Gujarat High Court
The Principal Commissioner Of Income ... vs Nishant Kantilal Patel on 7 January, 2022
Author: Sonia Gokani
Bench: Sonia Gokani
C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 296 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
==========================================================
1 Whether Reporters of Local Papers may be allowed NO
to see the judgment ?
2 To be referred to the Reporter or not ? NO
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 ?
==========================================================
THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1
Versus
NISHANT KANTILAL PATEL
==========================================================
Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
for the Opponent(s) No. 1
==========================================================
CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 07/01/2022
ORAL JUDGMENT
(PER : HONOURABLE MS. JUSTICE SONIA GOKANI) Page 1 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022
1. The appellant - Principal Commissioner of Income Tax is aggrieved by the order dated 07.01.2021 passed by the Income Tax Appellate Tribunal ('the ITAT' hereinafter) passed in Appeal ITA No.5/SRT/2019 for Assessment Year 2013-2014 and therefore, it has raised the following substantial questions of law for the consideration of this Court.
"(a) Whether in the facts and circumstances of the case, learned ITAT has erred in law and on facts in quashing the reassessment proceedings under Section 147, even though the Assessing Officer had sufficient tangible material to form a bonafide belief that the income of the assessee has escaped assessment for AY 2013-14?
(b) Whether in the facts and circumstances of the case, learned ITAT has erred in law and on facts in not deciding the case on merits i.e. without appreciating the facts of the case and the cogent material and circumstantial Page 2 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 evidences gathered by the Assessing Officer during the case of assessment proceedings?"
2. The case of the assessee was reopened as the information was received from the Investigation Wing of Kolkata, which carried out survey/search operations and in large number of penny stock companies the share prices were allegedly artificially raised on the stock exchange in order to book bogus claims of Long Term Capital Gain/Loss. The information as per EFS/ITS data/Penny Stock reflected that the assessee had shown Long Term Capital Gain of Rs.20,76,924/- on which STT had been paid and which is claimed as exempt and scrip being Global Securities Ltd. is one of the Penny Stock Companies utilized by the Stock Brokers for providing the bogus Page 3 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 accommodation entries. Therefore, examining suspicious sale transaction of shares (penny scrip), process began.
2.1 The case was reopened and a notice under Section 148 of the Income Tax Act, 1961 ('the Act' hereinafter) was issued on 17.02.2017 after obtaining necessary approval of the higher authority. 2.2 The assessee on 31.03.2017 requested to treat the original return e- filed on 29.03.2014 declaring total income of Rs.7,77,230/- as the return filed in response to the notice issued under Section 148 of the Act.
2.3 The reasons for reopening the case were furnished on 10.04.2017 and a notice Page 4 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 under Section 143(2) of the Act dated 13.04.2017 also was issued and duly served upon the assessee. Later on, a notice under Section 142 (1) of the Act dated 24.07.2017 along with the questionnaire were issued calling upon the details with regard to scrutiny reassessment proceedings which were duly served upon the assessee. 2.4 The assessee claimed the LTCG on sale of scrip Global Securities Ltd. On considering the record of earlier years of the assessee, the assessing officer found that such huge amount of exempted capital gain has never been earned by the assessee. Moreover, the reason for reopening the case was "to examine the earning of suspicious capital gain from transaction in penny Page 5 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 stock." The assessing officer noticed that the LTCG from the sale of shares of Global Securities Ltd. amounted to Rs.20,76,924/- in the return of income filed for the Assessment Year 2013-2014. The assessee had purchased the shares of Global Securities Ltd. on 01.1.2011. According to the Assessing Officer, the assessee made a gain of 9000% in a span of about fifteen months and within three months after dematerializing of the shares.
2.5 Following are the points that were to be prima facie noted based on information and submissions made by the assessee:
(i) On the ground that the scrip was named in Kolkata Investigation Report
titled as "Project Bogus LTCG/STCL through BSE Listed Penny Stocks" prepared by the Page 6 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 DDIT (Investigation) Unit 2(3),
(ii) The statements by promoters, brokers and associated persons,
(iii) The assessee is not an ardent trader in shares and invested in only handful of shares in his life,
(iv) It invested in shares of the company Global Securities Ltd. which had no worthwhile credentials on record,
(v) The purchase of the shares of Global Securities Ltd. were off market transactions where no STT has been paid, and
(vi) The sale of shares happened through a broker which has been categorically involved in LTCG scam as named in Kolkata Investigation Report through online mode and STT.
