Gujarat High Court
Pushpa Uttamchand Mehta vs Income Tax Officer Ward 3(2)(9), ... on 5 April, 2022
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 21532 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
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1 Whether Reporters of Local Papers may be allowed to NO
see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of the NO
judgment ?
4 Whether this case involves a substantial question of law NO
as to the interpretation of the Constitution of India or
any order made thereunder ?
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PUSHPA UTTAMCHAND MEHTA
Versus
INCOME TAX OFFICER WARD 3(2)(9), AHMEDABAD
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Appearance:
MR NITIN K MEHTA(3286) for the Petitioner(s) No. 1
MR MR BHATT SENIOR COUNSEL WITH MR KARAN SANGHANI,
ADVOCATE FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 05/04/2022
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 By this writ application under Article 226 of the Constitution of Page 1 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 India, the writ applicant has prayed for the following reliefs:
"A) That the Honorable Court be pleased to issue a writ of mandamus and/or certiorari or a writ in the nature of mandamus and/or certiorari or any other appropriate writ, order or direction quashing and setting aside the impugned Notice dated 08/03/2019 and impugned Order dated 28/11/2019;
B) Pending the hearing and final disposal of the present Petition, the Honorable Court be pleased to stay the operation, implementation and execution of the impugned Notice dated 08/03/2019 and impugned Order dated 28/11/2019 and the assessment proceedings in consequence to the impugned Notice;
C) The Hon'ble Court be pleased to grant ad-interim relief in terms of para 'B' above;
D) For such other and further reliefs as the nature and circumstances of case may require."
2 The subject matter of challenge is the notice dated 8 th March 2019 issued under Section 148 of the Income Tax Act, 1961 (for short, "the Act, 1961") seeking to reopen the assessment for the assessment year 2012-13. It appears that the assessee had filed her original return of income on 29th March 2013 for the A. Y. 2012-13 declaring the total income of Rs.6,47,880/- under ITR - 2. The writ applicant mainly showed the interest income, dividend income and agricultural income. The writ applicant also claimed exempt Long Term Capital Gain from the penny scrip namely M/s. Unisys Softwares and Holding Inds. Ltd. of Rs.11,43,900/-. The scrutiny assessment under Section 143(3) was completed on 5th February 2015 assessing the total income in accordance with the return income.
3 It appears that the Assessing Officer received information from the ADIT (System), o/o CIT (Admn & CO), Ahmedabad on 1 st April 2016 that the assessee had claimed exempt Long Term Capital Gain from the Page 2 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 penny scrip namely M/s. Unisys Softwares of Rs.11,43,900/-. The writ applicant had purchased the same on 25th January 2010 for Rs.2,51,100/- and sold it on 24th June 2011 for the amount of Rs.13,95,000/- at the rate of Rs.93 per share. In the reasons assigned for reopening of the assessment, the following has been stated:
"3.1 On analysis of information received, it is evident that Unisys Softwares and Holding Inds Ltd is penny scrip and has been used by the operators/entry-exit providers to provide exempt LTCG/Short Term Capital Loss/Business Loss, which has been substantiated by the outcome of enquiries made with BSENSE and Directorate of investigation, Kolkata.
3.1.1 Further, the analysis of the share price movement of Unisys Softwares and Holding Inds Ltd was done. The stock price was of around Rs. 10/- in January, 2010 The price was jacked up to Rs.272/-in Nov, 2012 from Rs.10 in 35 months thus within 35 months the price was jumped up nearly 27 times and thereafter, the price of the share has fallen freely and has been trading between the range of Rs. 10 to Rs. 15 The shore price movement connote that exponential rise 27 times in the price of the scrip within 35 months was artificially manipulated to provide exempt LTCG/Short Term Capital Loss/Business Loss 3.1.2 From the trade data of BSE the element of synchronized trade has also been established. Further, it is observed that the assessee has bought shares of Unisys Softwares and Holding och Ltd in 2010 and sold me same on 24.06.2011 to book bogus exempt capital gain u/s 10(38) of Rs.11,43,900/-, In view of the discussion, it is crystal clear that the said purchase and sale of share of Unisys Software's and Holding Inds Ltd, were nothing but mode used by operators/entry-exit providers to provide exempt LTCG/Short Term Capitol Loss/Business Loss bogus.
3.2 The assessee has entered into bogus transactions amounting to Rs.11,43,900/- to claim bogus exempt income which remains unexplained during the F.Y. 2011-12 relevant to AY, 2012-13, which has escaped assessment.
4 Inquiries were made from the ID/IBA data and it is found that the assessed has entered into transaction of penny stock with a view to claim bogus capital gain. It is pertinent to mention that the investigation Wing, Kolkata has also made deep inquiries and established that the assessee is one of the beneficiaries of Page 3 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 accommodation entry by way of investment in penny stock Unisys Softwares and Holding Inds Ltd. Further in the statement recorded u/s. 132(4), Shri Jagadish Purohit one of the Directors of Unisys Softwares and Holding Inds ltd had solemnly affirmed that he was engaged in accommodation entry providing business (Ans. To Q7, 24, & 25). He also stated that with a view to provide accommodation entry he has formed 32 companies and become directors of those companies."
