Gujarat High Court
Manoj Chhaganlal Rathod vs Deputy Commissioner Of Income Tax on 28 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/18585/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 18585 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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MANOJ CHHAGANLAL RATHOD....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX....Respondent(s)
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Appearance:
MR. S.N.Soparkar, Senior advocate with Mr. HARDIK V VORA,
ADVOCATE for the Petitioner
MRS MAUNA M BHATT, ADVOCATE for the Respondent
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
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Date : 28/06/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) The petitioner has challenged a notice dated 25.3.2015 at annexure "B" to the petition seeking to re-open the petitioner's assessment for the assessment year 2012- 2013. Brief facts are as under:
The petitioner is an individual. For the assessment year 2012-2013, the petitioner had filed a return of income declaring total income of Rs. 6.88 lacs. The return was taken in scrutiny. The Assessing Officer framed assessment under section 143(3) of the Income-Tax Act, 1961 ("the Act" for short) on 11.12.2014. To re-open such assessment, impugned notice came to be issued. The Assessing Officer had recorded reasons which were supplied to the petitioner upon which the petitioner raised objections to the process of re-opening.
However, such objections came to be rejected by the respondent by an order dated 5.10.2015. Hence this petition.
2. Learned counsel for the petitioner raised following contentions in support of the challenge to the impugned notice.
(1) The notice was issued on 25.3.2015 when the present respondent was handed over charge of the assessment proceedings of the petitioner under transfer of assessment order passed by the Commissioner under section 127 of the Act only on 26.3.2015 and the records of the case were received by the respondent on 30.3.2015. Thus, the notice was issued even before the assessment was placed Page 2 of 11 HC-NIC Page 2 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT within the jurisdiction of the respondent Assessing Officer and the records of the case were transferred to him.
(2) In the original scrutiny assessment, the question of purchase and sale of shares by the petitioner including 2.80 lacs shares of one Empower Industries Ltd. was examined by the Assessing Officer and any re-opening on this ground would be based on a mere change of opinion.
(3) Counsel submitted that reasons recorded nowhere reflected in what manner, income of the petitioner chargeable to tax had escaped assessment. In absence of any such element, the notice for re-opening could not be issued.
3. On the other hand, learned counsel Mr. Bhatt for the department contended that the impugned notice was issued on 30.3.2015. It was despatched through postal register also on that date. The date of 25.3.2015 was merely a typographical error. He further submitted that the question of accommodation entries received by the petitioner to the tune of Rs. 2.10 crores was never part of the original assessment proceedings. The material at the command of the Assessing Officer subsequently came into his possession which is the basis for issuance of the impugned notice. He further submitted that the reasons recorded sufficiently indicate the manner in which the income chargeable to tax had escaped assessment. At this stage, the Assessing Officer does not have to demonstrate conclusively that the additions would invariably be made. What is required to be seen is whether the Assessing Officer has tangible material to enable him to form a belief that income chargeable to tax has escaped Page 3 of 11 HC-NIC Page 3 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT assessment.
4. It is undisputed that the impugned notice carries a date of 25.3.2015.It is equally undisputed that the transfer of assessment took place under an order dated 26.3.2015 passed by the Principal Commissioner of Income Tax. The revenue also does not dispute that the record of the case were handed over to the present respondent which he received on 30.3.2015. However, with respect to this discrepancy, the respondent has in an affidavit-in-reply dated 7.12.2015 stated as under:
"II. With reference to para no.3.1, it is denied that the impugned notice issued under section 148 of the Act is without jurisdiction. I submit that it is correct that the case records were transferred ti the answering respondent on 30.3.2015. In this regard, it is to state that the notice under section 148 of the Act was also issued to the petitioner on 303.3.2015 only. It was through oversight, the date in notice was mentioned as "25.3.2015" instead of "30.3.2015". This fact is evident from the despatch register which shows that the notice was issued on 30.3.2015 and despatch of the same notice. A copy of extract of the despatch register as well as acknowledgment slip of the Postal Department evidencing the date of notice issued as well as despatch of notice is annexed hereto and marked as Annexure-B colly."
5. We have also perused copy of the despatch register under which the present notice alongwith several other notices were handed over to the postal authorities for onward communication. This was done on 30.3.2015 as per such register. We have perused original register presented before us by the learned counsel for the Revenue which confirms this Page 4 of 11 HC-NIC Page 4 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT position. Under the circumstances, we have no reason to discard the statement made by the respondent officer on oath that the notice was actually issued on 30.3.2015.
6. The second contention of the petition would receive a summary rejection. While we discuss the third contention at length, it would become clear that the issue of alleged accommodation entries received by the petitioner could not have been and so obviously was not part of the original assessment proceedings.
7. The most emphatically argued contention is last one, namely what the learned counsel for the petitioner describes as no escapement of the income of the petitioner which was chargeable to tax. The reasons in this context need to be reproduced:
" Reasons for reopening the Assessments Manoj Chhaganlal Rathod (PAN: AAWPR9068F) AY 2012-13.
