Gujarat High Court
Munjal M Jaykrishna Family Trust vs Income Tax Officer, Ward 1(3)(1) on 5 May, 2023
Author: N.V.Anjaria
Bench: N.V.Anjaria
NEUTRAL CITATION
C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 254 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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MUNJAL M JAYKRISHNA FAMILY TRUST
Versus
INCOME TAX OFFICER, WARD 1(3)(1)
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Appearance:
DARSHAN R PATEL(8486) 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 N.V.ANJARIA
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
Date : 05/05/2023
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) Heard learned advocate Mr. Darshan Patel for the petitioner and learned advocate Mr. Varun Patel for the respondent, at length.
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2. By filling the present petition under Article 226 of the Constitution, the petitioner has prayed to set aside notice dated 28.3.2021 issued by the Assessing Officer under section 148 of the Income Tax Act, 1961 seeking to reopen the assessment of the petitioner for the Assessment Year 2017- 2018 stating that he had reasons to believe that income of the petitioner chargeable to tax for the assessment year under consideration had escaped tax within the meaning of section 147 of the Income Tax Act, 1961.
3. Noticing the basic facts, it was stated that the petitioner is a family trust, which filed the petition through one of the trustees-the authorised signatory. It is the case that the petitioner Trust filed return of income for the Assessment Year 2017-2018 on 28.2.2018 disclosing income of Rs. 72,750/-. While according to the petitioner, it disclosed all material facts fully, the notice under section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') was received by the petitioner. Thereby, the assessment was sought to be reopened.
3.1 On 12.7.2021, the respondent provided reasons recorded by the Assessing Officer for seeking to reopen the assessment. The petitioner filed objections to the reasons recorded on 26.7.2021, which were rejected by the respondent by order dated 14.12.2021. The petitioner has also prayed to set aside the said order disposing of the objections by rejecting them. Under section 142(1) of the Act, notice came to be issued to the petitioner to furnish the details.
3.2 The following were the reasons recorded by the Assessing Officer communicated to the petitioner, "Information was made available to this office arising out of assessment in the case of Smt. Paru M. Jaykrishna (PAN: ADIRPJ9354P) for the Page 2 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined AY 2017-18. During the course of assessment proceedings, it was found that the assessee has claimed exemption u/s 10(38) of the Act of Rs. 59,54,83,421/- on sale of shares of M/s Aksharchem (India) Ltd. and M/ s. Asahi Songwon Colours Ltd.. The promoters of both the companies are family members of Jaykrishna Group i.e. Munjal Mrugesh Jaykrishna, Paru Mrugesh Jaykrishna and Gokul Mrugesh - Jaykrishna The promoters have offloaded their holdings in both the companies through BSE/NSE during the FY 2016-17. On the basis of details filed by the assessee it has been noticed that the shares sold in FY 2016-17 were originally allotted to them under promoter quota at par, long back. In the AY 2017-18, the promoter's holding was transferred to Trusts created in the name of (1) Mrugesh Jaykrishna Family Trust-1, (2) Munjal M. Jaykrishna Family Trust, (3) Mrugesh Jaykrishna Family Trust-2 and (4) Gokul M Jaykrishna Family Trust, through bulk deal (insider trading). The beneficiaries of both the Trust appears to be the promoter group itself. The assessee has calculated LTCG of Rs. 59,54,83,421/- on such transfer and claimed u/s 10(38) of the Act."
3.3 Analysing the information collected as above, it was observed by the Assessing Officer inter alia that the assessee had undertaken transactions as per the above details, however, the same were not shown in the return of income. It was concluded that during the previous year relevant to the Assessment Year, the assessee was having income exceeding the taxable limit, however, the same was not reflected in the return of income filed by the assessee. It was stated that in light of the material on record, it was claimed that the assessee had not disclosed the taxable income in the return of income and therefore the income chargeable to tax to the tune of Rs. 86,53,31,770/- escaped the assessment.
3.4 Raising objections to the reasons recorded, the petitioner-assessee stated that it had filed return of income for the Assessment Year 2017- 2018 and that as evident from the computation of income shown therein, taxable source of income for the year under consideration comprised of Page 3 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined short-term capital gain of Rs. 72,752/- arising from redemption of units of mutual funds. Furthermore, it was stated, the only other income was of Rs. 58,37,478/-. It was stated that the said income represented exempt income and shown accordingly in the computation of income, comprising of dividend income from equity shares and the units of mutual funds.
