SAIKRUPA FABRICS PRIVATE LIMITED V. THE INCOME TAX OFFICER WARD 4(1)(1)

SCA/16716/2019

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Saikrupa Fabrics Private Limited challenged a 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 original assessment was completed under Section 143(3) of the Act, with no additions made to the income declared. However, subsequent information received from the ADIT (Inv), Unit-5, Kolkata, indicated that the assessee had received accommodation entries amounting to Rs. 6,95,874 from entities managed by Shri Om Prakash Bihani, which were not disclosed in the original assessment. The court examined the reasons for reopening the assessment and found that the Assessing Officer had sufficient material to believe that income had escaped assessment due to non-disclosure by the assessee.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749956 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 16-02-2021
• Assessment Year: misc
• Other Referred Cases: Jayant Security and Finance Ltd Vs. Asst. CIT, Phoolchand Bhajranglal and Anr Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Accommodation entries; Change of opinion; Jurisdiction; Reopening of assessment
• Section: 148; 143(3); 131

Judgement Text

"C/SCA/16716/2019 ORDER DATED: 16/02/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16716 of 2019 ================================================================ SAIKRUPA FABRICS PRIVATE LIMITED Versus THE INCOME TAX OFFICER WARD 4(1)(1) ================================================================ Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner MRS MAUNA M BHATT(174) for the Respondent ================================================================ CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 16/02/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this petition under Article 226 of the Constitution of India, the writ applicant being a Private Limited Company has challenged the Notice dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short), in respect of Assessment Year 2012- 13 by the Assessing Officer, on the ground that same is illegal, without jurisdiction, as prescribed under the Act. 2. Briefly stated, the facts of the case are that the writ applicant being a Private Limited Company filed its return of income on 20.03.2013, declaring the total income at Rs.32,05,100/-. On 11.03.2015, the assessment was framed under Section 143(3) of the Page 1 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 Act. During the assessment proceedings various details were called for by the Assessing Officer including the details pertaining to the transactions of debtors/creditors made during the year under consideration. The writ applicant had furnished various details as called for. The Assessing Officer after considering the details furnished by the writ applicant, framed the assessment under Section 143(3) of the Act, making no addition to the total income. 3. Thereafter, the Assessing Officer issued impugned notice under Section 148 of the Act for reopening of the assessment for the year 2012-13. In response to the notice, the writ applicant filed its return of income and asked to provide reasons recorded for the reassessment. The revenue vide its communication dated 14.05.2019 furnished the reasons recorded, which reads as under:- Reasons recorded: “Please refer to your letter dated 04.04.2019, in which you are requested to supply the copy of reason recorded for reopening the assessment. 2. In this regard, the reason recorded for reopening assessment is as under: 1. In this case, the assessee has e-filed its return of income for A.Y.2012-13. On 20.03.2013 declaring total income at Rs.32,05.100/-. The same was processed u/s 143(1) on 18.05.2013. The assessee company engaged in the business of textiles. Thereafter. The case was selected for scrutiny and the assessment was finalized u/s 143(3) on Page 2 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 11.03.2015 determined total income at Rs.32.05. 100/as per return income. 2. An Information received from the ADIT(Inv.), Unit- 5. Kolkata vide letter No.ADIT/Kol/InformationFIU- IND/2018-19 /1460-76 dated 28.02.2019 that Sri Om Prakash Bihani. Who is a proprietor of M/s. Shree Ambika Service. M/s. Shree Balaji Texofm, M/s. Shree Ambika Trading and M/s. Shree Ambika Enterprises has provided entries to Mis. Saikrupa Fabrics Pvt Ltd. The gist are as under: 2.1 Credible information is received that in the bank account vide A/c.No. 518011065594 maintained with ING Vysya Bank Ltd. Of K.K. Tagore Branch, Kolkata of M/s. Shree Ambika Service whose proprietor is Sri Om Prakash Bihani, total credits of INR 327.80 crores, which includes cash credits of Rs.263.68 crores and total debits of INR 327.68 crores were noticed during the period from account opening to 13.05.2014. It was further noticed that the funds so received in the account being paid to several firms by way of clearing cheques below the reporting thresh hold