KOTTEX INDUSTRIES PRIVATE LIMITED V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(2)

SCA/22654/2019

AI Insights

Kottex Industries Private Limited challenged the reopening of its income tax assessment for the year 2014-15, which was initiated based on the suspicion that the share application money received from six companies was from bogus entities. The Income Tax Department argued that these companies were merely conduits for unaccounted money, a claim supported by investigations and scrutiny assessments in subsequent years. The petitioner contended that the reopening was based on incorrect facts and a mere change of opinion by the Assessing Officer. However, the court upheld the reopening, emphasizing that the Assessing Officer had a reasonable belief, based on tangible material, that income had escaped assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749700 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-08-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax, Rajkot-I v. Ayachi Chandrashekhar Narsangji, Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers P. Ltd., Phool Chand Bajrang Lal versus Income-Tax Officer, Raymond Woollen Mills Ltd. versus Income-Tax Officer and others, Peass Industrial Engineers (P.) Ltd. v. Deputy Commissioner of Income Tax, Aaspas Multimedia Ltd. v. Deputy Commissioner of Income Tax, Circle 1(1)
• Laws Referred To: Income Tax Act, 1967
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL; KALPANAK RAVAL
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Bogus companies; Income Tax; Reopening of assessment; Share Application Money; Unaccounted income
• Section: 147; 148; 143(3); 68

Judgement Text

"C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 22654 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDI and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI ======================================= 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 ======================================= KOTTEX INDUSTRIES PRIVATE LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(2) ======================================= Appearance: MR TUSHAR HEMANI, SR. ADVOCATE for MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR NIKUNT RAVAL for MRS KALPANAK RAVAL(1046) 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 DR. JUSTICE ASHOKKUMAR C. JOSHI) 1. This petition, under Article 226 of the Constitution of India, Page 1 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 is filed by the petitioner – Kottex Industries Private Limited – assessee seeking to quash and set aside the Notice dated 30.03.2019 issued by the respondent authority under section 148 of the Income Tax Act, 1967 (herein after referred to as “the Act”) for the Assessment Year 2014-15, as it has reason to believe that the income chargeable to tax for the assessment year under consideration has escaped assessment within the meaning of section 147 of the Act. 2. The undiluted facts of the case of the petitioner are that the petitioner is a Company incorporated under the Companies Act, 1956. During the Financial Year 2011-12, relevant to Assessment Year 2012-13 (i.e. the year under consideration), the petitioner received share application money to the tune of Rs.3,25,00,000/- from six different companies. The share application money pending allotment, was duly reflected in the Audited Annual Accounts. In the subsequent Assessment Year i.e. 2015-16, the said share application money was returned to the concerned parties. Thereafter, the petitioner filed its Return of Income (RoI) for the year under consideration on 04.09.2014, declaring total income of Rs.3,98,69,380/-. The case of the petitioner for the year under consideration was selected for scrutiny assessment and various details were called by the then Assessing Officer including the details as to the share application money received during the year under consideration, which were furnished by the petitioner. The petitioner furnished the documentary evidence such as Confirmation, Income Tax Return, Computation of Income, Audit Report and Bank Statements pertaining to the share applicants at the original assessment stage. That, while framing assessment under section 143(3) of the Act vide order dated 30.11.2016, no addition came to be made in respect of the Page 2 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 share application money. However, the respondent authority issued notice dated 30.03.2019 under section 148 of the Act seeking to reopen the case of the petitioner for the year under consideration. In response to the said notice, the petitioner company filed its RoI on 16.04.2019 and also requested to supply the reasons for reopening, which were supplied vide letter dated 06.05.2019. A perusal of the same revealed that the case of the petitioner was reopened on the count that the companies from which the share application money aggregating to Rs.3,25,00,000/- was received during the year under consideration, were bogus concerns. The case of the respondent was that, during the course of scrutiny assessment of the petitioner for the Assessment Year 2016-17, addition was made under section 68 of the Act in respect of the share capital and share premium received from five companies, allegedly on the ground that such companies were bogus. The petitioner had received share application money from two out of such five companies during the year under consideration. It was further found during the scrutiny assessment for the Assessment Year 2016-17 that the concerned five companies had acted merely as conduits and that, such companies had, in turn, received money from four different companies. The petitioner has received share application money from three of such four companies during the year under consideration. As regards the sixth company i.e. Jineshwar Multitrade Pvt. Ltd., the name of the said company had been struck off by the Registrar of Companies (RoC) as was ascertained from the website of the