3.5 It was stated by the petitioner that therefore the say of the department that income of Rs. 86,53,31,770/- had escaped assessment was wrong and baseless. It was contended that neither the said figure was mentioned nor was communicated. With regard to the nature of income alleged to have been escaped assessment, the assessee stated to the Assessing Officer that it had made elaborate reference for claiming exemption under section 10(38) of the Act in case of Smt. Paru M. Jaikrishna. The petitioner assessee claimed that there was no link or connection of the relevant information in her case with the escapment of income in the present case.
3.6 While rejecting the objections of the petitioner assessee, amongst other aspects, the Assessing Officer stated in his order in paragra No.8 thus, which is relevant to be reproduced, "From the above, it is clear that jurisdiction to reopen an assessment u/s.147 r.w.s 148 of the Income-tax Act, can be acquired if on the basis of relevant information coming to the possession of the Assessing Officer income chargeable to income-tax has escaped assessment. The assessment proceedings can be commenced because some information with regard to the fact disclosed comes into his possession which tends to expose the untruthfulness of facts. In the instant case, there was material available on record in the form of information unearthed during the course of assessment proceedings in the case of Paru M Jaykrishna and based on such information requisite belief was formed as the material had rational connection for the formation of the requisite belief."
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4. Learned advocate for the petitioner raised several contentions to assail the notice issued under section 148 of the Act. It was firstly submitted that exercise of powers by the Assessing Officer to reopen the proceedings of assessment was ex facie bad in law, inasmuch as it was based on the incorrect facts. Secondly, it was submitted that what is stated in paragraph 5 of the reasons inter alia that the assessee claimed exemption under section 10(38) of the Act, but not shown the income in the return of income, was incorrect and had no nexus. It was next submitted that figure of Rs. 86,53,31,770/- appeared for the first time in the reasons and nothing was mentioned about the said figure. It was fourthly submitted that reasons contained glaring discrepancies. It was finally submitted that the assessee had not sold any shares but had only purchased shares of M/s. Aksharchem (India) Ltd..
4.1 What was harped by learned advocate for the petitioner was that the reassessment was founded on wrong facts and misdirected exercise of powers. According to the petitioner, it lacked foundation required in law. A spree of decisions came to be relied on by learned advocate for the petitioner. First amongst them was in Chhugamal Rajpal vs. S. P. Sharma [(1971)79 ITR 603 (SC)], from which paragraph No.5 was pressed into service. Also relied on was the another decision of Supreme Court in Commissioner of Income-Tax, Jabalpur (MP) vs. S. Goyanka Lime & Chemical Ltd. [(2015) 64 taxmann.com 312 (SC)], by referring paragraph No.7, to submit that in the instant case the Assessing Officer recorded the satisfaction in mechanical manner without application of mind.
Page 5 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined 4.1.1 Thereafter, the decisions of this court in India Gelatine and Chemicals Ltd. vs. Assistant Commissioner of Income-Tax (No.2) [(2014) 52 taxmann.com 141 (Gujarat)], Bankim Bhagwanji Chaauhan vs. Income Tax Officer, Ward 1 being Special Civil Application No. 14021 of 2019, Vijay Harishchandra Patel vs. Income Tax Officer, Ward (3) being Special Civil Application No. 16171 of 2017, Mumtaz Haji Mohmad Memon vs. Income Tax officer, Ward 6(1) being Special Civil Application No. 21030 of 2017, Narendrakukar Mansukhbhai Patel vs. Income Tax Officer Ward 1(2)(3) being Special Civil Application No. 16790 of 2017 were relied on to buttress the same submission.
