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

SCA/16717/2019

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Singhal Fabrics Private Limited challenged a notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, alleging that the notice was illegal, without jurisdiction, and beyond the prescribed period of limitation. The notice was based on information that the company had received bogus accommodation entries through various concerns managed by Shri Om Prakash Bihani. The court examined the reasons for reopening the assessment, which included substantial cash transactions and the failure of the company to respond to queries regarding these transactions. The court concluded that the reopening was justified as there was a reasonable belief that income had escaped assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 680551 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 16-02-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Bogus accommodation entries; Income escape assessment; Jurisdiction; Limitation; Reopening of assessment
• Section: 147; 148; 143(1); 131; 133(6)

Judgement Text

"C/SCA/16717/2019 ORDER DATED: 16/02/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16717 of 2019 ==================================================== SINGHAL FABRICS PRIVATE LIMITED Versus THE INCOME TAX OFFICER WARD 4(1)(1) ===================================================== Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ===================================================== 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 writ application under Article 226 of the Constitution of India, the writ applicant – M/s. Singhal Fabrics Private Limited, seeks to challenge the Notice dated 29.03.2019 issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961”) for the A.Y. 2012-13 on the ground that the same is illegal, without jurisdiction and beyond a period of limitation as prescribed under the Act. 2. Briefly stated the facts of the case are that, the writ applicant being private limited company is engaged in the activities of trading in textiles. During the A.Y 2012-13, the Company had filed its return of income on 28.09.2012 declaring its total income at Rs.25,01,600/- and the same was processed under Section 143(1) of the Act. Thereafter, the assessing officer reopened the assessment under Page 1 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 Section 148 of the Act by issuing the impugned notice dated 29.03.2019. The writ applicant filed its return of income in response to the impugned Notice and requested the respondent to supply the copy of the reasons for reopening and the same was supplied vide communication dated 15.05.2019. 3. The writ applicant vide letter dated 10.06.2019 raised the objections, which came to be disposed of by the revenue vide order dated 11.10.2019. 4. The assessing officer before issuing the impugned Notice has recorded the following reasons for reopening of the assessment:- Reasons recorded:- “1. In this case, the assessee has e-filed its return of income for A.Y.2012-13, on 28.09.2012 declaring total income at Rs.25,01,600/-. The same was processed u/ s 143(1) on 21.02.2013. The assessee company engaged in the business of textiles. 2. An Information received from the ADIT(Inv.). Unit-5, Kolkata vide letter No.ADIT/Kol/nformation-FIU-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 M/s. Singhal 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 proprieor is Shri 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 Page 2 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 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 Shri 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 SeaServices, M/s., Shree Balaji Texofm, M/s. Shree Ambika Trading and M/s. Shree Ambika Enterprises, which have now been closed and non-oerational since F.Y.2017-18. He further stated that the transactions involved in the bank accounts of these entities are not relate to an 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 throug account payee cheque 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 immediate! got transferred to various entities through cheques most! 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.63801 1009612 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 ententries, 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 Page 3 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 traded by such entities in Kolkata and hence for security reason these cash were provided to Sn 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 entry 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.Ambika Service and other proprietorship entities of Shri Om Prakash Bihani and received of 10,80,397/- in cheques below the limit of Rs.50,000/-. The details are under: Name of the beneficiary F.Y Fund provided in cash and returned back in cheque PAN Singhal Fabrics Pvt. Ltd. 111 2 10,80,397/ - AAOCS6635G 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 10,80,397/- in cheques from M/s. Shree Page 4 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 Ambika Services 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 receive during the A.Y.2012-13 for tax. However, the assessee failed to disclose the income for A.Y. 2012-13 and also failed to furnish the reply to query letter issued to the assessee by this office. In view of the above, I have reason to believe that there is escapement of income to the extent of Rs. 10,80,397/and failed to disclose fully and truly all necessary material facts in its return of income. 