limit of Rs.50000/-. In connection with the above information so received, bank statement of the alerted bank account and other accounts have been obtained and perused. Further, summon u/s.131 of the I.T. Act, 1961 was issued and served on Sri Om Prakash Bihani, who is a proprietor of the subject entity M/s. Shree Ambika Service for his personal appearance for recording of statement in connection with the nature and complexity of such transactions and the source of cash deposits. In response Sri Om Prakash Bihani appeared and statement was recorded u/s. 131 on oath wherein he stated and confirmed that he was a sole proprietor of the entities M/s. Shree Ambika Service. M/s. Shree Balaji Texofm, M/s. Shree Ambika Trading and M/s. Shree Ambika Enterprise which have been closed and non- operational since F.Y.2017-18. He further stated that the transactions involved in the bank accounts of these entities are not relate to any actual business instead these are hundi transaction where Sri Om Prakash Bihani – deposits cash provided to him by various entities and the same were returned back to such entities through account payee Page 3 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 cheques in lieu of commission which he earned @Rs.15/- to Rs.20/- per Rs.1 lac of the funds provided to him by such entities. While going through the alerted bank account no. 518011065594 of the subject entity M/s. Shree Ambika Service, it was perused that cash within the range of Rs.2 lacs to below Rs.10 lacs have been deposited and immediately got transferred to various entities through cheques mostly below the range of Rs.50,000/-. This pattern of transaction was also observed in other bank accounts of his proprietorship entities viz. A/c. No. 518011066024 of M/s. Shree Balaji Texofm, A/c. No. 518011074998 and A/c.No.638011009612 of M/s. Shree Ambika Enterprises and A/c.No. 518011071843 of M/s Shree Ambika Commercial. On confronting the reason behind such credit and debit entries, Sri Om Prakash Bihani stated that the cash so deposited were the aggregated amount received on a day from various entities and the same got debited through cheques to such entities with amount below Rs.50,000/- as per the instructions given by the beneficial owners of such cash and in whose names cheques were issued. He stated further that most of these entities are located in remote areas viz. Ahmedabad, Surat, Bangalore, etc. and the cash were the sale proceeds of the goods traded by such entities in Kolkata and hence for security reason these cash were provided to Sri Om Prakash Bihani who after depositing, issued cheques in the names of such entities. | 2.2 On this line, the alerted bank account statement of M/s. Shree Ambika Service and other proprietorship entities have been perused and seen that Shri Om Prakash Bihani had deposited cash amount in the bank accounts of his proprietorship entities on which he received commission. In view of the above facts and circumstances, it is clearly inferred that the entities to whom funds were transferred through cheques and against which cash were received are beneficial owners of such transferred fund. 3. The information clearly indicates that the concern from which the assessee has got entries is not indulged any business activities but the assessee has brought money into their books through hundi wherein they provided cash to the subject entity M/s. Shree Ambika Service and other proprietorship Page 4 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 entities of Shri Om Prakash Bihani and received of 6,95,874/- in cheques below the limit of Rs.50,.000/-. The details are under: Name of the beneficiary FY Fund provided in cash and returned back in cheque PAN Saikrupa Fabrics Pvt Ltd 11-12 6,95,874 AALCS9773L 4. Further notice u/s 133(6) of the Act was issued by the undersigned on 19.03.2019 and served by speed post. However, the assessee failed to furnish the reply to query letter issued to the assessee by this office. Vide above letter, the assessee was asked to provide the details of financial transactions made with Shri Om Prakash Bihani, who is a proprietor of M/s, Shree Ambika Service, M/s, Shree Balaji Texofm, M/s. Shree Ambika Trading and M/s, Shree Ambika Enterprises during the year along with documentary evidences. However, the assessee did not respond at all. The assessee is one of the beneficiaries who had received of 6,95,874/- in cheques from M/s Shree Ambika Service and other proprietorship entities of Shri Om Prakash Bihani in FY 2011-12 in the Shape of hundi wherein the assessee provided cash. The nature of credit received from M/s Shree Ambika Service and other proprietorship entities of Shri Om Prakash Bihani proves to be merely an accommodation entry. Hence, there is escapement within the meaning of section 147 of the Act. The assessee was required to file correct return of income and disclosed the income received during the A.Y.2012-13 for tax. However, the assessee failed to disclose the income for AY. 