PRIYA BLUE INDUSTRIES PRIVATE LIMITED V. THE ASSISTANT COMMISSIONER OF INCOME TAX

SCA/19564/2019

AI Insights

The case involves Priya Blue Industries Private Limited, which challenged a notice issued by the Assistant Commissioner of Income Tax under section 148 of the Income Tax Act, 1967, seeking to reopen the assessment for the year 2012-13. The reopening was based on the belief that the company had received accommodation entries amounting to Rs.1,06,16,632 from M/s. Harsh Enterprise, which were not genuine transactions. The petitioner argued that all transactions were disclosed during the original assessment and that the reopening was merely a change of opinion by the Assessing Officer. The court, however, upheld the reopening, citing the need for further investigation into the genuineness of the transactions.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749698 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-08-2021
• Assessment Year: misc
• Other Referred Cases: Alliance Filaments Ltd. v. The Assistant Commissioner of Income Tax, Prashant S. Joshi v. Income-Tax Officer, Ward 19(2) (4), Gujarat Lease Financing Ltd. v. Deputy Commissioner of Income-Tax, Circle-4, Ahmedabad, Krishna Metal Industries v. H. M. Algotar, N. D. Bhatt, Inspecting Assistant Commissioner of Income-Tax v. L.B.M. World Trade Corpn., Hindustan Lever Ltd. v. R. B. Wadkar, Sajani Jewels v. DCIT, CIT v. Vishal Exports Overseas Ltd., CIT v. Kailash Jewellary House, Kantibhai Dharamshibhai Narola v. ACIT
• Laws Referred To: Income Tax Act, 1967
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Accommodation entries; Escaped assessment; Income Tax; Reassessment
• Section: 147; 148; 143(3); 68

Judgement Text

"C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19564 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 ======================================= PRIYA BLUE INDUSTRIES PRIVATE LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX ======================================= Appearance: MR TUSHAR HEMANI, SR. ADVOCATE for MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ======================================= CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDI and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Date : 09/08/2021 CAV JUDGMENT (PER : HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI) 1. This petition, under Article 226 of the Constitution of India, Page 1 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 is filed by the petitioner – Priya Blue 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 2012-13, 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 facts in nutshell of the case of the petitioner are that the petitioner is a Company incorporated under the Companies Act, 1956 and engaged in the business of ship breaking. During the Financial Year 2011-12, relevant to Assessment Year 2012-13 (i.e. the year under consideration), the petitioner made total sales of Rs.26,266.19 lakh, which included the sales made to M/s. Harsh Enterprise also for which, the entire sales proceeds were received during the year under consideration. The same was duly reflected in the Audited Annual Accounts. 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, which were furnished by the petitioner. The then Assessing Officer also called for various details pertaining to TCS vide notice dated 07.03.2014, against which the petitioner, vide communication dated 23.08.2014 supplied the details including acknowledgment of E-TCS quarter-wise returns along with transaction register which duly included details as to sales made to M/s. Harsh Enterprise during the year under consideration. That, while framing assessment under section 143(3) of the Act vide order dated 05.03.2015, though after due examination, the Assessing Officer had not disturbed the sales declared by the petitioner, the respondent authority issued notice Page 2 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 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 24.04.2019 and also requested to supply the reasons for reopening, which were supplied vide letter dated 15.08.2019. A perusal of the same revealed that the case of the petitioner was reopened on the count that the petitioner is the beneficiary of the accommodation entries to the tune of Rs.1,06,16,632/-. The case of the respondent was that, cash was deposited in the bank account of M/s. Kiran Trading (a third party), which in turn, was followed by transfers to the account of M/s. Harsh Enterprise (also a third party) and subsequently, funds were transferred by M/s. Harsh Enterprise to various other parties. Accordingly, the department presumed that M/s. Harsh Enterprise was engaged in providing accommodation entries and since, the petitioner had received Rs.1,06,16,632/- from M/s. Harsh Enterprise, the department presumed the said transaction to be accommodation entries and hence, the department had reason to believe that such income at the hands of the petitioner company had escaped assessment. Against the reasons accorded, the petitioner, vide letter dated 20.09.2019, raised objections against reopening on various factual as well as the legal grounds, however, the respondent authority disposed of the said objections vide order dated 15.10.2019 inter alia holding