4 To the aforesaid, the writ applicant filed her objections stating as under:
"3. It is submitted that for A.Y. 2012-2013, I had filed my return of income disclosing the long term capital gains of Rs. 11,43,900 as exempt. My return was taken up for scrutiny under section 143 and accordingly various queries were raised. During the assessment proceedings a letter dated 25/09/2014 was issued by the Assessing Officer specifically raising query at point 4 and 5 regarding the exempt capital gain of Rs. 11,43,900 and the sale of shares of Unisys Software and Holding Industries Limited and further called for information regarding the same. A copy of the letter dated 25/09/2014 is enclosed herewith as Annexure A. This query was replied by a letter submitted in course of assessment proceeding wherein the explanation as well as the related documents were submitted to the Assessing Officer. A copy of the letter submitted in course of assessment proceeding is enclosed herewith as Annexure B. It is only after being fully satisfied with the explanation, submission and the details submitted during the assessment proceedings, the learned Assessing Officer finalized the assessment under section 143(3) by passing the Assessment Order dated 05/02/2015 without making any addition or disallowance from the taxable income disclosed in the return of income originally filed. A copy of the Assessment Order dated 5/02/2015 is enclosed herewith as Annexure C. This is categorically clear from para 3 of the said Assessment Order.
4. Despite assessment being completed under section 143(3), the said Notice came to be issued at the fag end of the completion of 6th year from the date of the completion of the Assessment year 2012-13. It is clear that the said Notice cannot be issued unless it is categorically demonstrated that any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. It is clear from the record available with you and from the reasons to believe that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Accordingly the said Notice is without jurisdiction and is bad in law.Page 4 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022
C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022
5. For the very assessment year, during the detailed scrutiny and upon query raised by the Assessing Officer, I submitted all the details pertaining to the long term capital gain arising out of the sale of shares of Unisys Softwares and Holding Industries Ltd., including the copy of the demat account, sale bill, working of capital gain etc. It is therefore clear that I had disclosed all the material required for the assessment and there is no failure on my part to disclose true and correct material facts.
6. The Assessing Officer, having been satisfied with the details submitted by me, formed his opinion that no addition is required to be made and therefore passed assessment order dated 05/02/2015 under section 143(3) without making any addition regarding the long term capital gain arising out of the sale of shares of Unisys Softwares and Holding Industries Ltd. It is submitted that in the Assessment Order, the Assessing Officer accepted the returned income without making any addition during the assessment year 2012-13. The said Notice is nothing but a change of opinion on the same issue of Long term capital gain, which was earlier scrutinized and an opinion formed while finalizing the scrutiny assessment u/s 143(3)."
5 The objections came to be disposed of vide order dated 28 th November 2019 stating as under:
"This contention of the assessee does not hold true since, whatever details available / gathered / received from the investigation wring or from other agencies were to be carried for taxation "no opinion was required to be expressed or given nor any mind was to be applied'. It is not only the evidence in the form of any papers but also the commitment by Shri Manohar Nangaliya. Needless to mention that such admissions are verified by the assessee knowing fully the consequences for wrong declaration or the verification.
Therefore, this is fresh material and new material so far as the case of the assessee is concerned. It is also hereby clarified that this material or documents have not been seized from the premises of the assessee and whereas, no assessment in relation to the above assessee were taken up, these were not available for the purpose of assessments of the assessee. Therefore, there is no change of opinion.
In view of the above, this was the information in the form of accounts/documents received from the Investigation wing and was required to be processed for reopening of the assessments in the spirit of judgement of the Hon'ble ITAT (Agra) in the case of Anil Kumar Singhal vs ITO (2013) 33 TAXMANN 434 and also the judgement of the Page 5 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 Hon'ble Court in the case of Rajat Export Import India Pvt Ltd. vs. ITO, whereby, the AO is not required to build a full proof case, and only to form a prima facie opinion or belief that income has escaped assessment. The relevancy of the material before the AO is to be judged only from that perspective and not from the perspective as to whether the material is sufficient or adequate to sustain the addition ultimately. This will have to be done in the course of assessment proceedings after hearing the assessee.
From the discussion made above it is seen that whatever Information on the basis of which the assessment is being reopened is discovered after assessments requires to be taxed u's 147/148 of the Income Tax Act, 1961 in the spirit and intention of the following judgements of the Hon'ble Courts:-
1) Raunaq Finance Ltd. vs. JCIT
2) Deva Soya Ltd. v. Addl. CIT 3] Aquagel Chemicals Pvt. Ltd. vs. ACIT 4] Rabo India Finance Ltd vs DCIT (2013) 34 TAXMANN 228 (Bombay) This material is therefore prima facie and sufficiency or even correctness of opined to be considered in the spirit of judgement of various Hon'ble Courts as under :
1) Raymond Woolen Mills Ltd. vs. ITO and Ors.(1999) 238 ITR 34 (SC)
2) Reach Cables Networks Ltd. vs. DCIT
3) Deshraj Udyog vs .ITO
4) Chaman Udyog vs. ITO
5) Sun Pharmaceutical Industries Ltd. vs. DCIT
6) Sundar Carpet industries vs . ITO
7) Societe International De Telecommunication vs. DCIT (Ind.