Page 7 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 2.6 The Assessing Officer had not only rejected the reply of the assessee and concluded that huge Capital Gain earned by the assessee within a very short period of time and investment in penny stock was neither the result of coincidence nor of the genuine investment activity, but was on account of a well planned and executed scheme in which the company, brokers, buyers and sellers of the scripts worked in tandem to achieve predetermined objectives. Hence, the LTCG under Section 10(38) of the Act had been denied and the said amount had been assessed as undisclosed sources under Section 68 of the Act. Accordingly, the amount of Rs.20,76,924/- claimed as exempt income against the sell of scrip of Global Page 8 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Securities Ltd. during the financial year 2012-2013 (Assessment Years 2013-2014) was treated as undisclosed income under Section 68 of the Act and penalty proceedings under Section 271(1)(c) had been initiated separately for furnishing inaccurate particulars of income.
2.7 This was challenged before the Commissioner of Income Tax (Appeals)-3, Vadodara ('the CIT' hereinafter). The CIT concurred with the Assessing Officer upheld not only the action of the reopening under Section 148 of the Act holding that various details along with the meticulous analysis lead to the fact that share transactions were not genuine. The purchase of shares was off market purchase not reported in the Page 9 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 stock exchange. The purchase was through a back date contract note in cash. The shares belongs to a penny stock company, with no credentials and selling rates were artificially hiked with no real buyers. The Tribunal held that the only charge was qua the genuineness of the transactions and the appellant was not able to give any supporting documentary evidence as envisaged by the A.O. That no details of physical delivery of shares and transactions could be submitted. According to the Tribunal, the AO had precisely assumed the purchase as not genuine and the sales was done at the high rates for such penny stocks with no real buyers and held the same to be bogus.
Page 10 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 2.8 The shares issued being remitted to the transferee in the physical form were not converted into the D-mat form and the question was with regard to the date when the shares were dematerialized by the company. According to the Tribunal, this was relevant as the trading on the exchange, which only would make the share a listed share, gains on which is exempt under Section 10(38) of the Act could as per the guidelines be only in the D-mat form. However, the appellant when spoke of having deposited STT, the question raised was whether the said payment would make a non-genuine transaction genuine. By detailed examination, the Tribunal was of the opinion that the purchase or the sale of shares are chargeable to STT, it had to Page 11 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 be carried on through a recognized stock exchange, off market transactions are not chargeable to STT. Hence, no exemption under Section 10(38) of the Act is available for shares which would have been sold off the market.
3. This was challenged further by the assessee before the ITAT. In assessee's appeal being ITA Nos.05/SRT/2019 for the Assessment Year 2013-2014, the question which was raised before the Tribunal was whether the Assessing Officer erred in reopening assessment under Section 147 of the Act by issuing notice under Section 148 of the Act.
3.1 The Tribunal noted that the challenge by the assessee is to the Page 12 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 reassessment proceedings under Section
147/148 of the Act and he also raised the issues on merits. However, the main grievance of the assessee had been confined to the reassessment proceedings which is termed as a technical issue by the Tribunal.
3.2 According to the Tribunal, the assessee is an individual, who derived income from other sources and LTCG during the year under consideration. The case was reopened since the information received from Investigation Wing of Kolkata, which carried out survey/searched operations that in large number of penny stock companies the share prices were artificially raised on the stock exchanges in order to book Page 13 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 bogus claims of the LTCG/Loss.
3.3 It further noted that the assessee had shown LTCG on which STT has been paid which is claimed as exempt and scrip Global Securities Ltd. is one of the penny stock companies utilised by brokers for providing accommodation entries. Therefore, the case of the assessee was reopened under Section 147 of the Act to examine the suspicious sale transaction in shares (penny scrip) and a notice under Section 148 of the Act was issued after obtaining necessary approval.