4.1.2 Learned advocate for the petitioner was relentless in pressing the point that reassessment was sought to be opened on the basis of wrong facts by further relying on Division Bench decision of this court in Sagar Enterprises vs. Assistant Commissioner of Income Tax being Special Civil Application No. 8202 of 1997 by referring to its paragraph Nos. 2 and 4. Also pressed into service were the decisions of the Division Bench of this Court in Manishkumar Pravinbhai Kiri vs. Assistant Commissioner of Income Taxc being Special Civil Application No. 15475 of 2015, in Giraben Atulbhai Shah vs. Office of the Assistant Commissioner of Income Tax, Central Circle 1(2), Ahmedabad being Special Civil Application No. 26 of 2022, in Mayur Dyechem Intermediates Limited vs. Deputy Commissioner of Income Tax Circle 2(1)(1), Ahmedabad being Special Civil Application No. 18206 of 2021, in Parth Knitex Pvt. Ltd. Pravinkumar Ramkaran Agarval vs. Deputy Commissioner of Income Tax Circle 2(1)(1) being Special Civil Application No. 21107 of 2017 for the very proposition.
Page 6 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined 4.1.3 Learned advocate for the petitioner then proceeded to rely on the decision of the Bombay High Court in Smt. Kalpana Shantilal Haria vs. Assistant Commissioner of Income Tax, Circle 27(2), Navi Mumbai being Writ Petition (L) No. 3063 of 2017 to submit that exercise of rendering satisfaction was mechanical.
4.2 Learned advocate for the petitioner then switched over to submit the aspect mentioned in the rejoinder. It is noticeable that in the rejoinder in para 2 of the rejoinder affidavit, the petitioner made reference about reassessment proceedings against one of the family members named Mr. Mrugesh Jaykrishna Family Trust-I in whose name the Family Trust was created like done in the name of the petitioner herein. It was avered thus, "The Petitioner respectfully states that [ identical reasons, the Respondent reopened the care of Mrugreah Jaykrisna Family Trust -1, which is also challenged the Petitioner before the Hon'ble Guja High Court (SCA 3922/2022). In the cass Nrugresh Jaykrishna Family Assessment Order u/s 147 r.w.s. 144B of act was passed on 23/03/2022, wherein Respondent has agreed to the fact that t is no claim of exemption u/s 10(38) for LTCG on sale of shares. The Respondent further observed 'there being no mate available on record for any adverse find no addition/ disallowance Petitioner states that is made'. the Revenue accepted the of the Petit Trust (Mrugresh Jaykrishna Family Trus for which no Affidavit in Reply is filed, however on identical facts in present case, the Respondent wants to t different view, which is impermissible Trust"
4.3 Respondent filed affidavit-in-reply to inter alia submit that the assesse Munjal M. Jaykrishan Family Trust is a Private Discretionary Trust. In the return of income filed by the assesse for the Assessment Year 2017-2018, total income of Rs. 72,750/- was declared. The return was processed under section 143(1) of the Act on 2.5.2018 resulting into Page 7 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined 'no demand and no refund intimation'. The case of the petitioner was not selected for regular scrutiny. It was stated that, however, information was made available from and out of the assessment in case of another family member Smt. Paru M. Jaykrishna for the Assessment Year 2017-2018. It was stated that the said Smt. Paru M. Jaykrishna had claimed exemption under section 10(38) of the Act on sale of shares of certain companies and that the promoters of the company are the family members of Jaykrishna Group, who are Munjal Mrugesh Jaykrishna, Pary Mrugesh Jaykrishna and Gokul Mrugesh Jaykrishna.
4.3.1 The following portion from affidavit-in-reply is reproduced so as to notice and highlight the precise case of the department from para-4 of the affidavit, "Information was made available to this office arising out of assessment in the case of Smt. Paru M Jaykrishna (PAN:
ADIRPJ9354P) for the AY 2017-18. During the course of assessment proceedings, it was found that the assessee [i.e. Smt. Paru M Jaykrishna (PAN: ADIRPJ9354P)], has claimed exemption u/s 10(38) of the Act of Rs. 59,54,83,421/- on sale of shares of M/s. Aksharchem (India) Ltd. and M/s. Asahi Songwon Colours Ltd.. The promoters of both the companies are family members of Jaykrishna Group i.e. Munjal Mrugesh Jaykrishna, Paru Mrugesh Jaykrishna and Gokul Mrugesh Jaykrishna. The promoters have offloaded their holdings in both the companies through BSE/NSE during the FY 2016-17. On the basis of details filed by the assessee it has been noticed that the shares sold in FY 2016-17 were originally allotted to them under promoter quota at par, long back. In the FY 2016-17/AY 2017-18, the promoter's holding was transferred to Trusts created in the name of (1) Mrugesh Jaykrishna Family Trust-1, (2) Munjal M. Jaykrishna Family Trust, (3) Mrugesh Jaykrishna Family Trust-2 and (4) Gokul M Jaykrishna Family Trust, through bulk deal (insider trading). The beneficiaries of both the Trust appears to be the promoter group itself. The assessee [i.e., Smt. Paru M Jaykrishna Page 8 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined (PAN: ADIRPJ9354P)] has calculated LTCG of Rs. 59,54,83,421/- on such transfer and claimed u/s 10(38) of the Act.
