AI Insights
The case revolves around the reopening of an income tax assessment for M/S. M. R. Shah Logistics Private Limited by the Deputy Commissioner of Income-Tax, which was challenged in the High Court of Gujarat. The Assessing Officer issued a notice based on a search and subsequent declarations under the Income Declaration Scheme 2016 by Garg Logistics Pvt Ltd, which allegedly involved undisclosed income and accommodation entries. The petitioner contested the reopening, arguing that the income was already declared and taxed under the scheme, and that the reopening was based on unfounded assumptions. The court examined the validity of the reasons provided for reopening the assessment and found them insufficient to justify the action taken by the Assessing Officer.
Appeal Details
Counselvise Citation
[2018] 140 COUNSELVISE.COM (IT) 738151 (HC-GUJARAT)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Others
Pronouncement Date
14-08-2018
Assessment Year
misc
Judgement Text
"C/SCA/21028/2017 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21028 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== M/S. M. R. SHAH LOGISTRICS PRIVATE LIMITED Versus DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-1(2) ========================================================== Appearance: MR RK PATEL WITH MR DARSHAN R PATEL(8486) for the PETITIONER(s) No. 1 MR MANISH BHATT, SENIOR COUNSEL WITH 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 : 14/08/2018 ORAL JUDGMENT Page 1 of 14 C/SCA/21028/2017 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 31.3.2017 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2010 2011. 2. Brief facts are as under. The petitioner is a private limited company. The petitioner had filed return of income for the assessment year 20102011 on 25.9.2010. Such return was accepted under section 143(1) of the Income Tax Act, 1961 (“the Act” for short) without scrutiny. On 31.3.2017, the respondent Assessing Officer issued the impugned notice seeking to reopen the assessment. Upon being asked, he also supplied the reasons recorded by him for issuing such notice to the petitioner. Armed with the reasons, the petitioner raised objections to the notice of reopening under letter dated 29.8.2017. Such objections were rejected by the Assessing Officer by an order dated 30.10.2017, whereupon this petition came to be filed. 3. Reasons recorded by the Assessing Officer are rather long. We may therefore, record the gist of such reasons. In such reasons, the Assessing Officer records that a search under section 132 of the Act was conducted on the petitioner and its group companies on 20.9.2016. During such search, one Pravin Chandra Agrawal, chairman of group companies was asked about the share application money received by the assessee company. In his statement dated 18.11.2016, he had stated that one Garg Logistics Pvt Ltd. had disclosed an undisclosed cash amount of Rs.6.36 crores which was utilised for investment in share capital of Page 2 of 14 C/SCA/21028/2017 JUDGMENT the assessee company through various companies. This amount also included commission. He had also produced declaration filed by Garg Logistics Pvt Ltd. under section 183 of the Finance Act 2016, under the Income Declaration Scheme 2016 (“the scheme” for short). In the reasons, the Assessing Officer reproduced the entire declaration made by Garg Logistics Pvt Ltd. under the scheme which showed share investments of a total of Rs. 6.25 crores in the assessee company through different companies. A further sum of Rs. 11 lacs was showed as commission paid, thus coming to a total disclosure of Rs. 6.36 crores. The Assessing Officer then goes on to compare the statement of Garg Logistics Pvt Ltd. and the accounts of the assessee company and detects minor discrepancies. In the reasons, the Assessing Officer thereafter, proceeds to refer to case of one Pradeep Birewar group who was subjected to search action, during which, large scale diversion of funds through shell companies in close association of one Shirish Chandrakant Shah, referred to as SCS was unearthed. The trail of such investments was traced to the assessee company. On this basis, the Assessing Officer indicated that the assessee company had been introducing its unaccounted income through accommodation entries. With this background, the Assessing Officer records as under : “2.2 It is also noticed that assessee company had received credit amount in its books but has failed to establish that the cash declared by Gard Logistics Pvt. Ltd. under income Page 3 of 14 C/SCA/21028/2017 JUDGMENT Declaration Scheme was not actually the cash of the assesseecompany. Assessee had only submitted income Declaration Form No.2 of Garg Logistics Pvt Ltd and failed to provide documentary evidence of investment of cash declared by Garg Logistics Pvt Ltd in the assessee company. Even the list submitted by assessee had discrepancies with data submitted to registrar of companies as discussed in above para. In other words, the assessee has not been able to establish that the income admitted under IDS 2016 by Garg Logistics Pvt. Ltd went in the books of investor companies. It is worth to highlight that investor companies are independent paper companies and they have provided entries