Ministry of Corporate Affairs. The respondent authority, therefore, was of the view that all the six companies from which share application money had been received during the year under consideration, were bogus. Further, all the investor companies had common Directors Page 3 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 namely Shri Narayan Kumar Patodiya and Shri Chandrashekhar Tiwari. Further, Shri Narayan Kumar Patodiya was the Director in total 14 companies of which, names of three companies have been struck off by RoC. Accordingly, the respondent has reason to believe that income of Rs.3,25,00,000/- has escaped assessment. Hence, the case of the petitioner for the year under consideration has been reopened. Against the reasons accorded, the petitioner, vide letter dated 14.10.2019, raised objections against reopening on factual as well as the legal grounds, however, the respondent authority disposed of the said objections raised by the petitioner vide order dated 12.12.2019 inter alia holding that the reopening is justified and valid in the eyes of law. Being aggrieved, the petitioner is before this Court by way of this petition. 3. We have heard, learned senior advocate Mr. Tushar Hemani for learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Nikunt Raval for learned advocate Mrs. Kalpana Raval for the respondent. 3.1 The learned senior advocate for the petitioner has vehemently submitted that the basis for reopening the assessment by the Assessing Officer is receipt of share application money by the petitioner company from six parties concerned, however, in fact, the said money was returned to the said companies in the subsequent Assessment Year i.e. 2015-16 and the said fact, was also brought to the notice of the respondent authority while raising objections against reopening and the same was not disputed by the respondent while passing the order disposing of the objections. He submitted that had it been the case that the petitioner had brought-in its own money in Page 4 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 its books of account in the garb of share application money from bogus companies, then such money would have been with the petitioner for use, however, such is not the case herein. He further submitted that thus, the department is not justified in proposing to reopen the case of the petitioner on such false pretext that the said companies are bogus companies. 3.2 The learned senior advocate for the petitioner submitted that the reasons for reopening lacked validity for the reason that incorrect facts have been mentioned pertaining to the assessment proceedings for the Assessment Year 2016-17. He submitted that it is mentioned in the reasons recorded that the petitioner has received share application money from the companies at serial Nos. 4 and 5 of Table 2 and that, during the assessment proceedings, identity of such companies was not established in the report sent, pursuant to the commission sent to the Kolkata Investigation Wing under section 131(1)(d) of the Act and that, these two companies were not found operating from their address during the inquiry carried out by the Inspector of the Range. He submitted that, however, the respondent has conveniently ignored the vital facts as emanating from the assessment proceedings for the Assessment Year 2016-17 that Shri Narayan Patodia, Director of these companies had personally appeared before the Assessing Officer. Further, Shri Narayan Patodia is the brother-in-law (husband of cousin sister) of the Director of the petitioner company and hence, the concerned investment was nothing but a group investment. It is further submitted that Shri Narayan Patodia vide his statement recorded on oath as well as vide an affidavit, explained the reasons for adverse findings in the commission and report of the Inspector along with documentary evidences and thereby, he, not only, Page 5 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 appeared before the then Assessing Officer but also confirmed the transaction and also explained the source thereof. 3.3 The learned senior advocate for the petitioner further submitted that the respondent has very conveniently ignored the vital facts as are recorded in the Assessment Order under section 143(3) of the Act for the Assessment Year 2016-17 that in the notice dated 19.12.2018, the fact as to production of Director of these companies is stated. Further, the documentary evidence with respect to the concerned companies were furnished by the petitioner; that Shri Narayan Patodia had appeared before the Assessing Officer and his statement was recorded; relevant extract of statement of Shri Narayan Patodia wherein, he had explained the adverse report of the Inspector; the petitioner produced the current Director of the investor company - Shri Narayan Patodia on 25.12.2018 and his statement was recorded and relevant extract of statement of Shri Narayan Patodia, wherein, he has explained the source of income. Thus, the crux of his submission is that the respondent has very conveniently picked up certain facts and ignored other and proceeded as if, with preconceived notion. 