2012-13 and also failed to furnish the reply to query letter issued to the assessee by this office. In view of the above, | have reason to believe that there is escapement of income to the extent of Rs. 6,95,874/- and failed to disclose fully and truly all necessary material facts in its return of income. Page 5 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 5. In this case, the assessment was finalized u/s 143(3) of the Act on 11.03.2015 determined total income of Rs.32,05,100/- as per return income. However, the above information received from the Asst. Director of Income tax (Investigation),Unit-5, Kolkata on 04.03.2019 i.e. after assessment finalized u/s 143(3) of the Act on 11.03.2015 and the reason to believe to reopen the case has been recorded as a result of fresh facts that the assessee company has taken bogus accommodation entries from Sri Om Prakash Bihani, who is a proprietor of the subject entity M/s. Shree Ambika Service, M/s. Shree Balaji Texofm, M/s. Shree Ambika Trading and M/s. Shree Ambika Enterprises has provided entries to M/s. Saikrupa Fabrics Pvt. Ltd in the shape of hundi wherein the assessee company provided cash. 6. In this case, a return of income was filed for the year under consideration and assessment u/s. 143(3) of the Act was passed on 11.03.2015 determined total loss of Rs.32,05,100/-. Since, 4 years from the end of the relevant year has expired in this case, the requirements to initiate proceeding u/s.147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 2 to 4). | have carefully considered the assessment records containing the submissions made by the assessee in response to various notices issued during the assessment proceedings and have noted that the assessee has not fully and truly disclosed material facts as above necessary for its assessment for the year under consideration. It is evident the above facts that the assessee had not truly and fully disclosed material facts necessary for its assessment for the year under consideration Page 6 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 thereby necessitating reopening u/s 147 of the Act.“ 4. The writ applicant raised various objections vide communication dated 10.06.2019, both on the ground of jurisdiction as well as on merits and requested the respondent to drop the reassessment proceedings. Same came to be rejected by the respondent vide order dated 06.09.2019, holding that the assessment is valid and within jurisdiction. 5. Being aggrieved by the impugned notice as well as the order disposing of the objections, the writ applicant came up with present writ application. 6. We have heard the learned Senior Advocate Mr. Tushar Hemani, assisted by Ms. Vaibhavi Parikh, the learned advocate appearing for the writ applicant and Mrs. Mauna Bhatt, the learned Standing Counsel appearing for the revenue. 7. Mr. Tushar Hemani, the learned Senior Counsel has raised various contentions as mentioned in the petition. Referring to the reasons recorded and order disposing the objections raised by the writ applicant, it was contended that the Assessing Officer had mechanically disposed of the preliminary objections and failed to take note of the objections and disposed of the same without assigning any proper reasons on the issue. Therefore, it was submitted that the impugned notice as well as the order disposing the Page 7 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 objections are required to be set aside. 8. It was contended by learned Senior counsel that at the time of framing the assessment under Section 143(3) of the Act, all necessary particulars had been furnished to Assessing Officer, who while issuing notice, under Section 142(1) had specifically called upon the writ applicant to furnish details of sales and purchase, both in quantity and value and details of debtors / creditors with whom the transaction exceeding Rs.10,00,000/- being made during the year under consideration. Under the circumstances, Assessing Officer had framed the original assessment after due application of mind in respect of the issue on which the assessment is sought to be reopened and as such impugned notice is based on mere change of opinion on the part of the Assessing Officer. 9. It was contended by learned Senior Counsel that the writ applicant has not at all received any cheque from any of the firms managed by Shri Omprakash Behani. In this context, it was urged that the writ applicant received several cheques from its debtors against sale transactions and same were credited to the profit and loss account for which, the writ applicant had furnished all details, at the stage of original assessment. Thus, the income towards sales received during the year under consideration which Page 8 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 had been credited to the P&L account and income embedded therein had been offered to tax. In this background of facts, it was submitted that the action of reopening is not at all justified in eye of law and impugned notice deserves to be quashed. 