5. In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s.143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceedings u/s.147 of the Act is reason to believe which has been recorded above (refer Paragraph ..2 to 4) 6. It is pertinent to mention here that in this case.the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s.2(40) of the Act was made and the retum of income was only processed u/s.143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to Section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.” 5. From the aforesaid reasons, it appears that the assessment for the year under consideration sought to be reopened by the Revenue on the ground that the writ applicant has taken bogus accommodation entries from Shri Om Prakash Bihani, who was engaged in providing bogus accommodation entries through various concerns as contained in the reasons recorded for reopening. In short, it is alleged by the respondent that the writ applicant has Page 5 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 received cheque worth of Rs.10,80,397/- from various concerns mainly from Shri Om Prakash Bihani and being the beneficiary of the entries provided by Shri Om Prakash Bihani, the income has escaped assessment in the hands of the writ applicant for the year under consideration. 6. Being aggrieved by the impugned Notice as well as the order of disposing of the objections, the writ applicant has come up before this Court with the preset writ application. 7. We have heard Mr. Tushar Hemani, the learned Sr. Counsel assisted by Mrs. Vaibhavi Parikh, the learned counsel appearing for the writ applicant and Mrs. Mauna Bhatt, the learned Sr. Standing Counsel assisted by Mr. Karan Sanghani, learned counsel appearing for the Revenue. 8. In assailing the impugned Notice issued by the revenue under Section 148 of the Act, the learned counsel for the writ applicant urged the following submissions:- (i) That, impugned notice is bad, illegal, barred by limitation and without jurisdiction and therefore, the same deserves to be quashed and set aside; (ii) That, the assessee had not received any cheque from various concerns referred to in the reasons for reopening. In this context, it was submitted that whatever the amount/funds received during the year under consideration were against the sales which had been duly credited to the profit and loss and the income embedded therein was already offered to tax. Page 6 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 (iii) That, there is no independent application of mind on the part of the assessing officer while recording the reasons for reopening and that merely placing reliance on the information provided by the investigating wing for recording the reasons is impermissible. (iv) Referring to the reasons recorded, it was submitted that the assessing officer failed to record the independent findings as to how the income has escaped assessment on a proper application of mind; the assessing officer recorded his satisfaction only on the basis of the information received from the Investigating wing without any enquiries and hence, he assumed jurisdiction only on the borrowed satisfaction, which is impermissible in law. (v) That, the reasons recorded for reopening are vague and for the purpose of further detailed inquiries, the assessing officer has recorded the reasons on the basis of the information received from Investigating wing, which is impermissible in law and on this count, the notice is bad in law. 9. In view of the aforesaid contentions, the learned counsel appearing for the writ applicant urged that reopening of the assessment is, therefore, without jurisdiction and hence, the impugned notice deserves to be quashed and set aside. 10. On the other hand, Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for the Revenue opposed the Page 7 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 writ application contending that, the writ applicant was beneficiary of the accommodation entries to the tune of Rs.10,80,397/-. Return of income of the assessee was processed under Section 143(1) of the Act and no scrutiny assessment being made for the year under consideration under Section 133 (6) of the Act. The notice was served upon the assessee on 19.03.2019, however, the assessee failed to furnish the reply to the queries so far the transaction made with Shri Om Prakash Bihani, who is the proprietor concern through which the assessee had received alleged amount. Under the circumstances, reiterating the stand adopted by the respondent in the affidavit-in-reply as well as in the order of disposing of the objections, it was submitted that the action taken by the assessing officer is just, legal and proper and does not warrant any interference. 11. We have considered the submissions advanced by learned counsel for the respective parties and perused the material on record. From the reasons recorded, it is evident that the assessing officer seeks to reopen the assessment on the ground that the writ applicant being beneficiary of the accommodation entries to the tune of Rs.10,80,397/- from the proprietor Shri Om Prakash Bihani, who having no any actual business and therefore, the amount has escaped assessment for the year under consideration. 