RAINBOW TEXCHEM PRIVATE LIMITED V. INCOME TAX OFFICER WARD NO 2(1)(1)

SCA/19253/2019

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Rainbow Texchem Private Limited challenged the notice and subsequent orders issued by the Income Tax Officer for reopening their assessment for the year 2012-13, alleging that income had escaped assessment. The petitioner argued that the reopening was based on incorrect facts and lacked jurisdiction. However, the respondent provided evidence from a survey and reassessment of another entity, which implicated the petitioner in undisclosed transactions. The court examined the legal standards for reopening an assessment and found that the respondent had sufficient tangible material to justify the reopening.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 763904 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 17-06-2021
• Assessment Year: misc
• Other Referred Cases: Parth Knitex Pvt. Ltd., Pravinkumar Ramkaran Agarval Vs. Deputy Commissioner of Income Tax Circle 2(1)(1), GKN Driveshafts (India) Limited Vs. Income-Tax Officer and Others, A Raman & Company Vs. Income-Tax Officer, Kalyanji Mavji Vs. Income-Tax Officer, Jayant Security and Finance Limited Vs. ACIT, Aaspas Multimedia Limited Vs. DCIT, Raymond Woolen Mills Limited Vs. ITO &Ors., M/S. Phool Chand Bajrang Lal And Another vs Income-Tax Officer And Another, CIT Vs. M/s.Kelvinator of India Limited, ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL
• Assessee Lawyers: DARSHAN PATEL
• Keywords: Assessment Reopening; Escaped assessment; Income Tax; Jurisdiction; Tangible material
• Section: 147; 148; 143(3); 133A; 226