4.3.2 It was further stated in the affidavit that that Assessing Officer after drawing his own inference that the instant assessee, Munjal M. Jaykrishna Family Trust was allotted promoter quota shares of Asahi Songwon Colors Ltd long back. In the Financial Year 2016-2017, it was stated, that the promoters' holdings were transferred to various trusts and that the trust created in the name of 'Munjal M. Jaykrishna Family Trust' was transferred Rs. 86,53,31,770/- through bulk deal during the Financial year 2016-2017 relevant to Assessment Year 2017-2018. It was contended that the Assessing Officer observed that the petitioner assessee Munjal M. Jaykrishna Family Trust filed its return of income for the Assessment Year concerned showing the total income of Rs 72,750/- only as state above and claimed Rs. 58,37,478/- as exempt income, which was in the nature of dividend.
4.4 In the rejoinder affidavit, the petitioner reiterated its case to submit that the petitioner has calculated long term capital gains of Rs.
59,54,83,421/-. It has been stated that respondent committed error in stating that the petitioner calculated LTCG of Rs. 59,54,83,421/- and claimed an exemption u/s. 10(38) of the Act. It was stated that the petitioner has purchased the shares of Rs. 37,73,40,903.82/- from M/s. Aksharchem (India) Ltd.. It was contended that the Assessing Officer resorted to incorrect facts and the reopening was based on incorrect facts and that there was no foundation to exercise powers.
5. Dealing with and disposing of at the outset the aspect of Special Civil Application No. 3922 of 2022 which was filed by Mrugesh Page 9 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined Jaykrishna Family Trust-I where Mrugesh Jaykrishna was also a family member of the promoters and in his name also a trust was created as was done in the case of other family members. In the said petition also, the challenge was against the notice dated 30.3.2022 issued to the said family member-assessee under section 148 of the Act. The reasons recorded and weighed with the Assessing Officer to seek reopening of the assessment against the said petitioner were similar and almost identical.
5.1 The said petition was withdrawn by the said petitioner through his learned advocate on the ground that order was passed favouring the said petitioner. The following order was passed while disposing of the petitioner on 20.03.2023, "Learned advocate Mr.Darshan Patel fairly stated that in light of the Assessment Order dated 23.03.2022 passed under Section 147 read with section 144B of the Income Tax Act, 1961, the present petition has become infructuous, in which the assessment is nil.
In that view, the present petition would not survive and accordingly, this petition is disposed of as infructuous as per the statement made by the learned advocate for the petitioner. Notice is discharged. Interim relief granted stands vacated."
5..1.1 In view of the above development, in case of assessee Mrugesh Jaykrishna Family Trust -1 in course of hearing the court asked learned advocate for the petitioner whether he would prefer to withdraw the present petition in light of the above facts obtaining.
5.1.2 Learned advocate for the petitioner expressed that he did not want to withdraw the present petition, however, proceeded to rely on the said assessment order in case of that assessee to support the present challenge. This court is not impressed with the stand.
Page 10 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined 5.2 What could form basis for exercise of powers to reopen the assessment by the Assessing Officer was well delineated by the supreme court in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited [(2008) 14 SCC 208]. It was observed, "Section 148 as presently stands is differently couched in language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Amendment) Act, 1987, the provision read as follows:
"148. Issue of notice where income has escaped assessment.(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub- section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub- section.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." (para 17) 5.2.1 The supreme court compared position in juxtaposition of section 147 prior to its substitution in the year 1987, "Section 147 prior to its substitution by the Direct Tax Laws (Amendment) Act, 1987, stood as follows:
"147. Income escaping assessment.If
(a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income Page 11 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).