1.Search and survey action carried out at the residence and offices of Shri Shirish Chandrakant Shah and at the residence of his key employees and associates on 9.4.2012 and subsequent days. During the course of search, it was found that SCS is engaged in providing accommodation entries of share capital, share premium, share application money, unsecured loans, Long Term Capital Gains, Short term capital gain wherein cash is received by him from various clients and against this cash, he provides accommodation entries. During the course of search documents and digital data containing date-wise details of receipt and payment of cash and cheques by Shirish Chandrakant was found to be maintained in form of cash and cheques sheets. The records of providing accommodation entries are maintaibed by SCS in various excep sheets maintained in the name of intermediaries who have introduced clients to SCS. On examination of the Page 5 of 11 HC-NIC Page 5 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT seized/impounded evidence, accounts in name of Rajesh Jhaveri have also been found to be recorded in excel sheets under various names such as "rajesh Jhaveri"; "rj"; "n navkar"; "R Jhaveri"; "RAJESH JHAVERI" and "N NAVKAR (sawacal)". These accounts contain the details of cash received from/through Rajesh Jhaveri by SCS and the accommodation entries provided there against.
1.1. On the basis of the cheque sheets, the onetime accommodation entries received in and paid through the infrastructure of Shirish Shah are complied in form of "OT Party Sheets". "OT Party Sheets" were seized and impounded for different periods from various office premises of Shirish Shah during the course of search and survey action. However, a consolidated "OT Party Sheet" containing the date wise and entity wise details of one time entries received in and paid through the Shirish Shah infrastructure during the period 1.4.209 to 31.3.2012 was also seized during the course of search from the office of Shirish Chandrakant Shah situated at Dhanukar Building. This sheet is an excel sheet named "OT start to 31.3.2012" in the excel file "Final all upto 31 310312.xls" located at patch "F:/Shetty/c/Documents and Settings/User2/ Desktop" was seized in the form of computer backup. This sheet was confronted to Shirish Chandrakant Shah during the course of his statement recorded under section 132(4) of the Act on 13.4.2013 and subsequent dates. He has offered his comments on this sheet in reply to question No.24. During the course of his statement recorded under setion 132(4) of the Act on 11.6.2013, he was provided the seized data (OT sheet upto 31.3.2012) in soft copy and requested to rework the list of the accommodation entries provided by him to various beneficiaries. Further, a list of one time accommodation entries provided by Shirish Shah complied on the basis of the cash and the cheques sheets seized from the office of Shirish Chandrakant Shah situated at Dwarka Ashish Building was provided during the course of his statement recorded under section 131(1A) of the Act on 25.11.2013.
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1.2 The cheque-wise, date-wise details of
the OT entries received by the assessee in A.Y.2012- 2012 through Rajesh Jhaveri alongwith the details of the SCS companies through whom the funds have been layered are as under:
Date Details Our Scrip Qty Rate Amt Comm Paid co. Name 03/02/12 Manoj C Acacia 1350000 Rathod 06/02/12 Manoj C Acadia 4350000 Rathod 09/02/12 Manoj C Adamin 3000000 Rathod a 13.02.12 Manoj C Acacio 7,000000 Rathod 15.03.12 Majoj C Rathod Acacio 3300000 15.03.12 Manoj C Acacio 2000000 Rathod 1.3 Though these entries have been received through cheques/rigs from the companies controlled by SCS, these accommodation entries have been received actually against payment of cash to SCS or against other credits. The date-wise receipt of cash and payment of cheques are independently recorded in the cash and cheque sheets impounded during the course of survey conducted at the office of SCS situated at Dwarka Ashish Building. However, one to one co-relation between the cash received by SCS from/through Rajesh Jhaveri and the cheques paid into these companies is clearly evident from th8e impounded accounts of Rajesh Jhaveri maintained by SCS in "rajesh Jhaveri" sheet of acl.xls(01.04.2009 to Jan,12) and "n navkar" sheet of "bom k-r.xis"
1.4. Shirish Chandrakant Shah in his statements has accepted to have provided one time accommodation entries aggregating to Rs. 1926 crores (Rs. 1500 crores for the period 1.4.209 to 31.3.2012 and Rs. 426 crores for the period 01.04.2012 to 31.3.2013). He has also provided Page 7 of 11 HC-NIC Page 7 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT detailed date-wise and entry-wise working of the accommodation entries as Annexures to his statement. As per the details of the onetime accommodation entries provided by him, he has accepted to have provided entries aggregating to Rs. 183,15,05,000/- with reference to Rajesh Jhaveri. In the statements recorded, SCS has stated that one time accommodation entries are of two types-in one case first shares are subscribed by my companies at premium against receipt of cash, in other case already issued shares are shown to have been purchased against payment of funds. In both cases the investments are not genuine but, are only used to give the transactions a colour of investment.
