Lodestone Software Services Private Limited V. Union of India

SCA/19843/2021

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Lodestone Software Services Private Limited, engaged in testing web and mobile software products, challenged a notice issued by the Union of India under Section 148 of the Income Tax Act, which sought to re-open the assessment for the year 2016-17. The notice alleged that the company received fictitious accommodation entries amounting to Rs.1,48,79,256, which constituted income that had escaped assessment. The petitioner denied involvement in any tax evasion and requested detailed evidence to substantiate the claims. After the petitioner did not press the matter during the hearing, the court decided not to delve into the merits of the case and disposed of the petition.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 802296 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 24-12-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M R BHATT
• Assessee Lawyers: SANGITA PAHWA
• Keywords: Re-opening of assessment; Tax Evasion; Fictitious accommodation entry; Inward remittance; Systematic business of tax evasion
• Section: 147; 148; 143(2)

Judgement Text

"C/SCA/19843/2021 ORDER DATED: 24/12/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19843 of 2021 ========================================================== LODESTONE SOFTWARE SERVICES PRIVATE LIMITED Versus UNION OF INDIA ========================================================== Appearance: MS SANGITA PAHWA FOR THAKKAR AND PAHWA ADVOCATES(1357) for the Petitioner(s) No. 1 for the Respondent(s) No. 2,3 DS AFF.NOT FILED (N)(11) for the Respondent(s) No. 1 MR MR BHATT, SR. ADVOCATE ON ADVANCE COPY for Respondent(s) No.2 ========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 24/12/2021 ORAL ORDER (PER : HONOURABLE MS. JUSTICE SONIA GOKANI) 1. The petitioner company is engaged in the business of testing web and mobile software products including providing quality assurance services to data intensive artificial intelligence and machine learning products, software and hardware products. 2. Respondent no.2 issued notice dated 30.03.2021 under Section 148 of the Income Tax Act seeking to re-open the assessment for the assessment year 2016-17 averring that the income has escaped the assessment and this is the question challenged before this Court by the petitioner. 3. The petitioner has made following prayers: “10(A) YOUR LORDSHIPS may be pleased to issue appropriate writ, order or direction, for quashing and setting aside the notice dated Page 1 of 4 C/SCA/19843/2021 ORDER DATED: 24/12/2021 30.03.2021 issued by the Respondent No.2u/s. 148 of the act (Annexure- A), the order dated 15.12.2021 made by respondent no.3 rejecting the objections filed by the petitioner against re-opening of assessment (Annexure-B) and the notice dated 15.12.2021 issued by the Respondent No.3 (Annexure-C) as being illegal, arbitrary, contrary to provisions of Sec. 147 & 148 of the Act, in breach of principles of natural justice and also violative of Art. 14 and 19(1)(g) of the Constitution of India; 10(B) YOUR LORDSHIPS may be pleased to stay the implementation, operation and execution of notice dated 30.3.2021 (Annexure-A) issued by respondent no.2, the order dated 15.12.2021 (Annexure-B) made by respondent no.3 as well as the notice dated 15.12.2021 (Anneuxre-C) issued by respondent no.3, pending the admission, hearing and final disposal of this petition; 10(C) YOUR LORDSHIPS be pleased to grant such other and further reliefs as may be deemed fit by this Hon’ble Court, in the interest of justice;” 4. The petitioner has sought for the reasons recorded for reopening the assessment which has been furnished on 17/05/2021. The reasons recorded are as follows: “As per the information received from the credible sources clearly reveal that the assessee has received fictitious accommodation entry through the J&K Bank as inward remittance of Rs.1,48,79,256/-. There are many evidences were which prove that the transactions with various entities were used just for the sake of accommodation entry, profits/loss in Equity/ Derivaties trading for/to the different beneficiaries. Thus, in view of plethora of evidences in the form of seized evidences and also admission of various persons of their involvement in providing Bogus accommodation entries/ fictitious profits/loss in commodities to pass on required benefits to various beneficiaries, it became clear that there was organized systematic business of tax evasion involving beneficiaries and passing through entities for accommodation entries/fictitious profits/loss in Equity/Derivaties trading on BSE. On perusal of information so received, it is noticed that the assessee is one of the beneficiaries who has obtained fictitious accommodation entries and has received inward remittance of Rs.1,48,79,256/-. Failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment, the income of the assessee has escaped assessment to the tune of Rs.1,48,79,256/- for the AY 2016- 17 within the meaning of Section 147 of the Income-tax Act, 1961. 3. In view of the above, you may submit your response with supporting documents (if any) on the above mentioned issues to undersigned electronically in ‘E-proceedings’ facility through your account in e-Filling website (www.incometaxindicafiling.gove.in) at your convenience on or before 01/06/2021.” 5. The petitioner has chosen to reply to the said under Section 143(2) read with Section 147 of the Income Tax Act. Page 2 of 4 C/SCA/19843/2021 ORDER DATED: 24/12/2021 It is also strongly objected stating that the information received from some sources to allege that we have received entries through the J & K Bank as inward remittance of Rs.1,48,79,256/- from various entities. They are merely accommodation entries. According to the petitioner, they completely denied that they are part of any systematic business of tax evasion and and are beneficiaries of any fictitious accommodation entries or have received the inward remittances of Rs.1,48,79,256/-. It is further requested to provide the details/descriptions/ documents in support of such transaction as stated in the reasons recorded, relevant extracts of Relied Upon Documents (RUD) pertaining to our company, the statements of the persons who admitted to have been involved in alleged transactions and to give an opportunity of cross examination. It is further averred that without the adequate details, they will not be in a position to file the replies or objections effectively. The company receives foreign remittance against against the services provided by it to its customers. On receipt of remittances, they are either parked in the Earners Foreign Currency (EFC) Account or it is credited tot he current account. On receipt of the remittances the Bank generates the bank remittance date (Bill IDs). The company on periodic basis transfers the funds parked in the EFC account to its current account. At this juncture, no inward remittance (Bank ID) is generated since it is only transfer of balance from one account into another. The bank certificate issued by Jammu & Kashmir Bank itself for Inward remittances received during the period for the financial year 2015-1016 and 2016-2017 also. 6. After receipt of such objections, the petitioner has Page 3 of 4 C/SCA/19843/2021 ORDER DATED: 24/12/2021 chosen to dispose of the objections raised on issuance of notice on 15/12/2021 and thus aggrieved by the same, the petitioner challenged the same raising aforementioned prayers. 7. We have heard learned advocate Ms.Sangita Phawa appearing for the petitioner. We have also sought assistance of learned Senior Advocate Mr. M. R. Bhatt in relation to the reasons provided and dispose of who has also in his extensive submissions assisted the Court. 8. Ms. Pahwa, learned advocate for the petitioner does not press this matter. 9. The Court has chosen not to enter into the merits of the matter. None of the observations made in the present order shall come in way of the assessee to pursue the matter. 10. Present petition stand disposed of accordingly as not pressed. (SONIA GOKANI, J) (NISHA M. THAKORE,J) ila Page 4 of 4 "