MEGHAVI MINERALS PVT. LTD V. INCOME TAX OFFICER-WARD-3(1)

SCA/14514/2019

AI Insights

Meghavi Minerals Pvt. Ltd filed a writ application challenging the notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the year 2012-13. The notice was based on information that the company had received accommodation entries amounting to Rs.1,20,00,000 from Pravinkumar Jain. The company contested the notice, claiming the reasons for reopening were factually incorrect. However, the Income Tax Officer provided a detailed response, citing admissions and evidence from Pravinkumar Jain regarding the provision of accommodation entries. The High Court examined the materials and found that the Assessing Officer had applied his mind and there was a reasonable belief that income had escaped assessment, leading to the rejection of the writ application.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 768600 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 27-08-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: DARSHAN GANDHI; SP MAJMUDAR
• Keywords: Accommodation entries; Assessment Year 2012-13; Income Tax; Reopening of assessment; Writ of Certiorari
• Section: 147; 148; 151; 132(4)

Judgement Text

"C/SCA/14514/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 14514 of 2019 ========================================================== MEGHAVI MINERALS PVT. LTD Versus INCOME TAX OFFICER-WARD-3(1) ========================================================== Appearance: MR DARSHAN B GANDHI(9771) for the Petitioner(s) No. 1 MR SP MAJMUDAR(3456) for the Petitioner(s) No. 1 for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 27/08/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: “(i) This Hon'ble Court may be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing reasons for reopening at Annexure -D, the impugned notice issued under section 148 of the Act Annexure-B and impugned order rejecting objection at Annexure-F. (ii) Pending the hearing and final disposal of this application, this Hon'ble Court be pleased to stay the reassessment proceedings pursuant to issuance of notice under section 148 at Annexure-B. (iii) This Hon'ble Court be pleased to grant any further or other relief as this Hon'ble Court deems just and proper in the interest of justice, and Page 1 of 16 C/SCA/14514/2019 ORDER (iv) This Hon'ble Court be pleased to allow this application with costs against the respondent.” 2. The writ applicant seeks to challenge the legality and validity of the notice issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961”) for the assessment year 2012-13 for the purpose of reopening the assessment. The reasons assigned by the respondent for reopening of the assessment are as under: “Reason for reopening of the assessment for u/s147 of the Income Tax Act. 1. Brief details of the assessee: The assessee has e- filed his Return of Income vide Ack No.1065559691130214 on 13.02.2014 after due date. It is seen that the assessee had declared total income of Rs.48,500/- 2. Brief details of information collected/received by the AO: In this case, information has been received from the ITO, Wd-3(2), Jamnagar and the said information received from the Investigation, Jamnagar that the assessee has obtained accommodation entries to the extent of Rs.1,20,00,000/- during the year under consideration. 3. Analysis of information collected/received: The accommodation entries received by assessee is beneficiaries from Pravinkumar Jain to the extent of Rs.1,20,00,000/- during the year under consideration. 4. Enquiries made by the AO as sequel to information collected /received: The notice has been issued to the assessee. However, assessee has not furnished any details of any such accommodation entries has been obtained the extent of Rs.1,20,00,000/- and other relevant documents called for the same has not been furnished. 5. Findings of the AO: On perusal of e-filed Return of Income, it is noticed that the said return has been Page 2 of 16 C/SCA/14514/2019 ORDER processed by CPC. Further, on perusal of R.O.I filed it is noticed and found that assessee had borrowed an unsecured loan to the extent of Rs.8,51,724/-. The assessee not come forward to provide the details called for and no explanation for such accommodation entries as beneficiaries disclosed. 6. Basis of forming reason to believe and details of escapement of income: On the basis of ROI and ITS data the particulars of information as discussed above has been noticed and found. On perusal of Return of Income filed assessee company has obtained the accommodation entries received as beneficiaries to the extent of Rs.1,20,00,000/-. The assessee not come forward to provide the details called for and no explanation for such accommodation entries received as beneficiaries has been explained. 