12. Plain reading of the reasons recorded for reassessment reveals that the investigation in the case of Shri Om Prakash Bihani was carried out as there was huge cash credit and debits in his bank account maintained with Page 8 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 IngVysya Bank Ltd. at Calcutta. The authority concerned had verified the bank statements of various accounts maintained by Shri Bihani and it was found that Shri Bihani was proprietor of various concerns like M/s. Ambika Services, M/s. Balaji Taxfoam, M/s. Ambika Traders and M/s. Ambika Enterprise. It was further found by the authority that various entities owned by Shri Bihani were not involved in actual business and the accounts maintained by various concerns were used in providing accommodation entries to earn commission. The said entities had adopted the modus operandie for providing accommodation entries, whereby Shri Bihani accepted cash amount and on the same day, he transferred the same through cheque using various concerns limiting the amount maximum upto Rs.50,000/-. 13. So far the case of the writ applicant is concerned, after receiving information from the investigating wing as contained in the reasons recorded, the assessing officer had verified the bank account of the assessee and also made independent enquiries. Record indicates that the notice under Section 133(6) of the Act was served upon the assessee and the assessee failed to comply with the query letter. Under the circumstances, the assessing officer prima facie came to the conclusion that the assessee being beneficiary of the accommodation entries had received Rs.10,80,397/- through cheques from M/s. Ambika Services and other entities owned by Shri Om Prakash Bihani for the year under consideration, which has escaped income within the meaning of Section 147 of the Act. Page 9 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 14. It is settled legal position of law that, at the stage of initiation of reassessment, the only thing requires to be seen is that whether there is any prima facie material on the basis of which the case can be reopened. Sufficiency and correctness of the material is not required to be considered at this stage and the court cannot investigate into adequate and sufficiency of the reasons. In the present case, admittedly, return of income was processed under Section 143 (1) of the Act and no scrutiny assessment was made under Section 143(3) of the Act and therefore, proviso to Section 147 of the Act would not apply. In other words, though the reopening of the assessment after expiry of four years from the end of relevant assessment year, it is not necessary for the Assessing Officer to show that there was any failure to disclose fully or truly material facts necessary for the assessment. Therefore, when reopening is sought of an assessment, wherein the initial return was processed under Section 143 (1) of the Act, the Assessing Officer can form “reason to believe” that the income has escaped assessment by examining return and/or documents accompanying the return. Reference can be made to the case of Central Prominces Magnese Ore Company Ltd. [(2008) 14 SCC 208], wherein the Apex Court held that the word “reason” in the phrase “reason to believe” in Section 147 would mean 'cause' or 'justification'. If the assessing officer has cause or justification to know or suppose that the income has escaped assessment, he can be said to have reason to believe that the income has escaped assessment. Page 10 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 15. The assessing officer had examined the information received from the concerned authority, made enquiries and upon due satisfaction, came to the conclusion that, the credit entries amounting to Rs.10,80,397/- has not been explained by the assessee and the income has escaped assessment. It is the contention of the assessee that, during the year under consideration, no any amount from various concerns as referred to above had been received. We are of the view that, before recording the reasons for reassessment, summons had been served to explain the credit entries, however, the assessee did not comply with the same. The documents relied upon by the assessee could not throw much light on the credit entries as referred in the reasons recorded. At this stage, it is difficult to come to the conclusion that no amount being received by the assessee from various entities managed by Shri Om Prakash Bihani as referred to in the reasons recorded. In our considered view, to substantiate the contentions with respect to the alleged transaction, the bank statement for the year under consideration is relevant to resolve the ossue as raised by the assessee. It is the assessee to produce the same before this Court as well as before the respondent authority when he had submitted his objections. Under such circumstance, the AO has cause or justification to form a belief that the income has escaped assessment. 16. 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 Page 11 of 12 C/SCA/16717/2019 ORDER DATED: 16/02/2021 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 by issuing impugned notice under Section 147 of the Act is without authority of law. 17. Accordingly, the assessee failed to make out a case. As a result, the writ application deserves to be dismissed and is hereby dismissed. No order as to costs. (J. B. PARDIWALA, J) (ILESH J. VORA,J) SUCHIT Page 12 of 12 "