Judgement Text

"C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19253 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDI Sd/- and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Sd/- ========================================================== 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 ========================================================== RAINBOW TEXCHEM PRIVATE LIMITED Versus INCOME TAX OFFICER WARD NO 2(1)(1) ========================================================== Appearance: MR DARSHAN R PATEL(8486), ADVOCATE for the Petitioner(s) No. 1 MR NIKUNT RAVAL, SR. STANDING COUNSEL FOR MRS KALPANAK RAVAL(1046), ADVOCATE for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDI and HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Date : 17/06/2021 CAV JUDGMENT (PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI) 1. The petition filed by the petitioner under Article 226 of the Page 1 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 Constitution of India is directed against the Notice dated 26.3.2019 (Annexure-B) issued by the respondent under Section 148 of Income Tax Act (hereinafter referred to the “said Act”) and the preliminary order dated 21.9.2019 (Annexure-E) passed by the respondent disposing off the objections raised by the petitioner against the said Notice. 2. The short facts giving rise to the present petition are that the petitioner is a Private Limited Company incorporated under the Companies Act and is being regularly assessed to income tax by the Income Tax Department. For the A.Y. 2012-13, a return of income was filed on 29.9.2012 by the petitioner. No scrutiny assessment was filed under Section 143(3) of the said Act. The petitioner received the impugned Notice dated 26.3.2019 issued by the respondent under Section 148 read with Section 147 of the said Act, stating inter alia that the respondent had reason to believe that the income of the petitioner chargeable to Tax for the A. Y. 2012- 13 had escaped assessment. The petitioner, therefore, was called upon to deliver a return in the prescribed form for the said A.Y. The respondent also issued a letter dated 7.5.2019 providing the reasons recorded for reopening of the assessment for the A.Y. 2012-13 under Section 147 of the said Act. The petitioner filed his objections to the said reasons on 28.7.2019, which have been Page 2 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 rejected vide the impugned order dated 21.9.2019. 3. The respondent has filed affidavit-in-reply resisting the petition by contending inter alia that the respondent had reason to believe that the petitioner had suppressed income to the tune of Rs.67,64,436/- for the A.Y. concerned, for the grounds stated in the letter dated 7.5.2019, and therefore, the assessment was sought to be reopened under Section 147/148 of the Act. 4. The learned Sr. Advocate Mr.D.R. Patel for the petitioner raised various contentions, challenging the action of the respondent in seeking to reopen the assessment for the concerned year by submitting that the respondent did not have the jurisdiction under Section 147/148 to reopen the proceedings based on incorrect facts. According to him, the petitioner had never carried out any transactions with Kamal Zaveri, proprietor of M/s. Rishit Corporation or his proprietary concern, nor had taken any unsecured loans from him, which was evident from the audit report. He further submitted that the respondent cannot be permitted to carry out fishing or roving inquiry merely for the purpose of verification. There was total non-application of mind on the part of the respondent in reopening the assessment, and therefore, it could not be said that there was a reason to believe on the part of the respondent in initiating the proceedings under Section 147 of the Page 3 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 said Act. Mr.Patel has sought to rely upon the unreported judgement of this Court in case of Parth Knitex Pvt. Ltd., Pravinkumar Ramkaran Agarval Vs. Deputy Commissioner of Income Tax Circle 2(1)(1) (Special Civil Application No.21107 of 2017 decided on 27.2.2018) and in case of GKN Driveshafts (India) Limited Vs. Income-Tax Officer and Others, reported in 259 ITR 19 in support of his submissions. 5. Per Contra the learned Senior Standing Counsel Mr.Nikunt Raval for the respondent submitted that a survey action was undertaken by the Investigation Wing, Surat under Section 133A of the said Act in case of one Kamal Jayantilal Zaveri, Proprietor of M/s.Rishi Corporation on 24.3.2015 and during the reassessment proceedings in case of the said Kamal Jayantilal Zaveri, the impounded material revealed the entries of tax bills and accommodation loan entries connecting the present petitioner to the tune of Rs.67,64,463/- for the A.Y. 2012-13, and therefore, on the basis of the said material the respondent had sought to reopen the assessment by recording the reasons. Placing reliance on the decision of Supreme Court in case of A Raman & Company, reported in 67 ITR 11 (SC), he submitted that the word ‘information’ means instruction or knowledge derived from external source or as to law relating to a matter bearing on the assessment. He also relied upon the decision Page 4 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 of the Supreme Court in case of Kalyanji Mavji, reported in 102 ITR 287 (SC) to submit that information can come from external sources or even from material already on record and the word information would include the true and correct state of law. Reliance was also placed on the decision of this Court in case of Jayant Security and Finance Limited Vs. ACIT, reported in (2018) 91 taxmann.com 181 (Gujarat), and in case of Aaspas Multimedia Limited Vs. DCIT, reported in (2017) 83 taxmann.com 82 (Gujarat) to submit that the A.O. having recorded the prima facie findings on the basis of search conducted of Shri Kamal J. Zaveri, it could not be said that there was no tangible material available with the A.O. Mr.Raval has also relied upon the judgement of the Supreme Court in case of Raymond Woolen Mills Limited Vs. ITO &Ors., reported in (1999) 236 ITR 34 (SC) in support of his submission that the sufficiency or correctness of the material could not be considered at this juncture and what is required to be considered is whether prima facie there was some material before the Assessing Officer for reopening of the case of the assessment. 6. At the outset, it may be stated that one of the purposes of Section 147 of the said Act is to ensure that a party does not get away by willfully making false or untrue statement at the time of original Page 5 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 assessment, and when that falsity comes to notice, to turn around and say “you accepted my lie, now your hands are tied and you cannot do anything”, as observed by the Supreme Court in case of M/S. Phool Chand Bajrang Lal And Another vs Income-Tax Officer And Another, reported in 203 ITR 456 (SC) . It is also well settled proposition of law that the Income Tax Officer acquires jurisdiction to reopen an assessment under Section 147 read with Section 148 of the said Act, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reason, which he must record, to believe that the income chargeable to tax has escaped assessment for the concerned assessment year. The sufficiency of reasons for forming the belief is not for the Court to judge, but it is open to the assessee to establish that there, in fact, existed no belief or that the belief was not bona fide or that the belief was based on vague or irrelevant information. Therefore, let us examine as to whether the initiation of action under Section 147 read with Section 148 of the said Act against the petitioner is legal and justified. 7. In the instant case stated earlier, the impugned notice dated 26.3.2019 was issued by the respondent under Section 148 of the said Act, calling upon the petitioner to deliver a return in the prescribed form for the A.Y. 2012-13 as the respondent had a Page 6 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 reason to believe that the income of the petitioner chargeable to tax for the said assessment year had “escaped assessment” within the meaning of Section 147 of the said Act. The respondent had also supplied the reasons in support of the said Notice, conveyed to the petitioner vide the letter dated 7.5.2019. The petitioner, on 28.7.2019, had filed the objections to the said reasons recorded for reopening the assessment, which have been rejected by the respondent. 8. Now, it appears that the impugned action under Section 147/148 of the said Act has been initiated against the petitioner by the respondent on the basis of the material and the impounded documents recovered during the course of survey action undertaken by the Investigation Wing, Surat under Section 133A of the said Act in case of one Shri Kamal J. Zaveri, Proprietor of M/s. Rishit Corporation on 24.3.2015. Therefore, there was a tangible material available with the respondent and the said material had a prima facie link with the petitioner and with the formation of the belief by the respondent that income of about Rs.67,64,463/- had escaped assessment. 9. In case of CIT Vs. M/s.Kelvinator of India Limited, reported in 320 ITR 561 (SC), it has been held inter alia that the Assessing Officer has power to reopen, provided there is “tangible material” to Page 7 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 come to the conclusion that there is an escapement of income from assessment and that reasons must have a live link with the formation of the belief. 10. Our Court has also in similar case, in the case of Aaspas Multimedia Pvt. Ltd. (supra) held that if on the basis of information supplied by/from the office of Principal Director of Income Tax (Investigation), the A.O., has found that the petitioner assessee was the beneficiary of accommodation entries provided by the other assessee, it could not be said that there was no tangible material available with the A.O., to prima facie form an opinion/belief that income of the petitioner chargeable to tax has escaped an assessment. 11. As rightly submitted by the learned Sr. Standing Counsel Mr.Raval, what is required to reopen a case is “reason to believe”, the sufficiency or correctness of material cannot be considered at this juncture, as held by the Supreme Court in case of Raymond Woolen Mills Limited Vs. ITO (supra). 12. The Supreme Court in case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reported in (2007) 291 ITR 500 (SC), has also observed that the word “reason” in the phrase “reason to believe” would mean cause or justification. If the Assessing Officer Page 8 of 9 C/SCA/19253/2019 CAV JUDGMENT DATED: 17/06/2021 has a 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. 13. The decision relied upon by the learned Advocate Mr.D. R. Patel for the petitioner in case of GKN Driveshafts (India) Limited Vs. Income-Tax Officer and Others (supra) has no application to the facts of the present case. In the said case, it was observed that the A. O. is bound to furnish reasons within a reasonable time, and on receipt of the reasons, the noticee is entitled to file objections to issuance of notice and the A. O., is bound to dispose of the same by passing a speaking order. In the instant case, the A. O. has disposed of the objections of the petitioner by passing a speaking order considering all legal and factual aspects, which are just and proper, and do not call for any interference by this Court, exercising the jurisdiction under Article 226 of the Constitution of India. 14. In that view of the matter, the petition being of devoid of merit is dismissed. Sd/- (BELA M. TRIVEDI, J) Sd/- (A. C. JOSHI,J) V.V.P. PODUVAL Page 9 of 9 "