3.4 The assessee challenged the validity or reassessment for the first time before the Tribunal, this was by way of an additional ground that the assessee raised Page 14 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 the question of the validity of reassessment. This being the legal issue going to the root of the matter hence, the ground of this appeal was permitted to be admitted. The Tribunal held that the technical consideration and substantial gesture when are pitted against each other then the substantial justice deserves to be preferred and cannot be overshadowed by the technical consideration. The assessee is permitted to raise the legal issue at any stage. It relied on the decision of the Apex Court rendered in case of National Thermal Power Company Ltd. vs. CIT, reported in 229 ITR 383 (SC). The ratio of the Apex Court was that the Tribunal under Section 254 of the Act has not only the power to decide the grounds which arise Page 15 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 from the order of the Commissioner of Income-tax (Appeals), but it has also the power to adjudicate the questions of law arising in the assessment proceedings although not raised earlier. The additional ground questioning the validity of reassessment proceedings being a legal issue going to the root, it has chosen to admit the issue for adjudication.
3.5 On the question of reasons recorded for reopening of the assessment proceedings, the arguments before the Tribunal was that there was no tangible
material before the Assessing Officer and the information received from the intelligence being of Kolkata is only information. There was no live link between Page 16 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 the material in possession of the Assessing Officer and formation of belief. Therefore, the reasons recorded by the Assessing Officer were bad in law.
3.6 The revenue had argued that the revenue officer after getting the information from Investigation Wing, Kolkata had examined the information
received from the Investigation Wing and examined the information apply his mind and on being satisfied that the income chargeable to tax had escaped the assessment and hence, the reasons recorded are valid. The reasons recorded are thus:
"The assessee filed return of income for the year under consideration on 29.03.2014 declaring total income at Rs.7,77,230/-.
In this case, information is received from the Investigation Wing, Kolkata who had carried out Page 17 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 survey/search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain/Loss. The Information as per EFS/ITS data/penny stock reflects that the asseessee has shown Long Term Capital Gain of Rs.20,76,924/- on which is claimed as exempt.
This is one such case wherein the assessee has claimed that the Long Term Capital Gain amounting to Rs.20,76,924/- arising out Of sale of shares is exempt and the scrip name being Global Securities Ltd. which is one of the companies utilized by Anand Rathi Share and Stock Brokers ltd. for providing bogus accommodation entries. This fact was duly accepted before the Investigation Authorities, Kolkata Wing in the statement taken on oath u/s. 131 of the I.T. Act of Shri Sanjay Vora, Regional Director, East Zone of M/s. Anand Rathi Shares and Stock Brokers Ltd during the course of Survey Operation u/s. 133A of the Act.
In view of the proceedings conducted by the Investigation Wing, Kolkata and after perusal of the information received form the Investigation wing, Kolkata as well as available data, I have reason to believe that income to the extent of Rs.20,76,924/-has escaped assessment for A.Y. 2013-14 by reason of Page 18 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 failure on the part of the assessee to disclose fully and truly all material facts necessary in the return of income. Hence, notice u/s. 148 r.w.s. 147 of the Income Tax Act, 1961 is to be issued for the assessment year 2013-2014."
"In this case, information is received from the Investigating Wing, Kolkata who had carried out survey/search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain/ Loss."
3.7 The Tribunal analyzed the reasons recorded to note that they are only information, which does not say that in
case of assessee under consideration the income chargeable to tax had escaped the assessment within the meaning of Section 147 of the Act on account of share price manipulation on the stock exchange. The Page 19 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Investigation Wing, Kolkata had not carried out any survey/search operation on the assessee, it was a survey or search operation on other assessee. According to the Tribunal, the Assessing Officer had to record the reason in respect of the assessee.
3.8 The statement recorded on oath under Section 131 of the Act of Shri Sanjay Vora, Regional Director, East Zone of M/s.Anand Rathi Shares and Stock Brokers Ltd. during the course of Survey Operation under Section 133 A of the Act as mentioned by the Tribunal does not contained the name of the assessee. It does not relates to the broker of the assessee, moreover, the assessee has not sold the shares through Page 20 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 M/s. Anand Rathi Shares and Stock Brokers Ltd., but through Arcadia Share and Brokers Pvt.Ltd. Therefore, the reasons recorded by the Assessing Officer did not directly relate to the assessee under consideration.
Therefore, this information has no tangible material which could suggest that in assesses's case the income chargeable to tax has escaped assessment.
3.9 Shri Sanjay Vora's statement since did not contain the name of the assessee and did not relate to the broker of the assessee and when the assessee did not sell shares through M/s.Anand Rathi Share & Brokers, the reasons recorded of the findings of survey or search operation in relation to other assessee would not apply Page 21 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 on the assessee.