7. Sixth paragraph will provide 'basis of reason to believe'. Though no material regarding accommodation entries as beneficiaries of Rs.1,20,00,000/- has been explained. The assessee has not disclosed accommodation entries as mentioned above which has escaped assessment of Rs.1,20,00,000/- 8. Applicability of the provisions of section 147/151 to the facts of the case: In this case return of income ws filed and for the year under consideration, but the assessee has not furnished documentary evidence for such accommodation entries to the extent of Rs.1,20,00,000/-. In absence of details and documentary evidence, the only requirement to initiate proceedings u/s147 is reason to believe which has been recorded above in para 6 & 7. It is pertinent to mention here that in this case the assessee has chosen not to disclose clear and true facts in his return of income for the year under consideration. As such assessee has been given an opportunity to reply and explain the details and documents/clarification/explanation called for. However, assessee voluntary not come forward to explain and clarified the same. In view of the above, the provisions of clause (b) of Explanation 2 to section 147 are applicable to fact of this case and the assessment year under consideration is deemed to be a case where Page 3 of 16 C/SCA/14514/2019 ORDER income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 will be obtained separately from Principal Commissioner of Income Tax, Jamnagar as per the provisions of section 151 of the Act.” 3. The writ applicant responded to the notice, referred to above, by addressing a letter to the respondent, stating as under: “We have received copy of reasons recorded for initiating proceedings u/s. 148 of I.T Act. As per reasons for re-opening of the assessment u/s. 147, para 2,3,4,5, 7 and 8, it is stated that Rs. 1.20 crore received from Pravinkumar Jain and the same was basis for the re-opening of the assessment. It is the only reason for re-opening of the assessment. We would like to submit that the assessee has not received any loan from Pravinkumar Jain during the year A.Y.2012-13. It seems that the information on the basis of which you intended to reopen the assessment is factually incorrect. In view of above facts it seems that you have no jurisdiction to reopen the assessment on basis of factually incorrect reasons recorded. We humbly believe that the proceeding U/s. 148 of I.T Act, requires to be drop down.” 4. The respondent passed a speaking order, overruling the objections raised by the writ applicant as regards the reopening of the assessment. The order reads thus: “Further, Praveen kumar Jain has admitted in his statement recorded on oath U/s. 132[4] of the I.T Act 1961 on 01.10.2013 that he is indulged in providing accommodation entries and also explained the complete modus operandi of providing such entries. In continuation, he had admitted in Question No.75 and furnished the name of 13 company In which he is director and list of name of 39 companies in which he managed Page 4 of 16 C/SCA/14514/2019 ORDER and controlled by him. Further, the concerned persons/firm/company/proprietorship concerned controlled by him and one of the company managed and controlled by Praveen kumar Jain is Josh Trading Pvt. Ltd having [PAN NO AACJ4233] and assessee Company Meghavi Minerals Pvt. Ltd. Obtained the accommodation entries has been provided through broker to the extent of Rs.1,00,00,000/- and Rs.20,00,000/- respectively by Praveenkumar Jain self. [Copy of the extract same is hereby provided to assessee company-5] [5] How the said material and case record were sent to PCIT for his approval along with assessing officer's prescribed form of satisfaction and your forwarding letter. As mentioned in reply to objection No.1. [6] As per CI. 4 of reason recorded it is stated that notice has been issued to the assesses. Please provide us Xerox copy of receipted notice. With due respect, it is to inform that the said Notice U/s. 148 of the I.T Act 1961 issued to the assessee company official address \"Prabhu Nivas, Ratanbai Masjid, Vazir Fali, Jamnagar through R.P.A.D and the same has been received by Deepa K. Mehta [Copy of RPAD received] 5. Further, it is to inform that in response to Notice U/s. 148 of the I.T Act,1961 A.R. of assessee Shri V.P.Sutaria, Charted Accountant has replied dtd. 03.04.2019 received in this office on 8.04.2019 furnished his Letter of Authority as mentioned in Para No. 3 of this order. Thereby as the objection raised by A.R. of assesses dtd. 03.05.2019 on 6 points as discussed in above para has been cleared and copy of the relevant document as called for the same has been provided 6 Thereafter, a Notice U/s. 143[2] of the I.T. Act, 1961 issued on 21.05.2019 through R.P.A.D and the same was received by Virendra Doshi one of the director of company and hearing was fixed on 27.05.2019. Page 5 of 16 C/SCA/14514/2019 ORDER In response to the Notice U/s. 143[2] of the I.T. Act, 1961 A.R. of assesses made an application through tapal for an adjournment stated he is going out of station hence it will not be possible to remain present on the hearing date and requested to please adjourn the matter and oblige. 7. It is pertinent to note that on the same date 23.05.2019 A.R. of assessee has again filed an objection against reopening for A.Y.2012-13. The same is reproduced as under: We have received copy of reasons recorded for initiating proceedings u/s.148 of the I.T. Act, 1961. As per reasons for reopening of the assessment u/s.147, para 2,3,4,6,7 and 8, it is stated that Rs.1.20 crore received from Praveenkumar Jain and the same was basis for the reopening of the assessment. It is the only reason for reopening of the assessment. 