Taxation) In view of these only possibility of escapement of income and reopening of assessment based thereon u/s 148 of the Income Tax, 1961 only has to be considered in the spirit of the judgment of Hon'ble Court in the case of P. Shambu Aithal vs. ITO.
Page 6 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 Hence from the above, there is tangible material available with the AO and also belief of the undersigned at the time of recording reasons u/s 147/148 of the Income Tax Act, 1961."
6 In such circumstances, the writ applicant is here before this Court with the present writ application.
7 Mr. Nitin Mehta, the learned counsel appearing for the writ applicant would submit that the impugned notice and the order disposing of the objections are in gross violation of the principles of natural justice. He would submit that there is no tangible materials available with the respondent to form any opinion as regards the escapement of income. It is nothing, but a fishing inquiry according to the learned counsel.
8 Per contra, Mr. Bhatt would submit that there is a specific information that M/s. Unisys Softwares is a company run, managed and operated by entry providers. It is a penny stock and has been used by the operators to provide exempt LTCG / Short Term Capital Loss.
9 Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the Assessing Officer committed any error in issuing notice under Section 148 of the Act for the reopening of the assessment.
10 Section 147 of the Act authorizes the re-opening of any assessment of a previous year. Section 148, which contains the conditions for re-opening assessments, including the limitation period within which notices can be issued, by its proviso, enacts that:
"Provided that no notice under this section shall be issued unless there Page 7 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice."
11 Almost six decades back, the Supreme Court, in its decision in the case of Calcutta Discount Company Ltd. vs. Income Tax Officer, reported in 1961 (2) SCR 241 had underscored the obligation of every assessee to make a true and full disclosure and said that:
"There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assesses."
12 The Supreme Court further held that once the duty is discharged, it is upto the assessing officer to inquire further and draw the necessary inferences while completing the assessment.
13 As to what can be the valid grounds for re-opening an assessment has been the subject matter of several decisions of the Supreme Court. In Income Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal Das, 1976 (3) SCR 956, the Supreme Court held that the "reasons to believe" must be based on objective materials, and on a reasonable view. The court held as follows:
"The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income- tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the Court to investigate. The sufficiency of grounds which induce the income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non- disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of Page 8 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law."
14 In Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer & Ors., 1993 Supp (1) SCR 28, after reviewing the previous case law, and concluding that a valid re-opening is one, preceded by specific, reliable and relevant information, and that the sufficiency of such reasons is not subject to judicial review- the only caveat being that the court can examine the record, if such material existed, it was held that the facts disclosed in the return, if found later to be unfounded or false, can always be the basis of a re-opening of assessment:
"appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude."
15 A three judge Bench, of the Supreme Court, in the Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd., 2010 (1) SCR 768, after considering its previous decisions, re-stated the position of law as follows:
"5....where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe".....
Section 147 would give arbitrary powers to the Assessing Officer to re- open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open.
6. We must also keep in mind the conceptual difference between power Page 9 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022 C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place.
7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
16 It is therefore, clear that the basis for a valid reopening of assessment should be the availability of tangible material, which can lead the AO to scrutinize the returns for the previous assessment year in question, to determine, whether a notice under Section 147 is called for.
17 It is a settled position of law that the adequacy of the reasons provided by the Assessing Officer fall outside the review powers and remains within the domain of the Assessing Officer at this stage of the proceedings where only a preliminary finding under section 147/148 has been made. It is necessary to reiterate that we are at the stage of the validity of the notice under section 148/147. The inquiry at this stage is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. (See Shri Krishna (P.) Ltd. vs. ITO (1996) 221 ITR 538/87 Taxman 315).
18 Having regard to the materials on record it cannot be said that there is a total non-application of mind on the part of the Assessing Officer while recording the reasons for reopening of the assessment. It also cannot be said that his conclusion was merely based on the observations and information received from the Investigation Wing. The Assessing Officer could be said to have applied his mind to the same.
Page 10 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022C/SCA/21532/2019 JUDGMENT DATED: 05/04/2022 The Assessing Officer could not be said to have merely concluded without verifying the facts that it is the case of reopening of the assessment. We do not find merit in the vociferous submission of the learned counsel appearing for the writ applicant that the contents of the reasons recorded by the Assessing Officer for the reopening of the assessment is merely an introduction about the investigations conducted by the Investigation Wing, the modus operandi of the entry providers, the summing up of inquiry of the Investigation Wing, the information received from the Investigation Wing etc. We have examined the belief of the Assessing Officer to a limited extent to look into whether there was sufficient material available on record for the Assessing Officer to form a reasonable belief and whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. The case on hand is not one where it could be argued that the Assessing Officer, on absolutely vague or unspecific information, initiated the proceedings of reassessment without taking the pains to form his own belief in respect of such materials.
19 In view of the aforesaid, this writ application fails and is hereby rejected.
(J. B. PARDIWALA, J) (NISHA M. THAKORE,J) CHANDRESH Page 11 of 11 Downloaded on : Sat Dec 24 14:18:13 IST 2022