Gujarat High Court
Raajratna Stockholdings Pvt. Ltd vs Assistant Commissioner Of Income Tax ... on 25 November, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 3700 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
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RAAJRATNA STOCKHOLDINGS PVT. LTD.
Versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1)
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Appearance:
MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 25/11/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Varun K.Patel for the respondent.
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NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined
2. Having regard to the controversy arising in this appeal in narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for hearing.
3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged a notice dated 30.03.2021 for reopening of assessment for A.Y.2014-15 issued under section 148 of the Income Tax Act,1961 [for short 'the Act'].
4. The petitioner-company was engaged in the activity of trading in shares and securities. During the Financial Year 2013-14 relevant to Assessment Year 2014- 15, the petitioner had also entered into transaction in Futures & Options [F & O] and derivatives, which resulted into Page 2 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined profit of Rs. 3,33,33,242/-. The petitioner disclosed the same in the Profit and Loss Account and filed return of income for the year under consideration on 30.09.2014 declaring total income at Rs. (-)37,26,445/-. Case of the petitioner was selected for scrutiny and during original assessment proceedings, various details were called for which were duly furnished from time-to-time by the petitioner and the assessment order under section 143(3) of the Act was passed on 15.12.2016 accepting the returned income. 4.1 The respondent thereafter issued the impugned notice for reopening of the assessment on the information received on the insight portal in March 2021 regarding coordinated and premediated trading on the Page 3 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined Bombay Stock Exchange by engaging in reversal trade and illiquid stock options resulting in non-genuine business loss/gain to the beneficiary assessee and it was found that the petitioner is a party to such manipulation and from the data made available under Project Falcon on ITBA, it was found that the petitioner has created a profit of Rs. 6,35,02,700/- by buy and sale trades executed on the Bombay Stock Exchange.
4.2 After analysis of the information and report of the Security Exchange Board of India as well as the decision of the Hon'ble Apex Court in case of SEBI vs. Rakhi Trading Private Limited delivered on 08.02.2018 in CA No. 1969 of 2011, the Assessing Officer formed a reason to Page 4 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined believe that there is escapement of income by the petitioner in generating non- genuine profit amounting to Rs. 6,35,02,700/-.
4.3 The petitioner in response to the notice, filed the same return of income and requested for the reasons recorded and thereafter, raised the objections vide letter dated 12.07.2021 against the reopening of the assessment contending that the respondent has no jurisdiction to reopen the assessment as the petitioner has disclosed fully and truly all material facts relevant for the assessment. 4.4 It was also pointed out that the petitioner has disclosed the profit earned in the F&O and the derivatives transaction Page 5 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined carried out during the relevant period and therefore, there is no question of escapement of any income. It was also contended that as the respondent-Assessing Officer has failed to form any independent opinion to come to the prima facie reason to believe that the income has escaped assessment.
4.5 The Respondent-Assessing Officer however, by order dated 25.11.2021, disposed of the objection holding that the reopening was justified.
Being aggrieved, the petitioner has preferred this petition.
5. This Court, by order dated 02.09.2024, admitted the petition and granted interim relief confirming the ad interim relief Page 6 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined which was granted earlier vide order dated 21.02.2022.
6. Learned Senior Advocate Mr. Turshar Hemani for the petitioner submitted that the reasons recorded for reopening are incorrect and unreliable as the same are based only upon the information without any nexus with the facts of the case and without independent application of mind on behalf of the respondent.
6.1 It was further submitted that there is no tangible material available on record to form a belief that income of the year under consideration has escaped assessment. It was submitted that impugned notice for reassessment is without jurisdiction in absence of any evidence to substantiate that the petitioner has earned Page 7 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined profit which is not disclosed. 6.2 It was further submitted that the transactions carried out by the petitioner are duly supported by the necessary evidence as the same are executed on the Bombay Stock Exchange after payment of STT at the market rate and therefore, the same cannot be prima facie held to be a non- genuine transaction in absence of any contrary material on record. 6.3 It was submitted that on perusal of the reasons recorded, the respondent has failed to provide any specific data against the petitioner which proves that the petitioner is involved in non-genuine transaction as the Assessing Officer has not made any remark or observation that the petitioner is engaged in transactions which Page 8 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined are reported by the SEBI or as per the decision of the Hon'ble Supreme Court relied upon by the Assessing Officer. It was therefore, submitted that on perusal of the reasons recorded for reopening, the same are based only on presumption as the Assessing Officer could not have formed any reasonable belief for escapement of any income more particularly, when the information made available before the Assessing Officer pertains to the loss and not the profit earned by any assessee by involving in any alleged manipulation of the trade in illiquid stock option resulting into non-genuine business loss or gain. It was therefore submitted that the impugned notice being without any jurisdiction, is liable to be quashed and set aside.