10. It was submitted by the learned Senior Counsel that all the primary facts with regard to sale transactions had been fully disclosed in the return of income as well as at the time of original assessment proceedings. Under the circumstances, it is not open for the respondent to issue impugned notice beyond period of 4 years from the end of relevant year and therefore, same deserves to be quashed and set aside as being without jurisdiction. 11. It was further submitted by the learned Senior Counsel that the reasons to believe is bad in law as Assessing Officer recorded his satisfaction only on the basis of the information received from the ADIT (Inv) Unit-5, Calcutta, without making his independent enquiries and hence the Assessing Officer assumed jurisdiction only on borrowed satisfaction for the purpose of carrying out fishing inquiry or investigation without their being any specific finding of escape of income, which is impermissible in law and on that count also, the impugned notice is bad in law. Page 9 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 12. In view of the aforesaid contentions, the learned Senior Counsel Mr. Tushar Hemani, submitted that the reopening is, therefore, without jurisdiction and hence, the impugned notice deserves to be quashed and set aside. 13. On the other hand, the learned Standing Counsel Ms. Mauna Bhatt appearing for the revenue, reiterating the stand adopted by the revenue in the affidavit in reply, as well as in the order of deposing of the objections, contended that the Assessing Officer was in receipt of the information after completion of the assessment and recorded reasons based on his independent enquiry and application of mind. Under the circumstances, the action taken by the revenue is just, legal and proper and does not warrant any interference. Ms. Mauna Bhatt, the learned Standing Counsel for the revenue submitted that there being no merits in the writ application, the same deserves to be dismissed. 14. Having heard the learned counsel for the respective parties and having gone through the materials on record, the only question falls for our consideration is that whether the revenue is justified in reopening the assessment for the year under consideration? Page 10 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 15. The learned Senior Counsel Mr. Tushar Hemani, has challenged the impugned notice mainly on the ground that the concluded assessment sought to be reopened by the Assessing Officer is nothing but a change of opinion on his part and at relevant time and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. 16. A bare perusal of the reasons recorded, it appears that the Assessing Officer was in receipt of the information received from the ADIT (Inv), Unit-5, Calcutta vide letter dated 28.02.2019 to the effect that one Mr. Omprakash Bihani being a Proprietor of various enterprises like M/s. Shri Ambika Service, M/s. Balaji Texofm, M/s. Ambika Trading and M/s. Shri Ambika Enterprises, had provided accommodation entries to writ applicant i.e. M/s Sai Krupa Fabric Pvt. Ltd to the tune of Rs.6,95,874/-. During the enquiry made by ADIT (Inv) huge credits and debits in the account of M/s. Shri Ambika Services was noticed and it was further found that the funds so received in the account being paid to several firms by way of cheques below the reporting threshold limit of Rs.50,000/-. The bank statement and other accounts were obtained and verified by the authority and for the cross-check of the entries, the summon under Section 131 of the Act, was served upon Mr, Bihani and his statement was recorded on oath wherein, he Page 11 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 has confirmed that he being the Prop. of the above referred entities, which have been now closed and non-operationable since F.Y. 2017-18. Mr. Behani, in his statement recorded before the authority disclosed that he was providing accommodation entries in the form of hundi transactions and his modus-operandi was to get cash amount from the concerned entities and return back the same amount through account payee cheque in lieu of commission. The detail enquiry made by the authority revealed that the cash within range of Rs.2 lakhs to below 10 lacks were deposited and same was transferred in a bank account through cheques. 17. We have examined the reasons recorded carefully, wherein, we found that Mr. Behani was not doing any business activities and was rendering services of accommodation entry. So far the case of writ applicant is concerned, the information was in specific nature and it was clearly mentioned that the assessee was one of the beneficiaries who had received Rs.6,95,874/- through cheques from M/s. Ambika Service and other proprietorship entities as referred to above, owned by Mr. Omprakash Behani in the year under consideration. 