independently and not through Garg Logistics Pvt. Ltd. 2.3 Thus the claim of the assessee company that cash declared by Garg Logistics was utilized to make investment in assessee company through paper companies remains unexplained....” The Assessing Officer then referred to commission of Rs. 11 lacs alleging that same was paid for obtaining accommodation entries. This was the expenditure of the assessee company which was unaccounted. On such basis, he concluded as under : “5. Considering above facts, I have reason to believe that total income to the extent of Rs.6,36,00,000/ had escaped assessment as per provision of section 147 of the IT Act. I am also satisfied that the failure is on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the assessment year 201011. Hence it is a fit case to issue notice u/s 148 of the Act for the assessment year 201011.” 4. Learned counsel Shri Patel for the petitioner drew our attention to the declaration made by Garg Logistics Pvt Ltd. under the scheme where he had made total declaration of Rs.6.36 crores for the year under consideration, further Page 4 of 14 C/SCA/21028/2017 JUDGMENT declaring that undisclosed cash was utilised for investment in share capital of M R Shah Logistics Pvt Ltd. through various companies including commission. He pointed out that this declaration was accepted by the Principal Commissioner of Incometax. Pursuant to such acceptance, entire tax with surcharge and penalty was deposited by Garg Logistics Pvt Ltd. in three installments. Sum of Rs. 1.62 crores was deposited on 24.11.2016, second installment of Rs.1.62 crores was deposited on 28.3.2017 and the last installment of Rs.3.24 crores was deposited on 24.8.2017. He clarified that the entire payment was not for this particular declaration alone but for declarations which were spread over three different assessment years. 5. Based on such facts, learned counsel for the petitioner raised the following contentions : 1) The Assessing Officer had no reason to believe that the income chargeable to tax had escaped assessment. Reasons recorded by him nowhere disclosed any foundation for such a belief. 2) The amount in question was the income disclosed by Garg Logistics Pvt Ltd under the scheme. Such declaration was accepted by the department, pursuant to which, Garg Logistics Pvt Ltd had also paid full tax with penalty as provided under the scheme. Any attempt on part of the Assessing Officer to assess such amount in the hands of the assessee would amount to double taxation. Page 5 of 14 C/SCA/21028/2017 JUDGMENT 3) The Assessing Officer has placed reliance on declaration made by Garg Logistics Pvt Ltd. which is wholly impermissible as per the scheme. 6. On the other hand, learned counsel Shri Manish Bhatt for the department resisted the petition making the following submissions : 1) Merely because Garg Logistics Pvt Ltd. has declared the same income and such declaration is accepted, would not preclude the Assessing Officer from reopening the assessment of the petitioner, if there is reason to believe that income actually belonged to the petitioner company. 2) The Assessing Officer had traced the history of the petitioner company, its close association with Pradeep Birewar group and transactions of routing its own income in shares of bogus share capital and in that light of the matter, formed a belief that amount of Rs. 6.36 crores is also undisclosed income of the petitioner company. 3) Assessment was framed under section 143(1) of the Act and the Assessing Officer therefore, would have much greater latitude in reopening such assessment. 4) At any rate, commission of Rs. 11 lacs paid to Garg Logistics Pvt Ltd. is undisclosed expenditure of the assessee from its undisclosed income. 7. We are conscious that the return filed by the assessee was accepted without scrutiny and that therefore, the principle Page 6 of 14 C/SCA/21028/2017 JUDGMENT of change of opinion preventing the Assessing Officer from reopening the assessment would have no applicability. Nevertheless, this Court has recognised in series of judgments that even in such a case, the requirement that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment would apply. In this context, we would have to appreciate the reasons recorded by the Assessing Officer. Reference in this respect may be made to a decision of this Court in case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of Incometax reported in (2013) 356 ITR 481 (Guj) in which following observations were made : “13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, reassess the income or recompute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. xxxx 16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as Page 7 of 14 C/SCA/21028/2017 JUDGMENT held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.” 