LALITKUMAR BABUBHAI PATEL V. DY. CIT, CIRCLE 4(2) OR HIS SUCCESSOR

SCA/14103/2018

AI Insights

The case involves Lalitkumar Babubhai Patel, the petitioner, who challenged a notice issued by the Deputy Commissioner of Income Tax, Circle 4(2), for reopening his income tax assessment for the year 2011-2012. The original assessment was completed under Section 143(3) of the Income-tax Act, 1961, where the income was declared and assessed. However, new information suggested that transactions involving shares of M/s. VAS Infrastructure Limited, a penny stock, were used to facilitate the introduction of unaccounted income. The Assessing Officer believed that these transactions led to income that had escaped assessment and issued a notice for reopening the assessment under Section 147 of the Income Tax Act, 1961. The petitioner contested the reopening, arguing that there was no failure to disclose material facts and that the transactions were legitimate. The court, however, upheld the reopening, citing the suspicious nature of the stock transactions and the subsequent information received about the penny stock's use in tax evasion.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 761481 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 17-09-2018
• Assessment Year: misc
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: S N DIVATIA
• Keywords: Accommodation entry; Income Escapement; Penny stock; Reopening of assessment; Unaccounted income
• Section: 147; 143(3)

Judgement Text

"C/SCA/14103/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION No. 14103 of 2018 ============================================================= LALITKUMAR BABUBHAI PATEL Versus DY. CIT, CIRCLE 4(2) OR HIS SUCCESSOR ============================================================= Appearance : MR SN DIVATIA, Advocate for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA 17th September 2018 ORAL ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) Petitioner has challenged a notice of reopening of his assessment for AY 2011-2012. The petitioner had filed return of income for the said year on 1st October 2011, declaring total income at Rs. 51.80 lakhs [rounded off]. Such return was scrutinized by the Assessing Officer. He passed an order of assessment under Section 143 [3] of the Income-tax Act, 1961 [“the Act” for short] on 10th March 2014 assessing total income at Rs. 57.89 lakhs [rounded off]. To reopen such assessment, impugned notice has been issued, which as can be seen from the record, was done beyond the period of four years Page 1 of 7 C/SCA/14103/2018 ORDER from the end of relevant assessment year. In order to issue such notice, he had recorded the following reasons : “Reasons for the belief that the income has escaped assessment for reopening the case u/s. 147 of the Income Tax Act, 1961. In this case, the assessee has filed return on 01.10.2011 declaring total income at Rs. 51,88,324/- for the A.Y. 2011-12. 2. Subsequently, on the basis of information received from the DDIT (Inv.), Unit-6(2), Mumbai vide letter No. DDIT (Inv.) 6 (2)/Information/Vas/ 2017-18 dated 23.03.2018 (information received through mail on 27.03.2018), it is found that M/s. VAS infrastructure Ltd is a penny stock listed on BSE and trading in this script is highly suspicious and the company has been used to facilitate introduction of unaccounted income of members of beneficial in the form of exempt capital gain or short term capital gain or short term capital loss in their books of accounts. The financials of the company for the relevant period do not show any substantial change so as to support such as huge share price movement. The sharp rise in the market price of this entity is not supported by financial fundamentals of the company. Both purchase and sale of the shares are concentrated within few persons/entities. The assessee is one of the beneficiary who have traded in this scrip during F.Y. 2010-i.e. A.Y. 2011-12 for total traded value of Rs. 24,60,983/- (Rs. 14,65,223/- + Rs. 9,95,760/-). The details of the same are as under: Details of the purchase of shares: SCRIP CODE SCRIP NAME TRADE DATE QTY RATE TRADE VALUE MEMBER NAME CLIENT NAME PAN NO 531574 VAS INFRA 10/11/10 220 92 20240 FCH Centrum Wealth Managers Limited LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 50 91.95 4597.5 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 50 91.7 4585 - do - LALITBHAI BABUBHAI ACTPP0 291P Page 2 of 7 C/SCA/14103/2018 ORDER PATEL 531574 VAS INFRA 10/11/10 100 91.65 9165 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 100 91.65 9165 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 40 91.65 3666 -do- LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 60 91.65 5499 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 100 91.6 9160 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 1 91.55 91.55 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 1 91.55 91.55 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 1 91.55 91.55 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 150 91.55 13732.5 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 47 91.55 4302.85 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 100 91.55 9155 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/11/10 100 91.55 9155 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/13/10 280 87.9 24612 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/13/10 36 87.9 3164.4 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/13/10 10 87.8 878 