3.4 The learned senior advocate for the petitioner submitted that various incorrect facts were stated in the reasons for reopening the assessment and on the basis of such incorrect facts, the respondent was not justified in reopening the case of the petitioner. He submitted that the assessment order for the Assessment Year 2016-17 itself is a subject matter of challenge before the first appellate authority and hence, the findings of the then Assessing Officer in the assessment order for the said Assessment Year 2016-17 have not attained finality. In the Page 6 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 circumstances, the reopening is not justified in the eye of law. 3.5 The learned senior advocate for the petitioner further submitted that the reopening is based on mere change of opinion of the Assessing Officer inasmuch as notice under section 148 of the Act can be issued only if an Assessing Officer has reason to belief that any income chargeable to tax has escaped assessment and for such formation of belief, there should be some tangible material and act, which is lacking in the case on hand. He submitted that the case of the petitioner was selected for scrutiny assessment and the issue on hand was examined threadbare at original assessment and accordingly, merely because the Assessing Officer happens to change his opinion, action under section 147 of the Act cannot be taken. It is contended and argued by the learned senior advocate for the petitioner that the assessment for the year 2014-15 was found to be proper and the same was admitted by the Assessing Officer and therefore, if creditworthiness is found in the transactions and when the Assessing Officer had the knowledge that the share application money, received in the year under consideration, stood returned, the impugned reopening, in view of the decision of this Court Commissioner of Income-Tax, Rajkot-I v. Ayachi Chandrashekhar Narsangji, [2014] 42 Taxmann.Com 251 (Gujarat), is illegal and bad in law and it cannot be said that the petitioner has failed to disclose fully and truly all material facts relevant for the assessment. 3.6 Further, the learned senior advocate for the petitioner submitted that ‘share application money’ is a balance-sheet item, which cannot give rise to a presumption that any income chargeable to tax has escaped assessment and in the absence of Page 7 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 any income chargeable to tax having escaped assessment, the prerequisite for reopening is not satisfied. 3.7 It is further submitted that the sanction, which is required to be taken for issuance of notice under section 148 of the Act in terms of section 151 of the said Act, has not been obtained in the true and correct prospective inasmuch as, in case of reopening beyond a period of four years, it is mandatory on the part of the Assessing Officer to obtain sanction from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, and such a sanction should not be mechanical in nature and the Commissioner concerned must record his satisfaction in detail. However, in the present case, there appears no proper application of mind by the Commissioner concerned while sanctioning the issuance of notice under section 148 of the Act. 3.8 Making above submissions, it is urged by the learned senior advocate for the petitioner to allow the present petition and to quash and set aside the impugned notice. 4. Per contra, learned advocate Mr. Nikunt Raval for the respondent authority, while opposing the present petition, drew our attention to the reasons recorded for reopening of assessment dated 06.05.2019, and submitted that substantial receipt of share application money, to the tune of Rs.3,25,00,000/-, by the assessee company was found during the year under consideration. That, from the submissions made by the petitioner assessee during scrutiny proceedings under section 143(3) of the Act for the Assessment Year 2014-15, it is revealed that the assessee has received share application money from six Page 8 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 parties to the tune of Rs.3,25,00,000/-, as referred to therein. Further, inquiry was done by the respondent in the case of assessee i.e. the present petitioner itself during assessment proceedings completed for the Assessment Year 2016-17. The case of the petitioner was selected for complete scrutiny for Assessment Year 2016-17, which was completed with addition of Rs.13,70,99750/- under section 68 of the Act on account of unexplained cash credits received by way of share capital and premium from five parties, as referred to in the reasons recorded. It is submitted that out of five such parties, two parties, viz. at serial Nos. 4 – M/s. Axisline Marketing Pvt. Ltd. And 5 – M/s. Megacity Merchandise Pvt. Ltd., are the same investors from which, the assessee company has received share application money during the year under consideration. He submitted that, in order to ascertain identity of these investors, a commission under section 131(1)(d) was sent to Kolkata Investigation Wing and it was found that these investor companies were not found at its addresses. Further, the Inspector of this range was also deputed by the Assessing Officer to inquire about the existence of these investor companies, however, no company was found operating at their addresses. Thus, in two inquiries made by the respondent authority about existence of the investor companies, they were found non-existent. Further, on perusal of the financial credentials as well as the bank statements of these investors, it was established that they had no creditworthiness to invest such a huge amount in assessee company and the aforesaid two companies were proven to be the paper/shell companies and prima facie it establishes that these two companies are used by the petitioner company to channelize its unaccounted income in the garb of share application money. Page 9 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 4.1 Further, it is submitted that during the scrutiny proceedings for Assessment Year 2016-17, it was established that the investor companies, as mentioned in Table 2 in the reasons recorded, acted as mere conduits. These investors, in turn, received the money for investment from other companies, as referred in Table 3 in the reasons recorded, out of which, three companies were found to be same, who had invested in the assessee company during the Assessment Year 2014-15 and that, during the scrutiny proceedings, these companies too, were proven to be the shell companies. Further, another investor company namely M/s. Jineshwar Multitrade Pvt. Ltd., which had paid Rs.2,00,00,000/- towards share application in the assessee company during the year under consideration has been struck off by the Registrar of Companies (RoC). Thus, he submitted that the petitioner has used shell/paper companies to channelize his unaccounted income in the garb of share application money. From the material and investigation, it is amply clear that all the companies from whom share application money totalling to Rs.3,25,00,000/- was received are bogus concerns. 