M/S ROQUETTE RIDDHI SIDDHI PVT. LTD. V. DEPUTY COMMISSIONER INCOME TAX, CIRCLE 3(1)(2), AHMEDABAD

SCA/15557/2018

AI Insights

M/s. Roquette Riddhi Siddhi Pvt. Ltd. challenged the reopening of their income tax assessments for the assessment years 2013-14 and 2015-16 by the Deputy Commissioner of Income Tax, citing that the notices were based on allegations of receiving bogus accommodation entries from Sampada Chemicals Ltd., a company identified as bogus during a search and seizure operation. The company argued that the reopening was based on a change of opinion and lacked tangible material, as the transactions in question were settled in the previous financial year and no transactions occurred in the years under reassessment. The court found that the objections raised by the company were not adequately addressed by the AO, leading to the decision to remit the matter back for a fresh assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 680621 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-06-2021
• Assessment Year: misc
• Other Referred Cases: GKN Driveshafts (India) Ltd. vs. Income tax Officer & Ors. [(2003) 259 ITR 19]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: ISHAN PATEL
• Keywords: Bogus accommodation entries; Entry Operator; Income Tax; Reopening of assessment; Search and seizure
• Section: 147; 148; 143(3); 132

Judgement Text

"C/SCA/15556/2018 ORDER DATED: 11/06/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 15556 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 15557 of 2018 ============================================= M/S ROQUTTE RIDDHI SIDDHI PVT. LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(2), AHMEDABAD & 3 other(s) ============================================= Appearance: MR ISHAN MIHIR PATEL(6508) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1,2,3,4 ============================================= CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 11/06/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. As common question of law and facts arise in these writ applications with respect to the same assessee for the different assessment years, both these writ applications were taken up for hearing analogously and are hereby disposed of by this common order. 2. M/s. Roquette Riddhi Siddhi Private Ltd. being a private limited company seeks to challenge the impugned Notice dated 15.03.2018 issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short ‘the Act, 1961’), whereby, the revenue sought to be re-opened the writ applicants' income tax assessment for the A.Y. 2013- 14. Page 1 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 3. Facts for the A.Y. 2013-14 :- Briefly stated the facts are that, the assessee being a private limited company engaged in the business of manufacturing starch and its derivatives. On 30.11.2013, the company filed its return of income declaring total income at Rs.Nil. The case of the assessee was selected for scrutiny and the assessment was completed under Section 143 (3) of the Act and the income was assessed at Rs.12,01,830/- during the course of the assessment proceedings. Thereafter, the assessing officer reopened the assessment under Section 147 of the Act by issuing the impugned notice dated 15.03.2018 under Section 148 of the Act. The writ applicant filed its return of income in response to the impugned notice and requested to supply the copy of the reasons recorded for reopening and the same was supplied by the revenue vide its communication dated 10.04.2018. Vide letter dated 14.05.2018, the assessee had raised the objections and the same was rejected by the revenue vide its order dated 13.07.2018. The assessment for the year under consideration is sought to be reopened by the revenue mainly on the ground that the assessee company had taken bogus accommodation entries (amounting to Rs.14,71,24,737/-) and the company which had provided accommodation entries from Sampada Chemicals Ltd. (SCL for short), which is bogus company, managed and controlled by entry provider Shri Page 2 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 Vipul Bhatt and therefore, the amount has escaped assessment for the year under consideration. 4. Facts for the A.Y. 2015-16:- On 29.11.2015, the assessee company filed its return of income declaring total income at Rs.Nil. The case of the assessee was selected for scrutiny assessment and it was completed under Section 143 (3) of the Act. The income of the assessee was assessed at Rs.12,01,830/- during the course of the assessment proceedings. Thereafter, the assessing officer reopened the assessment under Section 147 of the Act by issuing the impugned notice dated 15.03.2018 under Section 148 of the Act for the year under consideration. The writ applicant filed its return of income in response to the impugned notice and requested to supply the copy of the reasons recorded for reopening and the same was supplied by the revenue vide its communication dated 10.04.2018. Thereafter, the assessee vide letter dated 04.05.2018 raised the objections and the same came to be disposed of by the revenue vide order dated 13.07.2018. The assessment for the year under consideration is sought to be reopened by the revenue mainly on the ground that the assessee company had taken bogus accommodation entries (amounting to Rs.4,42,49,474/-) and the company which had provided accommodation entries from SCL, which is bogus company managed and controlled by Shri Vipul Bhatt and therefore, the amount has escaped assessment for the Page 3 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 year under consideration. 