommodation entries were being provided ostensibly through share application and share premium money invested in different companies. The petitioner company was beneficiary of investment of Rs.30 lakhs from these five dubious companies. On the face of it therefore, the reasons do not lack validity nor if the Assessing Officer is correct in asserting above noted basic facts, he can be criticized for forming a belief that income chargeable to tax has escaped assessment. However, counsel for the petitioner raised a very simple and basic contention. Page 5 of 10 C/SCA/21109/2017 ORDER He referred to the documents and pleadings on record to point out that from the outset, the case of the petitioner has been that the petitioner company has not received the said sum of Rs.30 lakhs from the five companies whose names are mentioned in the reasons recorded, during the relevant period. He however, agreed that the petitioner company did receive share application money of Rs.10 lakhs from one Anchal Properties P. Ltd. The petitioner has taken such a ground in the objections. Such ground reads as under: “(II) Your goodself has derived satisfaction that assessee has failed to disclose fully & truly material facts. Your goodself has without any material evidence on records derived satisfaction that assessee has received share application money of Rs. 30,00,000/­ during the year under reference from 5 entities. Your goodself has mentioned that assessee has failed to disclose fully & truly material facts. Assessee submits that as assessee has not received share application money of Rs. 30,00,000/­ during the year under reference as alleged by you hence question of failure to disclose fully & truly would not arise. Your goodself is requested to provide evidences which you have in your possession which resulted into your satisfaction for Page 6 of 10 C/SCA/21109/2017 ORDER reopening of assessment that assessee has received share application money of Rs. 30,00,000/­ which assessee failed to provide. Assessee submits that reasons which your goodself has recorded is far away from facts and material evidence on records. It seem that your goodself has without application of mind and without verifying the facts with the material evidence on records merely on borrowed satisfaction derived your satisfaction that assessee has received share application money of Rs. 30,00,000/­ In absence of any evidence on records merely on the basis of hearsay information, your goodself can not derive satisfaction to reopen the assessment. Information which you have received from investigation wing would definitely cause reason to verify the facts, but it does not summarily gives you jurisdiction to reopen the assessment without application of mind to the material evidence on records. Your goodself shall have to derive independent application of mind on the basis of material evidence on records.” 6. When the Assessing Officer was disposing of such objections, it was his duty to meet with this ground. Either accept it or reject it by citing reasons. In the order disposing of objections, he did neither. It is not as if he was unaware or oblivion of this ground. In the order disposing objections, he referred to this ground of the assessee at considerable length, but when it came to dealing with Page 7 of 10 C/SCA/21109/2017 ORDER this ground, he was totally ambivalent. He proceeded on general legal principles on the issue of his jurisdiction to reopen the assessment. His duty was to examine this factual ground raised by the assessee and to deal with it in proper prospective. At any rate, the Assessing Officer cannot approach the objections with a preset mind to dismiss it at any cost, nor can he dispose of the objections mechanically which is precisely what he did in the present case. Very clearly the Assessing Officer has exhibited a certain callousness in disposing of the objections. 7. This callous attitude on his part, does not stop at that stage. Even when in the present petition the petitioner reiterated this ground, he did not meet with such ground in the affidavit in reply. His duty was simple. Either to say yes to what the petitioner has said in the petition and leave his counsel to argue the legal implications thereof or to deny what the petitioner has said by supplying necessary material. He chose to remain silent. 8. This approach on the part of the Revenue forced Page 8 of 10 C/SCA/21109/2017 ORDER us to call for the original files. The learned counsel on the basis of such files pointed out that the computer generated system of the department showed that in connection with the assessee's PAN number for the period relevant to the assessment year, there has been an investment of Rs.30 lakhs from above noted five companies, mentioned in the reasons by the Assessing Officer. For the purpose of present petition, this is sufficient material for us not to entertain the petition any further. This being a disputed question of fact, we are not inclined to undertake any further inquiry in this respect. However, while disposing of the writ petition, we make it clear that we have not conclusively and finally rejected this ground of the petitioner. We do not on merits reject the petitioner's challenge to the notice of reopening and in view of peculiar facts, relegate him before the Assessing Officer by permitting him to raise this ground during the course of assessment and then take appeal route if he is aggrieved by the final order that Assessing Officer may pass. 9. Subject to above observations, petition is Page 9 of 10 C/SCA/21109/2017 ORDER disposed of. Notice is discharged. Interim relief stands vacated. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 10 of 10 "