1.5. As per the details compiled on the basis of the annexures to the statements of Shirish Shah dated 11.5.2013 and 25.11.2013, the assessee has received accommodation entries for Rs. 21,000,000.00/- during the A.Y. 20121-13 through companies managed and controlled by Shri Shirish Chandrakant Shah as under:
Name of the Company of SCS(Payer) Amount of OT entry received Acacio Tradelink Pvt. Ltd/Adamina 2,10,00,000 Traders Pvt.Ltd.
1.6. The funds received by Manoj Chhaganlal Rathod from the SCS companies are accommodation entries and have been mainly received against payment of cash and other credits. The same are correlated with the entries made in the accounts of Rajesh Jhaveri by SCS in various excel sheets referred to above and on correlation it is clearly seen that majority of the entries have been paid against receipt of cash by SCS from the assessee (through Rajesh Jhaveri) In certain cases other credits received in the Rajesh Jhaveri account are used to pay these OT entries. But, as no business activities are being undertaken by SCS companies, as found during the course of search on SCS and as admitted by Page 8 of 11 HC-NIC Page 8 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT the directors of these companies in statements/notarised affidavits and declarations, all the entries received by Manoj Chhaganlal Rathod from SCS are mere accommodation entries and non-genuine transactions, the source of which is unexplained.
1.7. In view of the above facts, I have reason to believe that income amounting to Rs.
2,10,00,000/- chargeable to tax has escaped assessment within the meaning of section 147 of the Act by reason of the failure of the assessee to disclose fully and truly all material facts. Therefore, notice under section 148 of the Act is being issued."
8. From the reasons recorded, we gather that pursuant to search and seizure action carried out at the residence and office of one Shri Shirish Chandrakant Shah referred to in the reasons as SCS and residences of the employees and associates during April, 2013 it was found that SCS was engaged in providing accommodation entries of share capital, share premium, share application money etc. The revenue authorities found that SCS maintained cash and cheque sheets. Records of provided accommodation entries were also maintained by SCS which included the names of inter-mediaries also. One Rajesh Jhaveri was a close associate of SCS and various excel sheets under different names referring to Rajesh Jhaveri were also found. These accounts contained details of cash received from or through Rajesh Jhaveri and accommodation entries provided against such receipts. On the basis of such impounded documents and materials, it was found that the assessee had received one time (referred to as OT) entries in the assessment year 2012- 2013 through companies of SCS from whom funds were diverted. The reasons further record that the assessee Page 9 of 11 HC-NIC Page 9 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT received total of Rs.2.10 crores between 3.2.2012 and 15.3.2012 from two company, namely Acacia and Adamina. It is pointed out that these entries were received from cheques from the companies controlled by SCS. However, these were mere accommodation entries against actual cash payments to SCS or against other credits. The reasons further point out the manner in which co-relation was established on the basis of seized material. In one of the statements, SCS accepted to have provided one time accommodation entries aggregating to Rs. 1926 crorees, Rs. 183.15 crores of which was with reference to Rajesh Jhaveri. As per reasons, the details compiled on the basis of the annexures to the statement of SCS, the assessee had received accommodation entries worth Rs. 2.10 crores during assessment year 2012-2013 through companies managed and controlled by SCS. It was thus concluded that funds received by the assessee from SCS companies were accommodation entries and were mainly received against payment of cash and other credits. It was pointed out that no business activities are being undertaken by these companies and during the course of search, it was admitted by the directors of these companies in the statements or notarised affidavits that all entries received by Majoj Rathod i.e. assessee from SCS are mere accommodation entries and non-genuine transactions, the source of which is unexplained.
9. From the above recording of reasons, it cannot be stated that the reasons do not indicate the manner in which the income chargeable to tax had escaped assessment. If the standpoint of the Assessing Officer is correct and at this stage in absence of any contrary contentions and in view of the Page 10 of 11 HC-NIC Page 10 of 11 Created On Fri Jul 01 02:03:21 IST 2016 C/SCA/18585/2015 JUDGMENT materials pointed out in the reasons recorded, we would like to proceed on such basis; unescapable conclusion would be that the assessee's income to the tune of Rs. 2.10 crores remained unassessed. According to the reasons, the receipt of a sum of Rs. 2.10 crores from two companies of SCS i.e. Acacio and Adamina was in return of the cash or other credits from the assessee given to SCS. If that be so, the sources of such funds remained unexplained. These observations, of course, are in the context of the contentions of the petitioner which are directed against the notice for re-opening of the assesment. Surely, the assessment would be framed on the basis of material that may be available on record and in accordance with law.
10. Under the circumstances, the petition is dismissed. Notice is discharged. Ad-interim relief stands vacated.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 11 of 11 HC-NIC Page 11 of 11 Created On Fri Jul 01 02:03:21 IST 2016