7.1 Yes, the reason for reopening the security assessment of A.Y. 2012-13, it is the main reason is that assessee company has obtained the accommodation entries from Praveenkumar Jain, who controlled and managed 39 companies in which one of the company Josh Trading Pvt. Ltd having [Pan No:AACCJ4233H] and assessee company Meghavi Minerals Pvt. Ltd obtained the accommodation entries and the same has been provided through broker to the extent of Rs.1,00,00,.000/- and Rs.20,00,000/- respectively by Praveenkumar Jain self. [Copy of the extract same is hereby provided to assessee company] as mentioned in para-4 of this order. We would like to submit that the assessee has not received any loan from Praveeenkumar Jain during the year A.Y.2012-13. It seems that the information on the basis of which you intended to re-open the assessment is factually incorrect. In view of the above facts it seems that you have no jurisdiction to reopen the assessment on basis of factually incorrect reasons recorded. We humbly believe that proceedings u/s. 148 of I.T. Act, Page 6 of 16 C/SCA/14514/2019 ORDER requires to be drop down. We will be pleased to furnish any other information required by your good self. 7.2 Further objection raised that assessee company has not received any money from Praveenkumar Jain and reopened the assessment if factually incorrect. In this regard, fact and circumstances of the case and concrete evidence as statement recorded during the course search by department Praveenkumar admitted and confirmed that he had managed and controlled various companies for providing accommodation entries to various person/proprietorship firm/ and company. It is crystal clear that he has provided accommodation through Josh Trading Pvt. Ltd the same wsa managed and controlled by Praveenkumar Jain to various parties and one of them is the assessee company Meghavi Minerals Pvt. Ltd provided accommodation entry of Rs.1,20,00,000/- 8. Therefore the re-oening has been done after verifying the Return of Income at PART-A Point No.2 [b] Loan funds [A] in which you had shown unsecured loan from others to the extent of Rs. 8,51,59,724/-. However, the details of interest received and paid has not been claimed Profit & Loss account, therby it shows that such huge amount borrowed and no interest expenses claimed or received has not been either shown in Profit and loss account. Further, assessee company has obtained accommodation entry to the extent of Rs.1,20,00,000/ has not been recorded in books of accounts. Therefore, various details and information gathered regarding the transaction carried by assessee company and appraising of facts as mentioned in the objection treated as without any base and fact. Further, the same is consider as willful attempt to avoid the facts in your case and negligence on your part and hiding the relevant facts obtain and gathered by this office and the same has already been informed to you alongwith copy of reason provided. 9. In this connection, on this issue the declaration made Page 7 of 16 C/SCA/14514/2019 ORDER in application by you, it is indicate that you had known to the fact that such transaction has been carried out during the year under consideration and you had not shown as well. On perusal of Return of income filed on 13.02.2014 after the due date declared the Returned income of Rs.48,500/ only. Your self declaration in Return of Income by your self it self proved wrong, than no further comments are required. The Objection raised by you in application is far from the fact in your case. 10. Furthermore, it is true that you have filedoriginal ROI u/s. 139 on 13/02/2014 after due date and income declared in ROI as per your computation. The reason recorded for re-opening, it is Obvious that the information pertains may after due verification and information are examination of details and information gathered and thereafter conclusion of the facts and evidence leads to finding of reason recorded before re- opening the assessment. There are instance that person having PAN number but not filed the ROI and information received in the case is also re-opened in the case of non- filers. 11. On this issue, the reason to believe arrived at after verifying the facts and figure and thereafter, a concrete conclusion before framing the reopening the case. In which it appears that such income has escaped assessment. In this regards, reopening proceedings are not based on any borrowed satisfaction and not independent opinion has been formed. Further, case has been re-opened after verifying the Return of income and gathered information/details the same has been classified verified and cross examined the issue. The fact and evidence on records the same has been lead to independent opinion before framing reason for re-opening scrutiny assessment. 