that the reopening was 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 Mrs. Mauna M. Bhatt, learned senior standing counsel for the respondent. Page 3 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 3.1 The learned senior advocate for the petitioner has vehemently and fervently argued that the case on hand is a peculiar type of case, wherein, the revenue / respondent authority is calling a person who was already taxed and who had already offered for tax, however, the proceedings under section 148 of the Act are sought to be initiated. It is further urged that whatever the transactions made by M/s. Harsh Enterprise may be, but the present assessee has not availed any benefit from M/s. Harsh Enterprise. Not only that, but all the receipts, sales, purchases, profit etc. were shown to the Assessing Officer while framing assessment under section 143(3) of the Act and all the details necessary for the assessment had been truly and fully disclosed by the petitioner and hence, there is neither question of forming belief that the income chargeable to tax has escaped assessment nor there is a question of reopening of assessment for the year under consideration. 3.2 The learned senior advocate for the petitioner further urged that the sales of Rs.1,06,16,632/- made to M/s. Harsh Enterprise was duly reflected in the Audited Annual Accounts. Further, the petitioner, vide letter dated 23.08.2014, furnished various details including the acknowledgment of E-TCS returns (quarter-wise) along with transaction register which included details as to sales made to M/s. Harsh Enterprise and after threadbare examination, the Assessing Officer consciously chose not to disturb the sales declared by the petitioner while framing assessment under section 143(3) of the Act and hence, the impugned notice being nothing but a mere change of opinion, requires to be set aside. 3.3 Further, the learned senior advocate for the petitioner, while drawing our attention to section 68 of the Act regarding Page 4 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 cash credit, reiterated that all the entries viz. receipts, sales, purchase, etc. had been made and shown in the RoI and the details have been fully and truly disclosed by the petitioner at the time of original assessment and accordingly, it cannot be said that there is reason to believe that the income chargeable to tax has escaped assessment and the petitioner cannot be re-taxed by the department. He submitted that thus, the department is not justified in proposing to reopen the case of the petitioner on such false pretext and and on borrowed satisfaction. 3.4 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 the notice under section 148 of the Act can be issued only if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment and for such formation of belief, there should be some tangible material and act, which are 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 the 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 original assessment was found to be proper and the same was accepted by the Assessing Officer and therefore, if creditworthiness is found in the transactions and when the Assessing Officer had the knowledge about such sale transaction with M/s. Harsh Enterprise to the tune of Rs.1,06,16,632/-, the impugned reopening, is illegal and bad in law and it cannot be said that the petitioner has failed to disclose fully and truly all material facts necessary for the assessment. Page 5 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 3.5 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. 3.6 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. 3.7 In support of his submissions, the learned senior advocate for the petitioner has relied upon following decisions: i) Alliance Filaments Ltd. v. The Assistant Commissioner of Income Tax, passed in Special Civil Application No. 16586 of 2019 dated 19.02.2021; ii) Prashant S. Joshi v. Income-Tax Officer, Ward 19(2) (4), [2010] 189 Taxman 1 (Bombay); (iii) Gujarat Lease Financing Ltd. v. Deputy Commissioner of Income-Tax, Circle-4, Ahmedabad, [2013] 36 Taxmann.com 359 (Gujarat); (iv) Krishna Metal Industries v. H. M. Algotar, [1997] 225 ITR 853 (Guj.); (v) N. D. Bhatt, Inspecting Assistant Commissioner of Income-Tax v. L.B.M. World Trade Corpn., [1995] 216 ITR Page 6 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 811; (vi) Hindustan Lever Ltd. v. R. B. Wadkar, [2004] 137 Taxman 479 (Bombay); (vii) Sajani Jewels v. DCIT, [2016] 71 Taxmann.com 90 (Guj.); (viii) CIT v. Vishal Exports Overseas Ltd., passed in Tax Appeal Nos. 2471 of 2009 and Others (Gujarat); (ix) CIT v. Kailash Jewellary House, ITA 613/2010 (Delhi) (x) Kantibhai Dharamshibhai Narola v. ACIT, [2021] 125 Taxmann.com 348 (Gujarat). 