3.10 The Tribunal held that the reasons which had been given for the belief which was formed by the Assessing Officer hopelessly failed to satisfy the requirements of the statute and the whole process of taxation needs to follow the procedures which are valid under the law and must adhere to substantive as well as procedural law. The levy and collection of the taxes always should be strictly in accordance with law. The words reason to believe is extensively discussed, which means that the belief needs to be of an honest and reasonable person based upon reasonable grounds and the Assessing Officer may act on direct or circumstantial Page 22 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 evidence, but not on mere suspicion, gossip or rumor. He would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or there is no material or relevant to the "belief", as required by the section.
3.11 According to the Tribunal, there was no material or fact which had been stated in the reasons for starting
proceedings in the assessee's case on which any belief could be founded of the nature contemplated under Section 147 of the Act. Therefore, the Tribunal allowed the appeal of the assessee by holding that the Assessing Officer's reasons recorded fall in the zone of "reasons to suspect" and not "reasons to believe" and therefore, it Page 23 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 quashed the reassessment proceedings.
4. Aggrieved revenue is before this Court raising the aforementioned questions of law.
4.1 Learned senior standing counsel, Mr.Varun Patel has fervently urged that the Tribunal seriously erred in not realising that the source was the information received from Investigation Wing, Kolkata, which after survey/search operation had found the large number of penny stock companies operating, where share prices were artificially raised on the stock exchange in order to book bogus claims of LTCG/Loss. Any information is received in relation to the other agency can furnish the ground for reassessment proceedings, if other similarly situated had also acted in Page 24 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 the very kind of modus operandi. After considering the information/material received from the other source, the Assessing Officer has formed his independent opinion on the basis of the material on record in case of the assessee. That the income chargeable to tax for the relevant Assessment Year 2013-2014 had escaped the assessment. He further emphasised that it was not a mechanical action but relying upon the information received from other source and there ought to be a reassessment for the verification. 4.2 Learned senior standing counsel, Mr.Varun Patel has relied on the following decision in support of his submissions:
(i) Jayant Security & Finance Ltd. vs. Assistant Commissioner of Income-tax, Page 25 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Officer Circle 1(1), reported in (2018) 91 taxmann.com 181
(ii) Vilas Vrajlal Parekh HUF vs. Income-
tax Officer, Ward(1)3, reported in (2021) 129 taxmann.com 68.
5. Apt would be to reproduce Sections 147 and 148 of the Act:
147: If any income chargeable to tax, in the case of an assessee, has escaped www.assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment yeart. unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failuret on the part of the assessee to make a return Page 26 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material factst necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) locate outside India, chargeable to tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation I-Productionff 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 the foregoing proviso.
Explanation 2-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 no return of income has been furnished by the assessee although his total income or the total income of Page 27 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax :
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but-
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate: or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer Page 28 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
Explanation 3-For the purpose of assessment or reassessment ff under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148.
Explanation. For the purpose of assessment or reassessment or recomputation under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.]"
148: Before making the assessment, reassessment or recomputation under Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, Page 29 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income charge able 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.
Explanation 1.-For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,
(i) any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk Page 30 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 management strategy formulated by the Board from time to time;
(ii) any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.
Explanation 2.-For the purposes of this section, where,
(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or
(ii) a survey is conducted under section 133A, other than under sub section (24) or sub-section (5) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or Page 31 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or docu ments, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.
Explanation 3.-For the purposes of this section, specified authority means the specified authority referred to in section 151.]"
Page 32 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022
C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022
6. This Court in case of HariKishan Sunderlal Virmani, reported in 394 ITR 146 (Guj.-HC) on the issue of reopening was considering as to whether any reassessment proceedings can be permitted on the basis of the information received from the another agency, when the Assessing Officer was required to form an independent opinion on the basis of the material on record that the income has escaped the assessment for the relevant year. The Court held that without forming any such opinion solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification.