8. We may recall the Assessing Officer received information of share investment of Rs. 6.25 crores by Garg Logistics Pvt Ltd. which was made in the name of different companies but was owned up by Garg Logistics Pvt Ltd. under the declaration made under the scheme. The Assessing Officer also referred to the socalled track record of the company of having in the past indulged in routing its own income through share application money. Insofar as present case is concerned, however, the Assessing Officer had no information at his command to come to the conclusion that the investment owned up and declared by Garg Logistics Pvt Ltd. was not from the funds of the said declarant but was in fact, the unaccounted income of the assessee company. We have gone through the reasons again and again but do not find any link, howsoever weak, to connect the source of such money to the assessee company. In fact, the Assessing Officer has after giving the background history of the assessee company and the declaration made by Garg Logistics Pvt Ltd., shifted the burden on the assessee company to establish that such share application money was not its unaccounted income. This important part of the reasons, we have reproduced verbatim. He had stated that the assessee company had received credit amount in its books but failed to establish that cash declared by Garg Logistics Pvt Ltd. under the Income Declaration Scheme was not actually the cash of the assessee company. The company failed to provide Page 8 of 14 C/SCA/21028/2017 JUDGMENT documentary evidence of investment of cash declared by Garg Logistics Pvt Ltd.. To put it mildly, this is a strange logic. The Assessing Officer casts burden on the assessee company to establish that the declaration made by Garg Logistics Pvt Ltd. was correct and to prove in negative that money was not the company's unaccounted income. He further expects the assessee company to establish source of such amount in the hands of Garg Logistics Pvt Ltd.. On such foundation, the Assessing Officer concludes that credit received by the company as share premium and share capital is not genuine but mere accommodation entry in order to avoid tax and it is in fact, undisclosed income of the company itself. Quite apart from impermissiblity of casting such burden on the assessee, we wonder at which stage would the assessee discharge such burden. Return was accepted without scrutiny. Before issuing impugned notice, no information was called from the assessee by the Assessing Officer. 9. The reasons so recorded simply lack validity. We are conscious that it is well settled by series of judgments of the Supreme Court that in the context of the reasons recorded by the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, it is not necessary for him to demonstrate conclusively that the addition will invariably be made or sustained. As long as belief is formed bona fide on the basis of tangible materials on record, the Court would not examine the sufficiency of such reasons. Reference in this respect can be made to the decision in case of Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) Page 9 of 14 C/SCA/21028/2017 JUDGMENT 291 ITR 500(SC). However, in the present case, we see no reasons at all. The conclusions are based on surmises and conjectures which are not permissible in law and not backed by any material on record. This is so for an amount of Rs. 6.25 crores of share capital investment. 10. Insofar as sum of Rs. 11 lacs is concerned, we may recall, this was the commission received by Garg Logistics Pvt Ltd. as per the declaration made under the scheme. The Assessing Officer believed that this commission was paid by the assessee company and since this payment is undisclosed, he treats it as unaccounted expenditure of the assessee. There are multiple flaws to this logic. Firstly, this figure of Rs. 11 lacs is found in the declaration made by Garg Logistics Pvt Ltd. under the scheme. We have serious doubt whether any such statement could be utilised for the purpose of reopening the petitioner's assessment. That apart, even in such declaration, we do not find any averment that the commission of Rs. 11 lacs was paid by the petitioner company to Garg Logistics Pvt Ltd.. Shri Manish Bhatt however, submitted that when the accommodation entries are provided for the benefit of the company, it is logical that payment would also have come from the coffers of the company. There is however a fallacy in this logic. Firstly, the Assessing Officer has not so stated in the reasons recorded. Secondly, when we find that he had no tangible material to form a belief that investment of Rs. 6.25 crores in the share capital of the company was from the company's own undisclosed income, the question of receipt of Rs. 11 lacs of commission by Garg Logistics Pvt Ltd. from the petitioner company would not arise. Page 10 of 14 C/SCA/21028/2017 JUDGMENT 11. We have also perused the scheme. Section 183 of the Finance Act, 2016 (“the Act of 2016” for short) pertains to declaration of undisclosed income. Subsection(1) of section 183 envisages declaration to be made by any person within specified time, of any income chargeable to tax for which he had failed to furnish return or he had failed to disclose any return filed or which had escaped assessment by reason of his omission or failure to fully and truly disclose all material facts. Section 184 of the Act of 2016 is a charging provision providing for basic tax rate at the rate of thirty per cent and surcharge at the prescribed rate on the income so disclosed. Section 185 provides that notwithstanding anything contained in the Income Tax Act, the person making a declaration of undisclosed income would be liable to pay penalty at the