4. Per contra, learned senior standing counsel Mrs. Mauna M. Bhatt for the respondent authority, while opposing the present petition, drew our attention to the reasons recorded for reopening of assessment dated 15.08.2019, and submitted that the petition is not tenable in law as after due inquiry, it was found that M/s. Harsh Enterprise was engaged in providing accommodation entries by booking bogus purchases/sales to various beneficiaries as per its requirements, in connivance with M/s. Kiran Trading and others. Huge transactions were shown without any business relation between M/s. Harsh Enterprise and its associated concerns M/s. Kiran Trading , M/s. Shoryaraj Enterprise, M/s. Leela Trading Co., etc. It was further found on verification of the accounts that the petitioner had also received accommodation entries of Rs.1,06,16,632/- and this issue was not dealt with in the scrutiny assessment. Thus, the petitioner being failed to fully and truly disclose all material facts necessary for assessment and that, there is escapement of income chargeable to tax, the department has rightly sought to reopen the assessment for the year under consideration qua the petitioner assessee. 4.1 The learned senior standing counsel for the respondent Page 7 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 further submitted that the reasons for reopening the case were recorded after due consideration of the information received from the Investigation Wing and the case records available with the office of the respondent. The Investigation Wing had provided several opportunities to M/s. Harsh Enterprise to prove genuineness of its business but it failed to furnish requisite documents. Further, proprietor of other proprietorship had admitted in his statement under section 131 of the Act that he was not carrying out any genuine business and was involved in providing accommodation entries. Such firm had transferred cash deposited in its account to M/s. Harsh Enterprise. The petitioner was one of the beneficiaries of such entries by M/s. Harsh Enterprise. Thus, the case was reopened after due consideration. 4.2 So far as the filing of E-TCS returns along with transaction register by the petitioner is concerned, the learned senior standing counsel for the respondent submitted that perusal of the same could justify the transactions were carried out by M/s. Harsh Enterprise but the genuineness of the same and delivery of material could not be established from the same and therefore, there is no change of opinion at end of the Assessing Officer. Further, the impugned notice under section 148 of the Act was issued after prior and proper approval of the competent authority i.e. Principal Commissioner of Income-Tax and therefore, the petitioner’s contention that the assessment was reopened merely on the basis of borrowed satisfaction is not tenable in law. It is further submitted that there is no procedural lapse and/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 Page 8 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 received. 4.3 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. 4.4 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 and from the information disseminated by the Investigation Wing, it is evident that the assessee had failed to furnish fully and truly, all material facts necessary for the assessment before the Assessing Officer. 4.5 Making above submissions, it is urged that the Court may not interfere with the impugned notice and requested to dismiss the petition. 5. 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 Page 9 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 established, the department cannot assume the jurisdiction and reopen the assessment. The basis for such submission is that, according to the learned senior advocate for the petitioner, the case of the petitioner was selected for the scrutiny assessment and at the relevant time, the petitioner had disclosed fully and truly, all material facts, necessary for the assessment and hence, merely, on the basis of change of opinion, the impugned notice is issued. 5.1 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 Judgment 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 10 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 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 11 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 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 12 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 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.” 5.2 At this juncture, it would also be worthwhile to refer to the observations made by us in the CAV Judgment dated 06.08.2021 Special Civil Application No. 22613 of 2019, which read as under: Page 13 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 “7. As stated hereinabove, the often posed question as to whether the Assessing Officer could have assumed the jurisdiction under Section 147/148 of the said Act on the basis of the information / material received from the investigating wings unearthing the bogus transactions or accommodation entries involving the assessee, has been again posed before this Court. Before adverting the submissions made by the learned advocates for the parties, it may be noted that the words “accommodation entries” have not been defined anywhere in the Act, however, in catena of decisions, the Courts have dealt with the issue of “accommodation entries”. It cannot be gainsaid that the tax-evaders in order to bring back their unaccounted income to their books of accounts without paying any tax thereon, use numerous methods and techniques. For routing the unaccounted income, the taxevaders under the guise of loan entries or share capital entries or other camouflage entries create an appearance of legitimate