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7. On the other hand, learned Senior Standing Counsel Mr. Varun Patel for the respondent submitted that the respondent has recorded reasons on the basis of the information made available on the insight portal as well as on the basis of the SEBI report and the decision of the Hon'ble Apex Court in case of SEBI vs. Rakhi Trading Private Limited (supra).
7.1 It was further submitted that on similar facts, this Court has not entertained the petition on the basis of the information made available under project Falcon. It was submitted that the profit earned by the petitioner has been prima facie considered as non-genuine by the respondent for coming to the prima facie conclusion that the income has escaped assessment as on the basis of the Page 10 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined information made available on the insight portal, the petitioner has entered into non-genuine transaction of Rs. 6,35,02,700/- whereas the petitioner has offered profit of more than Rs. 3 Crore on currency derivatives and loss of more than Rs. 3 Crore on share transactions. It was further submitted that in similar facts, as held by the Apex Court that when there are identical purchase and sale quantity and huge variation on purchase price and sale price, the information made available to the Assessing Officer has resulted into the fictitious profit/non-genuine profit earned by the petitioner in the 148 unique contracts which are part of the reasons recorded. It was therefore, submitted that on the basis of analysis of the trade Page 11 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined data, chief characteristic of reversal trade as discussed by the Assessing Officer, is required to be examined during the course of the assessment proceedings about the genuineness of the transaction as the assessee has indulging into non- genuine profit amounting to Rs. 6,35,02,700/-.
7.2 It was further submitted that when the assessee has challenged the jurisdiction of the respondent to issue the notice under section 148 of the Act for the reopening of the assessment, no interference may be made as the assessment is at large before the Assessing Officer and if the petitioner is aggrieved by any addition which may be made by the Assessing Officer, alternative remedy is available by preferring an appeal. In Page 12 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined support of his submissions, learned advocate Mr. Patel has referred to and relied upon the following averments made in the affidavit-in-reply filed on behalf of the respondent:
"6(ii) With reference to para 3.2, it is submitted that the contention raised by the petitioner is without any base and not tenable in law. Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings u/s. 147 are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the petitioner to disclose fully and truly all material facts necessary for 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 Page 13 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined consideration have been recorded above. In this regard, it is also pertinent to mention here that above referred details have not been called for by the AO and thus are not been examined by the AO nor such details are furnished by the petitioner. It was only after investigation was carried out by Investigation Wing that this scheme of tax evasion could be unearthed. It is pertinent to mention here that the aforesaid information was not in the possession of the undersigned earlier. The said information/scheme of tax evasion could be unearthed only after receiving the information on INSIGHT PORTAL in MARCH 2021 i.e. well after the assessment proceedings have been finalized in the case of petitioner company. I have carefully considered the assessment records containing the submissions made by the petitioner in response to various notices issued during the assessment proceedings and have noted that the petitioner has not Page 14 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined fully and truly disclosed the following material facts necessary for assessment for the year under consideration.
It is evident from the above facts that the petitioner had not truly and fully disclosed material facts necessary for assessment for the year under consideration thereby necessitating reopening u/s. 147 of the Act.
(iii) With reference to para 3.3, it is submitted that based on the analysis of trade data and comparing with chief characteristics of reversal trades, it is seen that the petitioner has indulged in generating non-genuine profit amounting to Rs.1,30,47,000/by trading in illiquid stock options on the BSE. In this case, specific information has been received on INSIGHT PORTAL and flagged as HIGH Page 15 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined RISK category case by Directorate of Systems. Moreover the underlying information is clearly outlining the systematic evasion of taxes by the petitioner . The facts as enumerated above have been found out on examination on the case records of the petitioner and are self explanatory.
Therefore, no further enquiry is required in this case. On the basis of the same there are reasons to believe that the income chargeable to tax has escaped assessment.
(iv)With reference to para 34 it is submitted that based on the analysis of trade data and comparing with chief tens of reversal trades, it is seen that the petitioner has indulged in generating non-genuine profit amounting to Rs.1,30,47,000/by trading in illiquid stock options on the BSE. In this case, specific information has been received on INSIGHT PORTAL and flagged as HIGH RISK category case by Directorate of Systems. Moreover the Page 16 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined underlying information is clearly outlining the systematic evasion of taxes by the petitioner . The facts as enumerated above have been found out on examination on the case records of the petitioner and are self explanatory. Therefore, no further enquiry is required in this case. On the basis of the same there are reasons to believe that the income chargeable to tax has escaped assessment.
v) With reference to para 3.5, it is submitted that in this case, specific information has been received on INSIGHT PORTAL and flagged as HIGH RISK category case by Directorate of Systems Moreover the underlying information is clearly outlining the systematic evasion of taxes by the petitioner. The facts as enumerated above have been found out on examination on the case records of the petitioner and are self explanatory. Therefore, no further enquiry is Page 17 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined required in this case. On the basis of the same there are reasons to believe that the income chargeable to tax has escaped assessment.