"5.3 Thus from the reasons recorded, the reopening of the assessment is on the information /data supplied by the office of the Principal Director of Income Tax (Investigation), Ahmedabad and the information received, Page 33 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 it appears that though the client code of the assessee with the broker Guinness Securities Limited was WW/2647, modified client code was found to be WW/2108 and therefore, to verify the genuineness of the modification of the client code, by applying Lavenshtein Distance Analysis or digit edit analysis utility, distance was found to be 3 and therefore, it is believed that the code is not wrongly typed and it is termed as deliberate change and establishing non-genuineness and contrived nature of the code change. From the reasons recorded, it does not appear that verification of the material on record there is independent formation of opinion by the A.O. and that any income has escaped assessment due to any failure on the part of the assessee in not disclosing truly and correct facts / material necessary for assessment. From the reasons recorded, it appears that the impugned reopening proceedings satisfaction. are on the borrowed No independent opinion is formed. On the plain reading of the reasons recorded what emerges is that the A.O. on considering the information received from the Principal Director of Income Tax (Investigation). Ahmedabad, reassessment proceedings have been initiated on the ground that the income escaped assessment. However, there is no assertion regarding the basis on which material on record, he has come to such conclusion. Therefore, the material on the basis of which the A.O. seeks to assume the jurisdiction under section 147 if the Act is the Page 34 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 information received from the external source viz. the Principal Director of Income Tax (Investigation), Ahmedabad. It cannot be disputed that on the basis of the information received from another agency, there cannot proceedings. be any reassessment However, after considering the information / material received from other source, A.O. is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification.
5.4 At this stage it is required to be noted that even in the reasons recorded, there is no allegation that there was any failure on the part of the assessee in not disclosing truly and fully material facts necessary for assessment. Under the circumstances, the assumption of the jurisdiction to reopen the assessment beyond the period of four years in exercise of powers under section 147 of the Act is bad in law and contrary to the provisions of section 147 of the Act. Under the circumstances, on the aforesaid ground alone, the impugned reassessment proceedings deserve to be quashed and set aside.Page 35 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022
C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 5.5 In view of the above and for the reasons succeeds. stated above, present petition The impugned notice issued under section 148 of the Income Tax Act, 1961 and reopening of the proceedings for A.Y. 2009-10 cannot sustain and the same deserves to be quashed and set aside and are hereby quashed and set aside. Rule is made absolute accordingly. In the facts and circumstances of the case, there shall be no order as to costs."
7. The Apex Court in case of Sheo Nath Singh vs. ACIT, reported in 82 ITR 147 (SC) held that the Income Tax Officer needs to satisfy the requirement of the statute. The material which the Assessing Officer had before him for issuing the notice were referred to vaguely and all that had been stated was that from the communications it appeared that the alleged creditors were name-lenders and the transactions were bogus. According to the Apex Court, the belief must be that of an honest and Page 36 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 reasonable person based upon the reasonable grounds. The Income Tax Officer may act on direct or circumstantial evidence, but not only on mere suspicion, gossip or rumour.
8. This Court also needs to consider the decision in case of Jayant Security & Finance Ltd. (supra) where the assessment was framed after scrutiny, during which time, the advances made by the East West Finvest India Limited ('the EWFIL' hereinafter) to the assessee came up under consideration. The notice for reopening had been issued beyond the period of four years from the end of relevant assessment year. The question was of the change of opinion as well as failure on the part of the assessee to disclose truly and fully all material fact.
Page 37 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 8.1 The reasons recorded had shown that the Assessing Officer had received information from the Investigating Wing in connection with advances received by the assessee from EWFIL. Upon verification, it was found that the EWFIL was an entry operator and had received bogus share application money from paper companies and thereafter advanced loans to certain entities and companies. The EWFIL work as an entry operator and earns bogus funds to provide advances to various persons. Out of the loan received by the assessee from the EWFIL repayment of certain amount was made. Interest of certain amount was also paid, the Assessing Officer noted that as per information, EWFIL was a paper concern and the advances/loans received by the assessee Page 38 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 from such concern were bogus loans and the entire transactions were bogus and sham transactions. It formed an opinion that the assessee had not made true and full disclosures and the income chargeable to tax has escaped the assessment.
8.2 The Assessing Officer after having applied his mind and processed such information, formed his belief that the income chargeable to tax has escaped the assessment. The reasons recorded did not proceed on the information supplied by the Investigating Wing. The Court held that neither the application of mind, nor the formation of belief that income chargeable to tax had escaped the assessment on the basis of information available at the disposal of Assessing Officer. After he Page 39 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 expressed in any rigid format in the reasons recorded, the two essential requirement can be gathered from reasons recorded.