5. The assessing officer before issuing the impugned Notice for the respective years, had recorded the following reasons for reopening of the assessment. In both the cases, the contents of the reasons recorded are same, therefore, for the sake convenience, reasons recorded for A.Y 2013-14 shall be taken into consideration, which reads thus: Reasons recorded:- “11. A search & Seizure action under Section 132 of the Income Tax Act, 1961 was carried out in the case of Mr. Vipul Vidur Bhatt and his other related entities viz. (i) M/s. Sunrise Asian Limited (ii) M/s. Sampada Chemicals Ltd. (iii) M/s. P. Saji Textiles Ltd. (iv) M/s. Shyam Alcohol and Chemicals Ltd. (v) M/s. Shipra Fabrics Pvt. Ltd. (vi) M/s. Victory Sales Private Ltd. (vii) M/s. Lunked Textiles Private Ltd. (viii) M/s. Eager Corporation (ix) M/s. Vikrant Marketing (x) M/s, Acute Consultancy Ltd. &(xi) M/s. Dulex Commercial Pvt. Ltd. on 05.02.2016. During the search action the statement of Mr. Vipul Vidur Bhatt was recorded on 29.02.2016 under Section 132(4) of the Act. In the statement, Mr. Vipul Vidur Bhatt has accepted that he is an entry operator and all the above mentioned entities/companies are bogus entities/ companies, which are used by him for providing various bogus accommodation entries to the various beneficiaries for commission. Mr. Vipul Vidur Bhatt also accepted that he is director in these entities/companies and all other directors of these entities/companies are dummy directors appoitned by him. Mr. Vipul Vidur Bhatt also accepted that he controls the entire activities /affairs of these entities /companies and these entities/companies were incorporated for providing bogus accommodation entries only. In the statement recorded under Section 132(4) of the IT Act, 1961, Mr. Vipul Vidur Bhatt also accepted that he has controlled, managed and operated as many as 347 bogus entities which are operated by him for providing bogus Page 4 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 accommodation entries to the various beneficiaries for commission. During the search action under Section 132(4) of the Income Tax Act, 1961, the entire books of accounts, income tax related documents, company law matters related documents, VAT/sales Tax etc of all the 347 bogus entites/companies were found at an undisclosed premise 1407, 14th Floor, New Jaiphalwadi, Police Colony, Tardeo, Mumbai-400034, which is neither registered office of these bogus entities /companies nor this premise is related to these bogus entities/companies in any way. During the search action at 1407, 14th Floor, New Jaiphalwadi, Police Colony, Tardeo, Mumbai- 400034, the rubber stamps of any common seals of all the 347 bogus entities, which are managed, controlled and operated by Mr. Vipul Vidur Bhatt for providing bogus accommodation entries were seized. Further, during the search action at 1407, 14th Floor, New Jaiphalwadi, Police Colony, Tardeo, Mumbai-400034, the PAN cards of all the 347 bogus entities which are managed, controlled and operated by Mr. Vipul Bhatt for providing bogus accommodation entries were also found at this premise. All the PAN cards of all the bogus entities were seized. On perusal of the ledger account of the bogus entities/companies managed, controlled and operated by Shri Vipul Bhatt, it is seen that the assessee has taken the following bogus accommodation entries:- As the above mentioned entities in column-2 of the table, the above are bogus entities managed, controlled and operated by Mr. Vpul Bhatt for providing bogus accommodation entries, all the transactions entered into between the above mentioned entities and the assessee beneficiary are bogus accommodated entries in nature.” 6. Being aggrieved by the impugned notice as well as the order disposing of the objections, the writ applicants have come up before this Court with the present writ Page 5 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 applications. 7. We have heard Mr. S.N.Soparkar, the learned Sr. Counsel assisted by Mr. Ishan Mihir Patel, the learned counsel appearing for the writ applicants and Mrs. Mauna Bhatt, the learned Sr. Standing Counsel assisted by Mr. Karan Sanghani, the learned counsel for the Revenue in both the writ applications. 8. Mr. Soparkar, learned Sr. Counsel appearing for the writ applicants in both the writ applications raised the following contentions :- (i) That during the F.Y.2011-12, the assessee company purchased certain quantity of maize amounting to Rs.9,96,24,737/- from M/s. Sampada Chemicals Ltd. (for short “SCL”) for manufacturing of starch and made part payment of Rs.1.50 crore and remaining outstanding amount Rs.8,46,24,737/- being made during F.Y. 2012-13 and the same was reflected in the books of accounts for relevant year of the transaction. In the background of the aforesaid facts, it was submitted that, for the A.Y.2012- 2013, the assessee company had no liability so far as outstanding of SCL is concerned and thereafter, the company had not entered into any transaction with the SCL. (ii) It was submitted that, the impugned notice is illegal, bad in law and against the statutory provisions of the Act. (iii) It was submitted that the impugned order of disposing of the objections against the notice was without considering the objections raised by the assessee company as the assessee had