4.2 So far as the contention of the learned senior advocate for the petitioner with regard to return of share application money to the respective companies in the subsequent year is concerned, the learned advocate for the respondent submitted that section 68 of the Act, makes it manifestly clear that a cash credit in assessee’s books of account is not automatically explained if the amount is returned subsequently. It is submitted that Reversal of cash credit has no bearing on the onus of the petitioner – assessee under section 68 of the Act. 4.3 It is further submitted that there is no procedural lapse and/ Page 10 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 or deviation from procedure prescribed in reopening and the reasons recorded do not lack validity as all the procedures, laid down under the Act, have been duly followed and necessary approvals from the competent authority are received. 4.4 So far as the contention of the learned senior advocate for the petitioner to the effect that merely on the basis of change of opinion, assessment for the year under consideration is sought to be reopened, the learned advocate for the respondent submitted that the case of the petitioner is sought to be reopened on the basis of some tangible material available on record and all the relevant information available with the department at the time of recording the reasons for reopening have been duly discussed in the reasons. 4.5 Further, the contention of the learned senior advocate for the petitioner that the share application money being balance- sheet item, cannot give rise to a presumption that some income chargeable to tax has escaped assessment, it is submitted that the case was reopened on the fact established that the share application money is bogus in nature. It, therefore, falls under deeming provision of section 68 of the Act. 4.6 So far as the contention of the petitioner that the case is reopened beyond a period of four years from the end of the relevant assessment year is concerned, the learned advocate for the respondent submitted that all the requirements under section 147 of the Act to initiate the proceedings are fulfilled. Further, the case of the petitioner was reopened on account of information received from the Investigation Wing, Surat in case of Shri Shaileshkumar Rameshbhai Naika and from the information Page 11 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 disseminated by the Investigation Wing, Surat, it is evident that the assessee has failed to furnish fully and truly, all material facts before the Assessing Officer. 4.7 Making above submissions, it is urged that the Court may not interfere in the impugned notice and requested to dismiss the petition. 5. In rejoinder, the learned senior advocate for the petitioner submitted that notice under section 148 of the Act is ex facie bad, illegal and invalid and not tenable in the eye of law and the action of the respondent is violative of right of the petitioner. It is submitted that the respondent has not denied the fact that the share application money was returned and in the circumstance, no addition can be made under section 68 of the Act and the respondent has failed to appreciate the scheme of the Act in proper perspective. He further submitted that in absence of any income chargeable to tax, the very vital prerequisite for reopening is not satisfied and hence, reopening in the case of the petitioner is not justified. 6. No other and further submissions have been made by the either party. 7. Having regard to the submissions advanced by the learned advocates for the respective parties and having perused the material placed on record, it appears to us that the learned senior advocate for the petitioner has challenged the impugned notice mainly on the ground that when jurisdictional facts are not established, the department cannot assume the jurisdiction and reopen the assessment. The basis for such submission is that, Page 12 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 according to the learned senior advocate for the petitioner, the share application money in question was returned to the concerned parties in the subsequent year itself, which is evidence from the record. Further, he has submitted that the case of the petitioner was selected for scrutiny assessment and at the relevant time, the petitioner had disclosed fully and truly, all material facts, relevant for the assessment and hence, merely, on the basis of change of opinion, the impugned notice is issued. 7.1 At this juncture, it would be apt to refer to the observations made by us with regard to the scope and ambit of section 147 of the Act in paragraphs 7, 8, 9 and 10 of CAV Judgement dated 05.07.2021 rendered in Special Civil Application No. 19821 of 2019, which are as under: “7. At the outset, it may be noted that as per the settled legal position, two conditions have to be satisfied before the Assessing Officer invokes his jurisdiction to reopen the assessment under section 147 of the said Act after the expiry of four years from the end of the relevant assessment year – firstly, that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment for the concerned assessment year, and secondly, such escapement of assessment was by reason of failure on the part of the assessee to make the return under section 139, or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all the material facts necessary for his assessment for that assessment year. So far as the case of the present petitioner is concerned, the assessment for the A.Y. 2012-13 is sought to be reopened by the Assessing Officer under section 147/148 of the said Act, on his having arrived at a satisfaction that the income for the said assessment year had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. 