Explanation 1.For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :
(a) Where income chargeable to tax has been underassessed ; or
(b) where such income has been assessed at too low rate ; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.
Explanation 2.Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." (para 18) 5.2.2 The above position of law was stated by the supreme court in Rajesh Jhaveri Stock Brokers Private Limited (supra) in the following succinct words, " Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reasonµ in the phrase reason to believeµ would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. " (para 19) 5.2.3 In Rajesh Jhaveri Stock Brokers Private Limited (supra), it was explained thus, what could validly confer the jurisdiction on the Page 12 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined Assessing Officer to reopen the assessment, by observing further as under, "The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso." (para 21) 5.3 Similarly, in Raymond Woollen Mills Limited vs. Income Tax Officer, Centre Circle XI, Range Bombay and Others [(2008) 14 SCC 218], the supreme court observed about the scope of judicial review. It was observed that sufficiency or correctness of the reasons are not subject to judicial review. Prima facie existence of material forming the basis of reopening, if available, would justify the exercise of powers by the Assessing Officer. In that case, the assessment was proposed to be reopened on the ground that charging of fiscal duties, labour charges, fuel, wages, chemicals etc. by the assessee company to its profit and loss account while excluding the same in valuing its stock had resulted in Page 13 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined undervaluation of inventories and understatement of profits, it was held that the High Court committed an error in setting aside the reopening of the case.
5.3.1 The supreme court in Raymond Woollen Mills Limited (supra) stated about the scope of judicial review, "At the stage of notice of reopening of the assessment, the court has only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. The supreme court can not strike down the reopening of the case in the facts of the present case. It will be open to the assessee to prove before the assessing authority that the assumptions of facts made in the notice were erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding." (para 3) 5.4 The principles emerge are inter alia that when the Assessing Officer proceeds to exercise his powers to reopen on the basis of reasons which he may have to believe on the basis of facts available with him that the income chargeable to tax had escaped the assessment for the year under consideration, the word 'reason' would imply the justifying facts available with the Assessing Officer. 'Reason to believe' is a cause which may validly weigh with the Assessing Officer to prima facie notice that the income had escaped assessment. When primary facts and on the basis of the primary but cogent facts possessed by the Assessing Officer, he believes that the income had escaped the assessment for the year under consideration, he would be justified in resorting to powers of reassessment to issue notice to the assessee under section 148 of the Act.
Page 14 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined 5.4.1 It is well settled that at this initial stage, the final ascertainment about the escapment of income is not necessary. What is only required is the formation of opinion based on prima facie, but precise facts. Even where the Assessing Officer had exercised powers to reopen the assessment, the assessee could well exercise his right to convince the Assessing Officer that the reasons weighed with the Assessing Officer to reopen were not good and valid reasons and that there was no escapment of income.
5.4.2 At the stage when the Assessing Officer seeks to reopen the assessment, the final outcome of the proceedings is not relevant. The powers to reopen are liable to be exercised on the basis of cogent probable facts and not on the basis of established facts. Establishment of escapment of income is a stage to arrive at a conclusion of the reassessment proceedings. At the stage of issuance of notice, the only question is to be addressed is whether relevant material is available with the Assessing Officer on the basis of which reasonable likelihood could be gathered that there was an escapment of income. If the facts so suggest, the Assessing Officer would be entitled to form such belief to proceed further. Even the sufficiency of material could not be said to be germane at this stage. Whether the material could conclusively prove the escapment is not a concern at this initial stage.
6. Appreciating the controversy in light of the above principles and facts situation obtaining, it is to be clearly noticed that the transactions were noticed by the Assessing Officer in respect of sale of shares of the companies named M/s. Aksharchem (India) Ltd. and M/s. Asahi Songwon Colours Ltd.. The present petitioner claimed exemption under Page 15 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined section 10(38) of the Act to the tune of Rs. 59,54,83,421/-. In the return of income filed for the year under consideration, the gross total income shown was of Rs. 72,750/-. It is to be further noticed that another assessee Smt. Paru M. Jaykrishna, a family member, was also subjected to proceedings of reopening of assessment on the same facts and in connection with the sale of shares of the very companies. The Assessing Officer noticed that promoters of M/s. Aksharchem (India) Ltd. and M/s. Asahi Songwon Colours Ltd.. were the family members of Jaykrishna group. They were, it was stated, Munjal Mrugesh Jaykrishna, Paru Mrugesh Jaykrishna and Gokul Mrugesh Jaykrishna.