rate of twentyfive per cent of such tax in addition to tax and surcharge. Section 186 prescribes the manner of declaration. Section 188 provides that amount of undisclosed income declared in accordance with section 183 shall not be included in the total income of the declarant for any assessment year under the Income Tax Act, if the declarant makes the payment of tax and surcharge referred to in section 184 and the penalty under section 185 by the specified date. Section 190 of the Act of 2016 provides that the provisions of the Benami Transactions (Prohibition) Act, 1988 shall not apply in respect of declaration of undisclosed income made in the form of investment in any asset, if the asset existing in the name of benamidar is transferred to the declarant within the prescribed period. Section 197 of the Act of 2016 is a clarificatory provision and interalia Page 11 of 14 C/SCA/21028/2017 JUDGMENT provides for removal of doubt. It is declared that where any declaration has been made under section 183 but no tax, surcharge or penalty has been paid within the prescribed time, the undisclosed income shall be chargeable to tax under the IncomeTax Act in the previous year in which such declaration is made. 12. The Scheme thus makes detailed provisions for declaration of income which hitherto was either undisclosed or not charged to tax. Upon such declaration being accepted, declarant would pay tax at the prescribed rate with surcharge and penalty. Upon such amounts being paid, declarant would receive certain immunities. The income so declared would not be included in the total income of any assessment year. Even Benami transactions would not be targeted. The scheme thus appears to have been framed to encourage disclosures of unaccounted income. Upon acceptance of such disclosure, Revenue would collect tax, surcharge and penalty at the prescribed rates. In turn, the declarant would have peace of mind and certain immunities. 13. In the present case, same amount which the Assessing Officer wishes to tax in the hands of the petitioner company by resorting to reopening of assessment was declared by Garg Logistics Pvt Ltd. under such declaration. Declaration was accepted by the competent authority pursuant to which Garg Logistics Pvt Ltd. in three installments also deposited the entire amount of tax with surcharge and penalty. Any attempt on part of the Assessing Officer to assess the same income in the Page 12 of 14 C/SCA/21028/2017 JUDGMENT hands of assessee would amount to charging the same income twice. 14. This Court in case of B. Nanji Enterprise Ltd. v. Deputy Commissioner of Incometax reported in (2017) 84 taxmann.com 155 (Gujarat) noticed that cash was seized from the bank lockers of assessee company during search action. The Assessing Officer added such sum by way of undisclosed cash receipt of the assessee. Director of the company had filed settlement application owning up such amount as his undisclosed income and paid tax on such income. The Court held that the department should not levy tax from the company again. 15. In case of Principal Commissioner of Incometax, Ahmedabad v. Kanubhai Maganlal Patel reported in (2017) 79 taxmann.com 257 (Gujarat), the Court noticed that certain income was taxed in case of a partnership firm, same therefore, could not be taxed in the hands of partner again. 16. We further notice that CBDT in its circulars has been clarifying various issues cropping up out of the scheme from time to time. In one such circular dated 1.9.2016, following question was addressed : “Question No. 10 : Where certain income has been charged to tax in the hands of two different persons or where it has been charged to tax in the case of same person in two different assessment year, one on substantive basis and the other on the protective basis, will the declarant or the other person get advantage in respect of additions made both substantively and protectively?” Page 13 of 14 C/SCA/21028/2017 JUDGMENT It was answered in the following manner : “Answer: The assessees are advised to make declarations in cases or for assessment years where the additions are made on substantive basis. The protective demand is not subjected to recovery unless it is finally upheld. Once the declaration in a substantive case or year is accepted, the tax arrear in protective case/year would not longer be valid and will be rectified by suitable orders in the normal course.” 17. It can thus be seen that upon an assessee in whose hands the income is charged, files a declaration, the protective assessment in hands of another assessee would automatically abate, clearly indicating the intention of charging tax on the same income only once. 18. In the result, impugned notice is set aside. Petition is allowed and disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) Raghu Page 14 of 14 "
Other Referred Cases
Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of Income-tax, Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., B. Nanji Enterprise Ltd. v. Deputy Commissioner of Income-tax, Principal Commissioner of Income-tax, Ahmedabad v. Kanubhai Maganlal Patel
Laws Referred To
Income Tax Act, 1961, Finance Act 2016, Benami Transactions (Prohibition) Act, 1988
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