8. It is pertinent to note that as held by the Supreme Court in catena of decisions, the formation of belief by the Assessing Officer at the stage of initiation of action under Page 13 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 section 147 of the Act is within the realm of subjective satisfaction. The Supreme Court in the case of Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500(SC), had an occasion to deal with the scope and effect of section 147 as substituted w.e.f. April 1st, 1989, in which the Court has observed as under : - “Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word “reason” in the phrase “reason to believe” would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is “reason to believe”, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal P. Ltd. [1996] 217 ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old Page 14 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147.” 9. In the case of Raymond Woollen Mills Ltd. Versus Income-Tax Officer and others reported in 1999 236 ITR 34(SC), the Supreme Court observed that the Court has only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. 10. It is very pertinent to note that in the case of Phool Chand Bajrang Lal versus Income-Tax Officer reported in 203 ITR 456 (SC), it was observed that the acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment, which went to expose the falsity of the statement made by the assessee at the time of original assessment was different from drawing fresh inference from the same facts and material which was available with the Income-Tax Officer at the time of the original assessment proceedings. Where the transaction itself on the basis of the subsequent information was found to be a Page 15 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 bogus transaction, the mere disclosure of that transaction at the time of original proceedings could not be said to be disclosure of the true and full facts, and the Officer would have the jurisdiction to reopen the concluded assessment in such a case. The precise observation made by the Supreme Court in the said case may be reproduced as under : - “In the present case as already noticed, the Income- Tax Officer, Azamgarh, subsequent to the completion of the original assessment proceedings, on making an enquiry from the jurisdictional Income-Tax Officer at Calcutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of Rs. 50,000/- in cash had not really lent any money but only its name to cover up a bogus transaction and, after recording his satisfaction as required by the provisions of section 147 of the Act, proposed to reopen the assessment proceedings. The present is thus not a case where the Income-Tax Officer sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta company and which he failed to draw at that time. 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 the original assessment is different from drawing fresh inference from the same facts and material which were available with the Income-Tax Officer at the time of the 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 Income-Tax Officer would have the jurisdiction to reopen the concluded assessment in such a case.” 7.2 Further, the term “reason to believe”, however, is not defined in the Act but it can be gathered and available from the Page 16 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 information, leading the Assessing Officer to reopen the assessment. The term itself is suggestive of its prima facie characteristics and not established or conclusive facts or information. Meaning thereby, it is the Assessing Officer’s prima facie belief, of course, derived from the some material / information, etc. leading him to reopen the assessment. 7.3 The ambit and import of the term “reason to believe” has been examined in numerous cases, notably in ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437: 1976 (3) SCC 757]. The Apex Court held that, “the reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment”. Page 17 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 8. In the aforesaid backdrop, if the facts of the case are adverted to, as referred to herein above, it is the case of the petitioner that the petitioner has returned the share application money in question in the subsequent year and that, there is no tangible material, even otherwise in the hands of the respondent to substantiate that the income chargeable to tax has escaped assessment qua the assessee. The department, in the affidavit- in-reply filed by it, however, has replied to the said queries which go to the root of the matter. It is averred that as per section 68 of the Act, where any sum is found credited in the books of any assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee. Thus, reversal of cash credit has no bearing on the onus under section 68, cast upon the petitioner and is immaterial as far as this section is concerned. Further, the Assessing Officer has observed while disposing of the objections raised by the petitioner that under the provisions of section 68 of the Act, whether a credit is reversed or not in the subsequent year, has no implication and the onus is cast on the assessee to explain the cash credit in his books. Further, a cash flow cited by the assessee is with regard to unsecured loan not with regard to share application money. On unsecured loan, the borrower has to pay the interest and the lender receives substantial income from the loan advanced, however, in the case of the assessee, the investor receives no return on his investment and the money given by the investor is just lying unproductively with the assessee. 