In view of the foregoing facts, it is sufficiently clear that the petitioner has benefitted to the tune of above income and this has resulted in income amounting to Rs. 1,30,47,000/escaping assessment. Thus, the petitioner has failed to disclose truly and fully all material facts concerning its income for the assessment year under consideration. I, therefore, have reasons to believe that income has escaped assessment for the assessment year under consideration.
(vi)With reference to para 3.6, it is submitted that the contention raised by the petitioner is not acceptable. Based on the analysis of trade data as present in this paragraph and comparing with chief characteristics Page 18 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined of reversal trades as discussed above, it is seen that the petitioner has indulged in generating non-genuine profit amounting to Rs. 1,30,47,000/- by trading in illiquid stock options on the BSE.
In this case, specific information has been received on INSIGHT PORTAL and flagged as HIGH RISK category case by Directorate of Systems. Moreover the underlying information is clearly outlining the systematic evasion of taxes by the petitioner . The facts as enumerated above have been found out on examination on the case records of the petitioner and are self explanatory. Therefore, no further enquiry is required in this case. On the basis of the same there are reasons to believe that the income chargeable to tax has escaped assessment.
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NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined It can be reasonably concluded that there is failure on the part of petitioner to disclose fully and truly all necessary facts during the assessment proceedings. For aforesaid reasons, it is not a case of change of opinion by the AO.
Further, as per credible
information received from the
investigation wing, the AO duly
perused and analyzed the information along with the material available.
Thereafter the AO has recorded his
satisfaction in writing after due
application of mind."
7.3 Referring to the above averments, it was submitted that the petition may be dismissed with cost.
8. Having considered rival submissions made by learned advocates for the respective Page 20 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined parties and on perusal of the material on record as well as documents placed by the petitioner by way of a separate compilation containing the return of income, tax audit report and financial accounts, copy of ledger account which are on the record of the respondent which were produced by the petitioner at the time of regular assessment, it appears that the petitioner has disclosed the profit earned from the Speculation Profit on currency derivatives of Rs. 3,33,33,242.14/- which is already credited in Profit and Loss Account. It, therefore, cannot be said that the petitioner has not disclosed fully and truly all material facts relevant for assessment.
9. It also appears from the reasons recorded that the no verification of the material Page 21 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined on record is made by the respondent and there is no independent opinion that any income has escaped assessment due to any failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment.
10. Moreover, from the reasons recorded it appears that the initiation of reopening proceedings are on the borrowed satisfaction as no independent opinion is formed and on bare perusal of the reasons recorded, it emerges that the Assessing Officer, considering the information received from the insight portal, has issued impugned notice forming reason to believe that the income has escaped the assessment on the presumption that the petitioner has been involved in creating the non-genuine profit which is already Page 22 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined offered to tax in the return of income which is accepted in the regular course of assessment by passing the order under section 143(3) of the Act.
11. It is also pertinent to note that there is no basis to form reasonable belief for escapement of income except the information made available on the insight portal. The respondent-Assessing Officer has not considered the material on record to come to the conclusion that there is failure on the part of the petitioner to disclose truly and fully all material facts to have reason to believe for escapement of income. Therefore, on the basis of the information received from another agency on insight portal or from the SEBI report, there cannot be any reassessment proceedings unless the Page 23 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined respondent, after considering such information/material received from other sources, consider the same with the material on record in the case of the petitioner assessee and thereafter, is required to form independent opinion that income has escaped assessment. Without forming such opinion solely and mechanically relying upon the information received from the other sources, the respondent-Assessing Officer could not have assumed the jurisdiction to reopen the assessment based on such information. This view is fortified by the decision of this Court in case of Harikishan Sunderlal Virmani vs. Deputy Commissioner of Income Tax reported in 394 ITR 146.
12. Considering the facts the case, we are of the opinion that the respondent-Assessing Page 24 of 25 Uploaded by JYOTI V. JANI(HC00213) on Fri Dec 13 2024 Downloaded on : Sat Dec 14 02:38:28 IST 2024 NEUTRAL CITATION C/SCA/3700/2022 JUDGMENT DATED: 25/11/2024 undefined Officer could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion on the basis of the material on record vis-a-vis the petitioner is concerned. The petition therefore, succeeds and is accordingly allowed. Impugned notice dated 30.03.2021 issued under section 148 of the Act is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.
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