13. Therefore, the objection raised by the A.R. of the assessee’s company for the relevant period regarding F.Y. 2011-12 is not justified and action taken for A.Y. 2012-13 is correct it is pertinent to mentioned here that merely denying the fact and evidence and stated that this transactions has not been done by assesse company has no relevance in the eyes of law and does not means Page 8 of 16 C/SCA/14514/2019 ORDER that observation, verification and examination details in Return of Income as well additional information gathered which leads to a conclusion to form a concrete reason that assessee company has hide the fact of such a huge amount Obtained from promoters/operator/broker and which has been admitted and confirmed by the provider as well. Even though assessee company repetedly denied the fact which against the law. Those who derives the benefit sustain the burden. “ 5. Mr. Gandhi, the learned counsel appearing for the writ applicant vehemently submitted that the impugned notice issued by the respondent under Section 148 of the Act is quite vague. He submitted that the Assessing Officer failed to narrate the facts in details. He submitted that the order passed by the Assessing Officer, overruling the objections raised by the writ applicant to the notice under section 148, travels beyond the scope of the contents of the notice under Section 148. He submitted that there is no live link between the tangible material and the formation of the belief or the reason to believe that the income has escaped assessment. 6. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the impugned notice under Section 148 of the Act for the purpose of reopening of the assessment deserves to be quashed and set aside. 7. The principles of law, governing the subject of reopening of the assessment under Section 147 of the Act, may be summarized as under: “(i) The Court should be guided by the reasons recorded for the reassessment and not by the reasons or explanation given Page 9 of 16 C/SCA/14514/2019 ORDER by the Assessing Officer at a later stage in respect of the notice of reassessment. To put it in other words, having regard to the entire scheme and the purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from the records. The Assessing Officer is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others upto his sleeves to be disclosed before the Court if his action is ever challenged in a court of law. (ii) At the time of the commencement of the reassessment proceedings, the Assessing Officer has to see whether there is prima facie material, on the basis of which, the department would be justified in reopening the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. (iii) The validity of the reopening of the assessment shall have to be determined with reference to the reasons recorded for reopening of the assessment. (iv) The basic requirement of law for reopening and assessment is application of mind by the Assessing Officer, to the materials produced prior to the reopening of the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied-a postmortem exercise of analysing the materials produced subsequent to the reopening will not make an inherently defective reassessment Page 10 of 16 C/SCA/14514/2019 ORDER order valid. (v) The crucial link between the information made available to the Assessing Officer and the formation of the belief should be present. The reasons must be self evident, they must speak for themselves. (vi) The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. To put it in other words, something therein, which is critical to the formation of the belief must be referred to. Otherwise, the link would go missing. (vii) The reopening of assessment under Section 147 is a potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If the original assessment is processed under Section 143(1) of the Act and not Section 143(3) of the Act, the proviso to Section 147 will not apply. In other words, although the reopening may be after the expiry of four years from the end of the relevant assessment year, yet it would not be necessary for the Assessing Officer to show that there was any failure to disclose fully or truly all the material facts necessary for the assessment. (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two conditions are required to be satisfied; (i) The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on the part of the assessee either (a) to make a return of income Page 11 of 16 C/SCA/14514/2019 ORDER under section 139 or in response to the notice issued under sub-section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all the material facts necessary for his assessment for that purpose. (x) The Assessing Officer, being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. (xi) While the report of the Investigation Wing might constitute the material, on the basis of which, the Assessing Officer forms the reasons to believe, the process of arriving at such satisfaction should not be a mere repetition of the report of the investigation. The reasons to believe must demonstrate some link between the tangible material and the formation of the belief or the reason to believe that the income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment, formed part of the original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression “tangible material” does not mean the material alien to the original record. (xiii) The order, disposing of objections or any counter affidavit filed during the writ proceedings before the Court cannot be substituted for the “reasons to believe. (xiv) The decision to reopen the assessment on the basis of the report of the Investigation Wing cannot always be condemned or dubbed as a fishing or roving inquiry. The expression “reason to believe” appearing in Section 147 Page 12 of 16 C/SCA/14514/2019 ORDER suggests that if the Income Tax Officer acts as a reasonable and prudent man on the basis of the information secured by him that there is a case for reopening, then Section 147 can well be pressed into service