specifically stated that, the Page 6 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 company had not entered into any transactions with SCL during A.Y 2013-14 and to substantiate the same, the company had submitted the ledger account showing the part payment as well as final payment. Relying on the decision of GKN Driveshafts (India) Ltd. 2003 259 ITR 19, it was submitted that the order disposing of the objections having been passed mechanically without assigning reasons on the issue raised in the objections. (iv) It was further submitted that, in the previous assessment proceedings, the assessee company had furnished all the details and based on the details provided, the assessing officer had framed assessment order under Section 143 (3) of the Act and now on the same materials, without any tangible material, the assessing officer sought to reopen the assessment, which is nothing, but a change of opinion and therefore, mere a change of opinion, reopening of concluded assessment is not permissible in law. (v) It was also submitted that, the reasons for recording reopening of the assessment seem to be vague and while recording the reasons, neither the AO made inquiries for his satisfaction nor he applied his mind led to formation of belief that the income has escaped assessment. Thus, reopening passed on borrowed satisfaction is not permissible in law. (vi) Referring to the reasons recorded, it was submitted that, it suffers from various infirmities and are too vague and no independent findings are being recorded by the AO. Page 7 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 (vii) It was submitted that, reasonable belief as contemplated under Section 147 /148 of the Act must be that of an honest and reasonable person based upon reasonable ground and it should not be based on some suspicious and vague reason. Whereas, in this case, the reasons are vague and do not reveal any income having escaped assessment and furthermore, reasons recorded made it clear that, this is a case of borrowed satisfaction without any independent application of mind. 9. In view of the above contentions, learned counsel for the writ applicants prays that the impugned notices as well as the order disposing of the objections are required to be quashed and set aside and the writ applications may be allowed, as prayed for. 10. On the other hand, Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for the revenue opposed the writ applications contending that for A.Y. 2013-14, the return of income of the assessee was selected for scrutiny and order under Section 143 was passed assessing the income at Rs.12,01,830/- and thereafter, search and seizure action under Section 132 of the Act was carried out at the premises of Mr. Vipul Bhatt and his related entities and during the aforesaid proceedings, the statement of Mr. Bhatt was recorded, wherein, he admitted that, the SCL was bogus and paper company and was used for providing various accommodation entries to various beneficiaries and from the ledger account of the company, it was noticed that, the assessee is one of the beneficiary for A.Y. 2013-14 and 205-16 and therefore, AO Page 8 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 based on the information made independent enquiries and formed a belief that, the income has escaped assessment. Under such circumstances, it was submitted that, the revenue is justified in reopening the assessment for the year under consideration. It was submitted that, the AO while passing the order of disposing of the objections, had considered the issue raised by the assesse and detail order came to be passed. Thus, the decision arrived at by the authority to reopen the assessment for both the years are just and proper. 11. In view of the aforesaid contentions, Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for the revenue submits that, there being no merits in the writ applications, the same deserve to be dismissed. 12. Considered the submissions advanced by learned counsel appearing for the respective parties and perused the case papers. 13. In both the writ applications, the assessee has question the legality and jurisdiction to issue the impugned notice dated 15.03.2018 issued under Section 148 of the Act and the order disposing of the objections against the reasons recorded for reopening the assessment. 14. In both the cases, we find that the revenue has issued impugned notice under Section 148 of the Act for A.y. 2013-14 and 2015-16, mainly on the ground that, the assessee had received accommodation entries by entry provider Mr. Vipul Vidur Bhatt by using bogus paper Page 9 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 company namely M/s. Sampada Chemicals Ltd. It is the stand of the revenue that, the enquiries and search proceedings were conducted at the place where Mr. Vipul Bhatt was managing the affairs of the bogus company and during the proceedings, the ledger account of SCL company was seized, wherein, it noticed that, the SCL had provided huge amount of accommodation entries, as referred in the reasons recorded. It is the specific stand of the assessee that, the purchase transactions for the A.Y. 2011-12, the company had entered into transactions and made part payment and in the next year i.e. 2012-13, remaining outstanding balance of the purchase being paid to SCL and thereafter, the assessee had not entered into any transaction with the SCL company. It also appears from the record that, the assessee while submitting the objections had furnished their books of accounts to show that, for the year under consideration i.e. A.Y.2013-14 and 2015-16, the assessee had not entered into any transactions. 