18. Record indicates that after receiving the information, the Assessing Officer has verified the same and made independent enquiries and himself Page 12 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 was satisfied with regard to information and other materials available with him and came to the conclusion that the assessee being a beneficiaries of the accommodation entry to the tune of Rs.6,95,874/- credited by M/s. Ambika Service and other entities, managed by Mr. Omprakash Behani and the writ applicant failed to disclose truly and fully while filing its return of income and at the previous assessment proceedings and therefore, the Assessing Officer has reasons to believe that the income has escaped assessment. While recording reasons, the Assessing Officer has further observed that the assessment sought to be reopened after fresh material in the form of information received from the concerned authority, which were not available at the time of previous assessment proceedings. 19. Mr. Tushar Hemani, the learned Senior Counsel has raised the contention that it is a case of change of opinion in the hands of Assessing Officer as earlier he had applied his mind and taken a conscious decision in the previous assessment proceedings. On the other hand, learned Standing Counsel Ms. Mauna Bhatt contended that the tangible material in the form of information received by the Assessing Officer after completion of the assessment proceedings. Thus, the principle of change of opinion would not apply. We have carefully examined the facts of the information and reasons recorded for the Page 13 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 reassessment of the proceedings. In the present case, during the assessment proceedings, notices under Section 143(2) and 143(1) were served and pursuant to the notices, the necessary details called for, were furnished by the assessee. The information furnished by the assessee appears to be transactions above Rs.10 lakhs, whereas, as per the information, the credit entries by the different entities were below the limits of Rs.50,000/-. Therefore, at the stage of previous assessment proceedings, the details with regard to alleged transaction of accommodation entries were not with the Assessing Officer. 20. We are of the view that the information as referred to above, which is in the form of tangible material, came into knowledge of the Assessing Officer after the completion of the assessment proceedings and admittedly the same was not on record and available at the time of previous assessment proceedings. Therefore, the principle of change of opinion, would not apply. 21. The next contention is that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. It is settled law that the assessee shall disclose full and true primary facts at the time of original assessment. In the instant case, the facts with regard to transactions of the entries, in the form of Page 14 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 accommodation entries having not been truly disclosed by the assessee. A reference can be made of the case of Jayant Security and Finance Ltd Vs. Asst. CIT, wherein, this Court in para-8 observed that “when disclosure are found to be prima-facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue.” It is apt to refer and rely the case of Phoolchand Bhajranglal and Anr Vs. ITO, 1993 (4) SCC 77, the Apex Court in para-9 held that “where transaction itself on the basis of subsequent information is found to be bogus transactions, the mere disclosure of that transaction at the time of original proceedings cannot be said to be a disclosure of true and full facts in the case and ITO would have the jurisdiction to reopen the concluded assessment in that case. 22. In view of the settled principles of law as propounded by the Apex Court as well as by this Court and considering the reasons recorded for reopening, we are of the view that the Assessing Officer himself was satisfied with regard to the information and other materials on record and formed an opinion that income has escaped assessment. Thus, Assessing Officer has applied his mind to the information and upon due satisfaction, led to form an opinion that the amount of Rs.6,95,874/- has escaped assessment. Under the circumstances, we are satisfied that there was Page 15 of 16 C/SCA/16716/2019 ORDER DATED: 16/02/2021 enough material before the Assessing Officer to initiated proceedings under Section 148 of the Act. 23. In view of the foregoing reasons and considering the facts and circumstances of the present case, we have no hesitation to hold that it could not be said to have that there was no material or grounds before the Assessing Officer and the assumption of jurisdiction on the part of the Assessing Officer under Section 147 of the Act to reopen the assessment is without authority of law. Thus, the impugned notice is valid and legal. The assessee failed to make out a case. 24. In the result, writ application deserves to be dismissed and is hereby dismissed. No order as to costs. (J. B. PARDIWALA, J) (ILESH J. VORA,J) P.S. JOSHI Page 16 of 16 "