transactions in their books of accounts. Such well recognized rackets are controlled and conducted by the persons known as “accommodation entry providers”, and the “accommodation entries” are provided by them to the persons who are the taxevaders. The entries on paper apparently may appear to be of routine nature, but the trail of money transited through the layers would be subsequently unearthed during the search and seizure operations conducted either at the assessee’s premises or his associate’s premises or at the premises of some third party, who may be an accommodation entry provider. Under the circumstances, when the material is brought to the notice of the Assessing Officer, which would prima facie discredit or impeach the genuineness of the particulars furnished by the assessee at the time of original assessment, and when it prima facie establishes the link between the assessee and the third party who is an accommodation entry provider, the Assessing Officer is empowered rather duty bound to make further inquiry / investigation to unearth such camouflage or wrong or illegal dealings of the assessee. As observed by the Supreme Court in the case of Sumati Dayal vs Commissioner Of Income-Tax reported in AIR 1995 SC 2109, apparent must be considered as real until it is shown that there are reasons to believe that apparent is not real, and that the Taxing Officers are entitled to look into the surrounding circumstances to find out the reality, and the matter has to be considered by applying the test of human probabilities.” Page 14 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 5.3 Further, the term “reason to believe”, however, is not defined in the Act but it can be gathered and available from the 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. 5.4 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 Page 15 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 belief relating to escapement of the income of the assessee from assessment”. 5.5 Further, in the case of Ess Kay Engineering Co. (P) Ltd. v. Commissioner of Income Tax, 247 ITR 818 (SC), also it has been observed that the Assessing Officer is not precluded from reopening the assessment of an earlier year on the basis of fresh material discovered subsequently during the course of assessment of next assessment year. 6. 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 received the amount of Rs.1,06,16,632/- from M/s. Harsh Enterprise against sales made to the said party and such sales was duly credited to the books of account of the petitioner. Thus, the income element in the transaction was duly offered to tax 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 has filed affidavit-in-reply as also the reasons recorded for reopening are on record, which go to the root of the matter. According to the respondent, upon due verification of the case records, it was noticed that the assessee had received accommodation entries of Rs.1,06,16,632/-. The transactions were not genuine transactions and the said aspect was not examined during the original assessment and therefore, the subject matter and the scope of reassessment are different from that of regular assessment. It is further the case of the respondent that the notice under section 148 of the Act is issued as there was reason to believe that the income chargeable to tax has escaped assessment on account of failure on the part of the assessee to disclose the correct facts. It Page 16 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 was found that M/s. Harsh Enterprise was engaged in providing accommodation entries by booking bogus sales/purchases to various beneficiaries. The sale of Rs.1,06,16,632/- disclosed by assessee M/s. Harsh Enterprise was not genuine but merely the accommodation entries and the petitioner was the beneficiary of such entry. Since, the income offered pertained to the accommodation entries and not the genuine business transactions, the sales quantum was also believed to untrue. 6.1 It has further come on record that after due verification of the information received from the Investigation Wing after inquiry under section 131 of the Act and the case record available with the respondent, reasons for reopening of assessment had been recorded. It is submitted that during investigation, due opportunity was given to M/s. Harsh Enterprise to prove the genuineness of its business transactions, however, it failed to furnish the requisite documents. It was noticed that the cash was routed through various proprietorship firms to M/s. Harsh Enterprise and thereby, many entities. Further, the proprietor of other proprietorship had admitted in his statement under section 131 of the Act that he was not carrying out any genuine business and was involved in providing accommodation entries. Such firm had transferred the cash deposited in its account to M/s. Harsh Enterprise. Thus, the case of the petitioner was reopened after due consideration of facts. 6.2 Indisputably, the petitioner has furnished E-TCS returns along with the transaction register during the regular assessment, however, case of the respondent that the same do not establish the genuineness of the transaction and delivery of actual material, appears to be flawless and that, it cannot be said that by such, the onus under section 68 of the Act is discharged Page 17 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 by the assessee – the petitioner. 