15. We have examined the reasons recorded for reopening of assessment and order of disposing of the objections. We find that, the objections submitted by the assessee were not extensively dealt with by the authority. Relevant extract of the objections submitted by the assessee and order disposing of the objections reads as under: Objections for A.Y. 2013-14 :- 2.2.3 Your goodself has further mentioned that on perusal of the ledger account of the bogus entities it is observed that the assessee had entered into the following accommodation entries: Page 10 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 Name of the bogus entity FY Amount Debit Credit Sampada Chemicals Ltd. 2012-13 8,46,24,737 6,25,00,000 2.2.4 Your goodself has mentioned that on the basis of the above facts he has the reason to believe that Rs.14,71,24,737/- has escaped assessment. 2.2.7 During the year under consideration, it had not entered into any transactions with Sampada Chemicals Ltd. And hence there is no question of the transactions being bogus. 2.2.8 Without prejudice to contentions of the assessee with respect to the validity of reassessment proceedings for FY 2012-13 and the fact that the above transaction is not bogus, in lieu of clarifying the facts the assessee submits as under:- - As per the books of account of assessee of FY 2012-13, the opening payable balance to Sampada Chemicals ltd. Was Rs.8,46,24,737/-; - The assessee had actually paid Rs.8,46,24,737/- to Sampada Chemicals Ltd during FY 2012-13; - Accordingly as per the books of accounts of the assessee of FY 2012-13 both debit total and credit totals in the ledger account of Sampada Chemicals ltd is Rs.8,46,24,737/-. - For the reference of your goodself, copy of ledger account of Sampada Chemicals Limited for FY 2011-12 and FY 2012-13 is enclosed herewith vide Annexure-3. 2.2.10The assessee also submits that the purchases from Sampada Chemicals Ltd have been made in the preceding year i.e. 2011-12. hence, the assessee requests you to appreciate the facts that during the year under consideration the assessee has not entered into any transaction with Sampada Chemicals ltd. The same fact can also be appreciated from the ledger account of Sampada Chemicals Ltd enclosed as Annexure 3. Order disposing of the objection for A.Y 2013-14 :- 3. the assessee’s above objections have duly been considered. However, the same are not applicable in view of the discussions made hereunder:- a) As regards assessee’s objection that the information regarding purchases and payments to the creditors could have been ascertained from the financial statements and other relevant documents submitted during the course of assessment proceedings, there is no failure to disclose fully and truly all material facts on the part of the assessee and the reopening of the assessment is just on the basis of the statement recorded during the search proceedings Page 11 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 in the case of Mr. Vipul Vidur Bhatt and his other related entities namely M/s. Sampada Chemicals ltd. And without conducting independent enquiry or application of mind and therefore, the reopening of assessment is bad in law, it is to mention that in the instant case, the information for the suspicious transaction has been received and the same is complete and on the basis of the same, the reopening of the assessment has been made. On perusal of the case records of the original assessment proceedings in the case of the assessee, it is noticed that no opinion could have been formed by the AO and no discussion has been made on the impugned issues. Therefore, after recording the reasons thereof, the AO has reopened the assessment. c) As regards assessee’s objection that he had not entered into any transaction with Sampada Chemicals ltd. As the purchases from Sampada Chemicals Ltd were made in the preceding year i.e. F.Y 201-12. The assessee considering these facts stated that the income has escaped assessment is not justified and consequently the proceedings initiated under Section 147 may be dropped in this regard. It is to mention that in the reasons recorded for reopening the assessment the assessing officer has referred to the information received and the financial years mentioned therein as well as the statutory provisions which in his view is applicable. It may be that the issue whether the provisions in question of escapement would be/not be added back in terms of the relevant provision of the Act and for the assessment year for which the case of the assessee is reopened, but the fact remains that it could not be examined at the time of the original assessment finalized if there would be concrete belief or material.” Objections for A.Y. 2015-16 :- 2.8 In the reasons for reopening assessment proceedings for the FY 2012-13, your goodself has mentioned the following facts for the alleged accommodation entries: Name of the bogus entity FY Amount Debit Credit Sampada Chemicals Ltd. 2012-13 8,46,24,737 6,25,00,000 Without prejudice to contentions of the assessee with respect to the validity of reassessment proceedings for FY 2012-13 and the fact that the above transactions is not bogus, in liey of clarifying the facts the assessee submits as under: - As per the books of