and the assessments be reopened. As a consequence of such reopening, certain other facts may come to light. There is no ban or any legal embargo under Section 147 for the Assessing Officer to take into consideration such facts which come to light either by discovery or by a fuller probe into the matter and reassess the assessee in detail if circumstances require. (xv) The test of jurisdiction under Section 143 of the Act is not the ultimate result of the inquiry but the test is whether the income tax officer entertained a “bona fide” belief upon the definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) The concept of “change of opinion” has been treated as a built in test to check abuse. If there is tangible material showing escapement of income, the same would be sufficient for reopening the assessment. (xvii) It is not necessary that the Income Tax Officer should hold a quasi judicial inquiry before acting under Section 147. It is enough if he on the information received believes in good faith that the assesee's profits have escaped assessment or have been assessed at a low rate. However, nothing would preclude the Income Tax Officer from conducting any formal inquiry under Section 133(6) of the Act before proceeding for reassessment under Section 147 of the Act. (xviii) The “full and true” disclosure of the material facts would not include that material, which is to be used for testing the veracity of the particulars mentioned in the return. All such Page 13 of 16 C/SCA/14514/2019 ORDER facts would be expected to be elicited by the Assessing Officer during the course of the assessment. The disclosure required only reference to those material facts, which if not disclosed, would not allow the Assessing Officer to make the necessary inquiries. (xix) The word “information” in Section 147 means “instruction or knowledge derived from the external source concerning the facts or particulars or as to the law relating to a matter bearing on the assessment. An information anonymous is information from unknown authorship but nonetheless in a given case, it may constitute information and not less an information though anonymous. This is now a recognized and accepted source for detection of large scale tax evasion. The non-disclosure of the source of the information, by itself, may not reduce the credibility of the information. There may be good and substantial reasons for such anonymous disclosure, but the real thing to be looked into is the nature of the information disclosed, whether it is a mere gossip, suspicion or rumour. If it is none of these, but a discovery of fresh facts or of new and important matters not present at the time of the assessment, which appears to be credible to an honest and rational mind leading to a scrutiny of facts indicating incorrect allowance of the expense, such disclosure would constitute information as contemplated in clause (b) of Section 147. (xx) The reasons recorded or the material available on record must have nexus to the subjective opinion formed by the A.O. regarding the escapement of the income but then, while recording the reasons for the belief formed, the A.O. is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the A.O had cause or justification to Page 14 of 16 C/SCA/14514/2019 ORDER know or suppose that the income had escaped assessment [vide Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra)]. It is also well settled that the sufficiency and adequacy of the reasons which have led to the formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court. 8. Having regard to the materials on record it cannot be said that there is a total non-application of mind on the part of the Assessing Officer while recording the reasons for reopening of the assessment. It also cannot be said that his conclusion was merely based on the observations and information received from the Investigation Wing. The Assessing Officer could be said to have applied his mind to the same. The Assessing Officer could not be said to have merely concluded without verifying the facts that it is the case of reopening of the assessment. We do not find merit in the vociferous submission of the learned counsel appearing for the writ applicant that the contents of the reasons recorded by the Assessing Officer for the reopening of the assessment is merely an introduction about the investigations conducted by the Investigation Wing, the modus operandi of the entry provided, the summing up of inquiry of the Investigation Wing, the information received from the Investigation Wing etc. We have examined the belief of the Assessing Officer to a limited extent to look into whether there was sufficient material available on record for the Assessing Officer to form a reasonable belief and whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. The case on hand is not one where it could be argued that the Assessing Officer, on absolutely vague or Page 15 of 16 C/SCA/14514/2019 ORDER unspecific information, initiated the proceedings of reassessment without taking the pains to form his own belief in respect of such materials. 9. In the overall view of the matter, we are convinced that no case is made out by the writ applicant for interference. 10. In the result, this writ application fails and is hereby rejected. (J. B. PARDIWALA, J) (A. C. RAO, J) Vahid Page 16 of 16 "