6.1 It was noticed by the Assessing Officer that these promotors-the family members off-loaded their holdings of shares in both the companies through exchange in the Financial Year 2016-2017. The promoters' holdings came to be transferred to the different Trusts created in the name of the the family members, which were (i) the petitioner-Mrugesh Jaykrishna Family Trust-1, (ii) Munjal M. Jaykrishna Family Trust, (iii) Mrugesh Jaykrishna Family Trust-2 and (iv) Gokul M. Jaykrishna Family Trust., through bulk deal.
6.2 The contention on the part of the petitioner that figure of Rs. 86,53,31,770/- was mentioned for the first time, does not lead the case of the petitioner anywhere. The said amount is referable to the bulk deal or insider trading resorted to by the assessee and on such basis certain long term capital gains were claimed. The relatibility of the said figure is a matter of further inquiry which could be done only in reassessment proceedings. In paragraph No.5 of the affidavit-in-reply has dealt with this aspect contending, Page 16 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined "On the basis of such information, the Assessing Officer after drawing his own inference that the instant assessee, Munjal M. Jaykrishna Family Trust was allotted promoter quota shares of Asahi Songwon Colors Ltd. long back. In FY 2016-2017 the promoters holding was transferred to various trusts. The trust created in the name of 'MUNJAL M. JAYKRISHNA FAMILY TRUST' was transferred Rs.
86,53,31,770/-, through bulk deal (Insider trading) during the FY 2016- 17, relevant to AY 2017-18. The AO observed that the assesse [i.e. Munjal M. Jaykrishna Family Trust] had filed its ROI for AY 2017-18 on 28.02.2018 declaring total income at Rs. 72,750/- only and have claimed Rs. 58,37,478/- as exempt income, being dividend income. The AO after due perusal of facts and information, inferred that there was escapment of income, and after obtained the requisite approval from higher authority, reopened the case u/s. 148 of the Act."
6.3 In ITO vs. Selected Dalurband Coal Co. (P) Ltd. [(1997) 10 SCC 68], the principle was stated that formation of belief by the Assessing Officer is within the realm of his subjective satisfaction.
6.4 The Assessing Officer found that there was likelihood of the acts and instance of insider trading by the said assessee. The beneficiaries, it was noticed, were the promoters group consisting of family member. The assessee Smt. Paru M. Jaykrishna calculated the long term capital gain of Rs. 59,54,83,421/- and on such transfer, claimed exemption under section 10(38) of the Act. The petitioner assessee, it was prima facie found to have earned income to the tune indicated which was chargeable to tax but the same was not shown in the return of income.
6.5 When on the basis of the above operating facts, the Assessing Officer harboured reasons to believe that the assessment of the petitioner was required to be reopened, it could be said to be well justified. The Assessing Officer could be said to have formed his opinion on the basis Page 17 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023 NEUTRAL CITATION C/SCA/254/2022 CAV JUDGMENT DATED: 05/05/2023 undefined of cogent facts suggesting possibility of escapement of income, though to be probed further in the competent proceedings. Sale of shares of two companies was by the promoters, who was the family members. According to the Assessing Officer, he was satisfied that there was insider trading amongst two family members by which the income which had become chargeable to tax was not shown and had escaped the assessment requiring to exercise powers for reopening of the assessment. There was a strong foundation for invoking reassessment.
7. In the above view, the challenge to the impugned notice dated 28.3.2021 under section 148 of the Act issued by the Assessing Officer to the petitioner to reopen the assessment in respect of the Assessment Year 2017-2018 stands merit less. The petition is liable to be dismissed. Accordingly, it is dismissed.
(N.V.ANJARIA, J) (D. M. DESAI,J) C.M. JOSHI/pps Page 18 of 18 Downloaded on : Sat Sep 16 19:12:36 IST 2023