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/13/10 10 87.7 877 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10/13/10 164 87.6 14366.4 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10.28.10 684 89.1 60944.4 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P Page 3 of 7 C/SCA/14103/2018 ORDER 531574 VAS INFRA 10.28.10 187 89 16643 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10.28.10 247 89 21983 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10.28.10 300 89 26700 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10.28.10 100 88.5 8850 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 10.28.10 2782 88.5 246207 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 12.30.10 6134 91 558194 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 12.30.10 100 91 9100 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 12.30.10 4000 91 364000 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 12.30.10 2 91 182 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P 531574 VAS INFRA 12.30.10 64 91 5824 - do - LALITBHAI BABUBHAI PATEL ACTPP0 291P TOTAL 1465222.7 Details of sale of shares: SCRIP CODE SCRIP NAME TRADE DATE QTY RATE TRADE VALUE MEMBER NAME CLIENT NAME PAN NO 531574 VAS INFRA 11/10/10 1000 169 169000 FCH Centrum Wealth Managers Limited LALITBHAI BABUBHAI PATEL ACTPP02 91P 531574 VAS INFRA 11/10/10 200 169 33800 - do - LALITBHAI BABUBHAI PATEL ACTPP02 91P 531574 VAS INFRA 11/10/10 4720 168 792960 - do - LALITBHAI BABUBHAI PATEL ACTPP02 91P TOTAL 995760 2. On analysis of the trade data of M/s. VAS Infrastructure Limited, it is found that the assessee is one of the beneficiaries Page 4 of 7 C/SCA/14103/2018 ORDER who have traded in this scrip for a total trade value of RS. 24,60,983/= during FY 2010-11. The said scrip is listed as penny stock by the BSE. Therefore, it is clear that the assessee has taken accommodation entry just to evade the tax and also to avoid legitimate payment of tax. This leads to the belief that the income chargeable to tax has escaped assessment to the extent of RS. 24,60,983/=. Therefore, there is under assessment of Rs. 24,60,983/= in the case of the assessee. 3. In view of the above facts, I have reasons to believe that in this case income of RS. 24,60,983/- through accommodation entyr and traded in M/s. VAS Infrastructure Limited scrip has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 and assessee failed to disclose fully and truly all materials facts necessary for the assessment for the year under consideration. Therefore, I am satisfied that the income of Rs. 24,60,983/= which is chargeable to tax has escaped assessment and this is a fit case for the proceedings u/s. 147 of the Income Tax Act, 1961.” From the reasons thus recorded, it could be seen that according to the Assessing Officer, the assessee had purchased and sold shares of one M/s. VAS Infrastructure Limited during the year under consideration. Subsequently, information was received from the Investigating Wing of the Department under communication dated 23rd March 2018 that the said VAS Infrastructure Limited is a penny stock listed on Bombay Stock Exchange and trading in this scrip is highly suspicious and Page 5 of 7 C/SCA/14103/2018 ORDER that the Company use to facilitate introduction of unaccounted income of members of beneficial group in the form of exempt capital gain or short term capital gain, or short term capital loss in their books of accounts. It was noticed that the financials of the company do not show any substantial change so as to support large scale share price fluctuation. It was noticed that the assessee was one of the beneficiary of the said design. The Assessing Officer, therefore, formed a belief that the assessee had taken accommodation entry to evade tax and also to avoid legitimate payment of tax. He, therefore, tentatively computed such a sum to Rs. 24.60 lakhs [rounded off], as having escaped assessment in the hands of the assessee. Learned counsel for the petitioner submitted that the original assessment was framed after scrutiny. There was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. The notice for reopening of the assessment was therefore no justified. He further submitted that the total value of purchase and sale of shares by the assessee to arrive at a figure, which according to him had escaped assessment to tax, is wholly incorrect exercise. He lastly contended that the assessee had offered both Page 6 of 7 C/SCA/14103/2018 ORDER purchase and sale of shares to tax. There is thus no escapement of income. In the facts of the present case, we are not inclined to interfere. According to Assessing Officer, VAS Infrastructure Limited is a shell company and the purchase and sale of shares in such company by investors was only for the purpose of showing profit or loss, which had actually not occurred. There was prima facie information at the command of the Assessing Officer that the fluctuation in share price was not justified. All these materials were brought to his notice long after the assessment was over. The assessee, therefore, cannot take shelter of having made full and true disclosure. Further, to what exact income had escaped assessment may be open for argument, nevertheless, would not be a ground to quash the notice of reopening. To what extent; if at all the assessee’s income escaped assessment could be, in the present case, ascertained at the time of re-assessment. In the result, petition is dismissed. [Akil Kureshi, J.] [B.N Karia, J.] Prakash Page 7 of 7 "