8.1 The learned senior advocate for the petitioner has submitted that Shri Narayan Patodia, Director of the investor Page 18 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 companies, vide his statement recorded on oath as well as vide an affidavit, explained the reasons for adverse findings in the commission and report of the Inspector along with documentary evidence and thereby, he, not only, appeared before the then Assessing Officer but also confirmed the transaction and also explained the source thereof. However, from the record, it appears that the Assessing Officer has found such explanation unsatisfactory and therefore, it cannot be said that by submitting such explanation and evidence whatsoever, the onus under section 68 of the Act is discharged by the assessee – the petitioner. It is further coming on record that out of Rs.3,25,00,000/- of share application money received during the year, Rs.2,00,00,000/- is received from M/s. Jineshwar Multitrade Pvt. Ltd. and the said company is struck off by the RoC and the said investor was not subjected to inquiry during the Assessment Year 2016-17. Therefore, the Principal Officer of M/s. Jineshwar Multitrade Pvt. Ltd. has been produce before the Assessing Officer for examination in the assessee’s case. It has also come on record that during the scrutiny proceedings for Assessment Year 2016-17, it was established that the investor companies themselves acted as mere conduits. These investors, in turn, received the money for investment from the other companies and those companies were also proven to be the shell companies during scrutiny proceedings. 8.2 The learned senior advocate for the petitioner has submitted that the share application money stood verified and accepted in the scrutiny assessment proceeding carried out under section 143(3) of the Act and the petitioner had submitted all the details relevant for the assessment and thus, discharged the onus under section 68 of the Act, however, it appears that the Assessing Officer has found that the petitioner company has not Page 19 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 fully and truly disclosed all material facts necessary for assessment for the reason that the petitioner has concealed the fact that the investor companies are shell companies, to channelize the unaccounted funds into assessee company. It is further observed by the Assessing Officer that the assessee has misreported his unaccounted income as capital receipt in the form of share application money to avoid instance of tax. Therefore, there is clear failure on the part of the assessee to fully and truly disclose all the facts necessary for assessment proceeding under section 143(3) of the Act and that, there is no substance in the contention raised by the learned senior advocate for the petitioner with regard to the change of opinion by the Assessing Officer. 8.3 So far as the contention of the learned senior advocate for the petitioner that incorrect facts have been recorded in the reasons recorded, the Assessing Officer has commented that the identity of a company has to be seen in a holistic sense and mere existence of paper concern with Directors just for namesake, is not establishment of identity. The identity comprises of actual business of the investor and in the case on hand, Shri Narayan Patodia was unable to establish that he had carried out any actual business. Further, a perusal of the record reveals that the investor companies are found to be shell/paper companies. In this regard, the report of the Commission under section 131 of the Act sent to Kolkata as well as physical entry done by the Inspector of this Range established that at the registered address of the company, no business was being carried out and in fact, the address of the company was a residential premises, which fact gets substantiated from a copy of photograph produced at page 62 of the petition. Page 20 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 8.4 Thus, considering the aforesaid facts and circumstances of the case, we are of the considered view that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment because such exercise of reopening has been made only after due inquiries and recording of statements of concerned persons, as referred to herein above, and on having found prima facie material, impugned notice is issued to the petitioner. 8.5 In Peass Industrial Engineers (P.) Ltd. v. Deputy Commissioner of Income Tax, [2016] 76 Taxmann.com 106 (Gujarat), this Court has observed as under: “9. On the basis of aforesaid proposition laid by series of decisions, we are of the opinion that when the Authority is armed with the tangible material in the form of specific information received by the Investigation Wing, Ahmedabad is throughly justified in issuing a notice for reassessment. It is revealed from the said additional material available on hand a reasonable belief is formed by the Assessing Authority that income of the petitioner has escaped assessment and therefore, once the reasonable belief is formulated by the Authority on the basis of cogent tangible material, the Authority is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion, we are of the opinion that function of the assessing authority at this stage is to administer the statute and what is required at this stage is a reason to believe and not establish fact of escapement of income and therefore, looking to the scope of Section 147 as also Sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen assessment. From the reasons which are recorded, it clearly emerges that the petitioner is the beneficiary of those entries by Kayan brothers, who are well known entry operators across the country and this fact has been Page 21 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 unearthed on account of the information received by DGIT Investigation Branch and therefore, it cannot be said in any way that even if four years have been passed, it is not open for the Authority to reopen the assessment. In the present case, there was independent application of mind on behalf of the assessing authority in arriving at