6.3 The learned senior advocate for the petitioner has submitted that the sale transaction 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 fully and truly disclosed all material facts necessary for assessment for the reason that the petitioner has concealed the facts to channelize the unaccounted funds into assessee company. 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. 6.4 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. 6.5 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, Page 18 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 Ahmedabad is thoroughly 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 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 Page 19 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 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.” 6.6 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 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. 6.7 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 Page 20 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 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.” 6.8 In the case on hand also, the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment and the basis for formation of such belief is several inquiries and the investigation by the Investigation Wing. The reasons for the formation of the belief by the 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. 6.9 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 Page 21 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 was erroneous at the time of assessment proceedings. 6.10 So far as the decisions relied by the learned senior advocate for the petitioner are concerned, in Alliance Filaments Ltd. (supra) it is observed by the Court that the Assessing Officer has acted mechanically based on the information received from the Investigation Wing, Surat for the purpose of reopening of the assessment and any independent satisfaction to the effect that the income chargeable to tax has escaped assessment is not reflected. However, in the case on hand, tangible information appears to have been received by the Assessing Officer and genuineness of sale transaction is in doubt and hence, the aforesaid decision would be of no help to the petitioner. 6.10.1 Next is the decision in Prashant S. Joshi (supra), wherein, it is held by the Court that the sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua non for a valid exercise of power. In the case on hand, from the reasons recorded, it appears that the formation of belief by the Assessing Officer is on the cogent and tangible material and hence, it prima facie appears that the income chargeable to tax has escaped assessment and accordingly, the above decision is not applicable to the facts of the present case. 6.10.2 So far as the decision in Gujarat Lease Financing Ltd. (supra) is concerned, it is held by the Court that since no new material had come on record nor it was the case of the Assessing Officer that facts reveled before him were not primary or material facts, notice for reassessment lacked validity. In the Page 22 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 instant case, the Assessing Officer, from the information received from the Investigation Wing has got the new information that the petitioner is the beneficiary of accommodation entries to the tune of Rs.1,06,16,632/- and it is further found that the sales transactions are not genuine and hence, the aforesaid decision would not apply in the facts of the present case. 6.10.3 Further, in the decision in Krishna Metal Industries (supra), the Court has held that impugned notices could not have been issued after a period of four years from the end of relevant assessment year since condition for exercise of power beyond four years contemplated by proviso to section 147 did not exist. Here, in the present case, the Assessing Officer has, from the information available from the Investigation Wing, has come to a conclusion and consequently, formed a belief that the income chargeable to tax has escaped assessment and accordingly, in view of the provisions of section 147 of the Act, the said decision also would be of no help to the petitioner. 6.10.4 Further, the decision in L.B.M. World Trade Corpn. (supra), also is not applicable to the facts of the present case because, as said earlier, in the present case, the Assessing Officer has, from the information available from the Investigation Wing, has come to a conclusion and consequently, formed a belief that the income chargeable to tax has escaped assessment and accordingly, in view of the provisions of section 147 of the Act, the said decision also would be of no help to the petitioner. 6.10.5 So far as the decisions in Hindustan Lever Ltd., Sajani Jewels, Vishal Exports Overseas Ltd., Kailash Jewellary House, Kantibhai Dharamshibhai Narola, (supra) Page 23 of 24 C/SCA/19564/2019 CAV JUDGMENT DATED: 09/08/2021 are concerned, in view of the aforesaid discussion, the same are not applicable in the facts and circumstances of the present case. 7. 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 24 of 24 "