accounts of assessee of FY 2012-13, the opening payable balance to Sampada Chemicals ltd. Was Rs.8,46,24,737/-; - The assessee had actually paid Rs.8,46,24,737/- to Sampada Chemicals Ltd during FY 2012-13; - Accordingly as per the books of accounts of the assessee of Page 12 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 FY 2012-13 both debit total and credit totals in the ledger account of Sampada Chemicals ltd is Rs.8,46,24,737/-. - Whereas as per the information mentioned by your goodself for FY 2012-13, there is a difference of Rs.2,21,24,737/- between the debit balance and credit balance. - Hence, it apparently seems that in your facts this balance of Rs.2,21,24,737/- is carried forward to the subsequent years being FY 2014-15, whereas in correct facts the assessee had paid the entire amount during FY 2012-13 and hence there are no payments or no transactions with Sampada Chemicals Ltd. During the FY 2014-15. For the reference of your goodself, copy of ledger account of Sampada Chemicals Ltd for FY 2011-12, FY 2012-13 enclosed herewith vide Annexure 3. Please note we have not opened master date of Sampada Chemicals Ltd. As supplier for FY 2014-15 screen shot from ERP is enclosed herewith vide Annexure 3. Order disposing of the objection for A.Y 2015-16 :- 3 a) In this regard, it is to mention that in the reasons recorded for reopening the assessment, the Assessing Officer has referred to the information received and the financial years mentioned therein as well as the statutory provisions which in his view is applicable. It may be that the issue whether the provisions in question of escapement would be/would not be added back in terms of the relevant provision of the Act and for the assessment year for which the case of the assessee is reopened, but the fact remains that it could not be examined at the time of the original assessment.” 16. In view of the objections against the reasons recorded for reopening of assessment and the order disposing of the objections, we are of the considered view that, the preliminary objections filed by the writ applicants against the reasons recorded for reopening of assessment, have not been properly dealt with by the AO. We take the note of the fact that, while submitting the objections, the assessee had specifically taken a stand that, for A.Y. 2011-12, the transactions of purchase being entered with SCL company and in the next year, the outstanding amount had been cleared by the assessee. In support of such claim, the ledger account of the SCL maintained in the books of accounts of the assessee had Page 13 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 been submitted for perusal and adjudication. However, the objections having not been properly dealt with the assessing officer. In the case of GKN Driveshaft (India) Ltd Vs. Income tax Officer & Ors. [(2003) 259 ITR 19], the Apex Court held that, while disposing off the objections against the notice issued under Section 148 of the Act, it is an obligatory on the part of the assessing officer to deal with the issues raises therein and pass speaking order. The reason behind is that the filing of the objections and passing of the order thereon is not an empty formality. The object behind the assessee to file objection and passing a speaking order by the AO thereon, is to ensure that, if assessee is in position to impress upon the AO that, there is no reasonable ground for reopening of the assessment, the AO may drop the proceedings and not proceed further. 17. In view of the aforesaid, we are of the considered view that, the preliminary objections raised by the writ applicant in both the cases having not been properly dealt with the by AO. The lapses is in clear violation of the Apex Court. Thus, it appears that, the AO has passed the order disposing of the objections mechanically and without application of mind. In other words, not in a meaningful manner. We are conscious that disposing of the objections raised by the assessee, against the reasons recorded before issuance of the notice under Section 148 of the Act though not part of the statutory requirement, as prescribed under the Act, but the same is guided by the directions issued by the Apex Court. Page 14 of 15 C/SCA/15556/2018 ORDER DATED: 11/06/2021 18. In view of the aforesaid discussions and reasons thereof, the writ applications succeed in part. The orders disposing of the objections dated 13.07.2018 at Annexure-B (page 41 of SCA/15556/2018 & Page 40 Annexure-B of SCA/15557/2018) are hereby set aside and the matters are remitted to the Assessing Officer. The Assessing officer shall take into consideration the objections raised by the writ applicants and pass a fresh speaking order in accordance with law. We may clarify that, we have otherwise not expressed any opinion on merits of the case and we should otherwise also not to do as we are remitting the matters to the AO. Let the exercise be undertaken by the AO within a period of 8 weeks from the date of receipt of this order. In the event, if the order that the AO may pass a fresh, is adverse in any manner, to the assessee, then, it shall be open for the assessee to challenge the same before the appropriate forum in accordance with law. However, in the event, if the order is adverse, then, at least a period of four weeks shall be granted to the assessee to take recourse of the remedy available to the assessee in law. (J. B. PARDIWALA, J) (ILESH J. VORA,J) SUCHIT Page 15 of 15 "