8.3 Apt would be to reproduce the relevant findings and observations of this Court.
"7. The reasons thus recorded do not proceed only on the information supplied by the Investigating Wing. The Assessing Officer having applied his mind and processed such information, formed his belief that the income chargeable to tax has escaped assessment. Neither the application of mind, nor the formation of belief that income chargeable to tax has escaped assessment on the basis of information available at the disposal of Assessing Officer, have to be expressed in any rigid format in the reasons recorded. Hence, as these two essential requirements can be gathered from the reasons recored, the notice for reopening cannot fail on such basis. Division Bench of this Court in case of Dishman Pharmaceuticals & Chemicals Ltd. v. Dy. CIT (OSD) [2012] 346 ITR 228/30 taxmann.com 67 (Guj.) made following observations:Page 40 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022
C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 "From the above judicial pronouncements, the following principles can be culled out:
[i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act beyond four years from the end of the assessment year, the following two conditions must be satisfied (a) that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and (b) that the same was occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year, or to disclose fully and truly all material facts necessary for assessment of that year; [ii] both the above conditions are conditions precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen the assessment beyond four years of the end of the assessment year; [iii] such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail; [iv] there is no set format in which such reasons Page 41 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non filing of the return by the assessee or failure on his part of disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs.."
7.1 We may also refer to the judgment of Division Bench of this Court in the case of Pr. CIT v. Gokul Ceramics [2016] 71 taxmann.com 341/241 Taxman 1 (Guj.), wherein, the following observations were made:
"9. It can thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show-cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise Page 42 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue.
10. In case of Central Provinces Manganese Ore Co. Ltd. v. Income Tax Officer, Nagpur (Supra) the Supreme Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee had declared very low price in respect of the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was Page 43 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 systematically under- voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found by the Customs Authorities that the assessee had under-voiced goods during export. Under such circumstances, upholding the validity of the notice for reopening, the Supreme Court held and observed as under:
"So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities but it can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee's income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied."Page 44 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022
C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022
11. In case of Income Tax Officer v. Purushottam Das Bangur (Supra) after completion of assessment in case of the assessee, the Assessing Officer received letter from Directorate of Investigation giving detailed particulars collected from Bombay Stock Exchange which revealed earning of share and price of share increased during period in question and quotation appearing at Calcutta Stock Exchange was as a result of manipulated transaction. On the basis of such information, the Assessing Officer issued notice for reopening the assessment. The question, therefore, arose whether the information contained in the letter of Directorate of Investigation could be said to be definite information and the Assessing Officer could act upon such information for taking action under Section 147(b) of the Act. In such background, the Supreme Court observed as under:
"12. Ms. Gauri Rastogi, the learned counsel appearing for the respondents, has urged that the letter of Shri Bagai was received by the Income tax Officer on March 26, 1974 and on the very next day, that is, on March 27, 1974, he issued the impugned notice under Section 147(b) of the Act and that he did not have conducted any inquiry or investigation into the information sent by Shri Page 45 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Bagai. Merely because the impugned notice was sent on the next day after receipt of the letter of Shri Bagai does not mean that the Income Tax Officer did not apply his mind to the information contained in the said letter of Shri Bagai. On the basis of the said facts and information contained in the said letter, the Income Tax officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information on the basis of which he could have reasons to believe that income of the assessee chargeable to tax had escaped assessment for the relevant assessment years. For the reasons aforementioned, we are unable to uphold the impugned judgment of the High Court. The appeal is, therefore, allowed, the impugned judgment of the High Court is set aside and the Writ Petitions filed by the respondents are dismissed. No order as to costs."
12. In case of Income Tax Officer v. Selected Dalurband Coal Co. Pvt. Ltd. (Supra), the assessment was reopened on the basis of the Page 46 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 information contained in letter from Chief Mining Officer that the colliery of the assessee had been inspected and there had been under reporting of coal raised. Upholding the validity of re-opening of assessment, the Supreme Court held and observed as under:
"After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection was conducted in the colliery of the respondent on January 9, 1967, by the officers of the Mining Department in the presence of the representatives of the assessee and according to the opinion of the officers of the Mining Department, there was under
reporting of the raising figure to the extent indicated in the said letter. The report is made by a Government Department and that too after conducting a joint inspection. It gives a reasonably specific estimate of the excessive coal mining said to have been done by the respondent over and above the figure disclosed Page 47 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may be well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have not to go on we don not and we ought not to express any opinion on the merits."