the conclusion that income had escaped assessment and therefore, the contentions raised by the petitioner are devoid of merits. Dealing with the contentions of the petitioner that the information received from DGIT, Investigation Branch, Ahmedabad, can never be said to be additional information. We are of the opinion that the information which has been received is on 26.3.2015 from the DGIT, Investigation Branch, Ahmedabad, whereby it has been revealed that present petitioner is also the beneficiaries of those Kayan brothers, who are in the activity of entry operation throughout the country and therefore, it cannot be said that this is not justifiable material to form a reason to belief by the Authority and therefore, this being a case, the Authority is justified in issuing notice under Section 148 of the Act to reopen the assessment and therefore, the challenge contained in the petition being devoid of merits, same deserves to be dismissed. As we found that for the exercise of power of reopening of assessment after a period of 4 years, a proper procedure is observed by the Authority, specific approval has been obtained from the competent Authority and upon perusal of original file, we have satisfied ourselves that the approval has been accorded in a proper manner by the competent Authority and since the notice is issued based upon substantial compliance of statutory provision, the Authority has acted well within the bounds of his powers and the Authority has issued notice. We found that the order which has been passed of rejecting the objections raised by the petitioner is also a well reasoned order passed after due exercise of jurisdiction and therefore, same is not, therefore, required to be interfered with.” 8.6 Thus, the function of the assessing authority at this stage is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking to the scope of Section 147 as also sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of Page 22 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen the assessment. 8.7 Further, in the decision in Aaspas Multimedia Ltd. v. Deputy Commissioner of Income Tax, Circle 1(1), [2017] 83 Taxmann.com 82 (Gujarat), it is observed as under: “…In the present case the reassessment proceedings have been initiated by the Assessing Officer on the basis of material provided by the Principal Director (Investigation). It is also required to be noted that the genuineness of the various companies who made share applications are doubted. The assessee is alleged to have been engaged in bogus share applications from various bogus concerns operated by PKJ. The assessee is the beneficiary of the said transactions of share application by those bogus concerns. In the wake of information received by the Assessing Officer, when the Assessing Officer formed a belief that the investment made from the funding of such companies which are bogus, the Assessing Officer has rightly assumed jurisdiction of initiating the reassessment proceedings. The Assessing Officer, on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier. In the present case, since both the necessary conditions to reopen the assessment have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. Information furnished at the time of original assessment, when by subsequent information received from the Principal Director (Investigation), itself found to be controverted, the objection to the notice of reassessment under section 147 must fail.” 8.8 In the case on hand also, the Assessing Officer has reason to believe that the investor companies are not in existence and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Kolkata and report thereof. The reasons for the formation of the belief by the Page 23 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 Assessing Officer in the instant case, appear to have a rational connection with or relevant bearing on the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. Accordingly, no interference is called for at the hands of this Court in this petition under Article 226 of the Constitution of India. 8.9 We may reiterate the observation made by the Apex Court in Raymond Woollen Mills Ltd. (supra) that, at the time of recording the reason for satisfaction of AO, there should be prima facie some material on the basis of which, the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. It will be open to the assessee to prove that the assumption of fact made in the notice was erroneous at the time of assessment proceedings. 8.10 The learned senior advocate for the petitioner has relied upon the decision in Ayachi Chandrashekhar Narsangji (supra). Worthwhile it to be noted that the said decision is rendered by this Court in the Tax Appeal in which, the Court did not find any substantial question of law for the reason that department had accepted the repayment of loan in the immediate next financial year by the assessee without probing into it, whereas, in the instant case, firstly, the department has observed that a cash flow cited by the assessee is with regard to unsecured loan, not with regard to share application money. On unsecured loan, the borrower has to pay the interest and the lender receives substantial income from the loan advanced, however, in the case of the assessee, the investor receives no return on his investment and the money given by the investor is Page 24 of 25 C/SCA/22654/2019 CAV JUDGMENT DATED: 06/08/2021 just lying unproductively with the assessee. Further, during subsequent investigation, the investor companies found to be the shell/paper companies. Accordingly, in the said facts and circumstances of the case on hand, the decision relied upon by the learned senior advocate for the petitioner would be of no help to petitioner. 9. In the backdrop as aforesaid, present petition fails and is dismissed accordingly. Notice is discharged. Ad-interim relief is vacated forthwith. No order as to costs. [ Bela M. Trivedi, J. ] [ A. C. Joshi, J. ] hiren Page 25 of 25 "