13. In case of AGR Investment Ltd. v. Additional Commissioner of Income Tax & Anr. (supra), Division Bench of Delhi High Court considered the validity of reopening of assessment where the notice was based on information received from Directorate of investigation that the assessee was beneficiary of bogus accommodation entries. The Court while upholding the validity of reopening observed that sufficiency of reason cannot be Page 48 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 considered in a writ petition. It was observed as under :
"23. The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the assessing officer treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that transactions involving Rs.27 lakhs mentioned in the table in Annexure P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The assessing officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the DIT (INV-V) as regards the transactions entered into by the assessee company with number of concerns which had made Page 49 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 accommodation entries and they were not genuine transactions. As we perceive, it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under Section 147 of the Act. The reason to believe has been appropriately understood by the assessing officer and there is material on the basis of which the notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered. opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Page 50 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind.
That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score."
13. Learned Single Judge of Madras High Court in case of Sterlite Industries (India) Ltd. v. Asstt. CIT [2008] 302 ITR 275 (Mad) upheld the notice for reopening which was based on information from enforcement directorate showing possible inflation of purchases made by the assessee.
8. The question of change of opinion and failure on the part of the assessee to disclose truly and fully all material facts, in the present case are closely connected. Undoubtedly, as noted earlier, the Page 51 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Assessing Officer during the original assessment had examined the transactions. However, such examination would necessarily. be on the basis of disclosures made by the assessee in the return filed and during the scrutiny assessment. If the Assessing Officer has information to form a reasonable opinion that prima facie the entire transaction itself was sham and bogus, as reference to such transaction during the original assessment and raising certain queries in this respect would not prevent him from reopening the assessment on the principle of change of opinion. As noted, the opinion would be formed on the basis of disclosures. When disclosures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. In the present case, as noted, Assessing Officer received additional information after the original assessment was over, on the basis of which he formed a belief that the entire transaction was a sham transaction. At this stage, where the Court is examining the validity of notice of reopening, it is not necessary that the Assessing Officer must have conclusive evidence to hold that invariably additions would be made in the income of the assessee. What is required is the reason to believe that income chargeable to tax as escaped assessment. Sufficiency of the materials in the hand Page 52 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 of the Assessing Officer which enabled him to form such a belief would not be examined. A reference in this respect is made to a decision of the Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316.
9. Learned advocate for the Revenue is correct in drawing our attention to the judgment of this Court in the case of Yogendrakumar Gupta (supra) in which, in somewhat similar background, the question of change of opinion and failure on the part of the assessee to disclose true and full facts came up for consideration. It is undoubtedly true that every case of reopening may have slightly varying facts, giving slightly different colour shade to each situation, nevertheless, the observations made by the Court in the case of Yogendrakumar Gupta (Supra) need to be noted. It was the case in which the notice for reopening was based on information made available to the Assessing Officer who formed opinion suggesting that the assessee had obtained accommodation entries in the form of loans and advances from one business marketing company, a Calcutta based company. Relevant observations made by the Bench in paras 18, 19 & 20 read thus: Page 53 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022
C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 "18. As mentioned hereinabove, we had called for the original file, which had revealed new, valid and tangible information supporting Assessing Officer's opinion 'received from DCIT, Kolkata, based on the material found during the search by the CBI, where Basant Marketing Pvt. Ltd. is said to be a dummy company of one Shri Arun Dalmia. What has been emphasized by the learned Senior Counsel appearing for the petitioner is that the Assessing Officer had attempted to fill in the gap by terming the amount received from Basant Marketing Pvt. Ltd. as "accommodation entry", which she could not have done without further inquiry/ verification. Yet another contention emphasized by the learned Senior Counsel is that the post notice correspondence made after the reasons recorded could not have added anything which was lacking in the reasons themselves. He urged that in absence of any statement given by any Director of Basant Marketing Pvt. Ltd. stating that the assessee received and obtained accommodation entry in the form of loans and advances, the reasons lack basis. The Director Mr. Dalmia of Basant Marketing Pvt. Ltd. as contended also does not reveal anywhere and, therefore, it is premature on the part of the Assessing Officer to Page 54 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 so record the reasons. It is further urged that the affidavit of Rishabh Dalmia stating on oath that the loan transactions with the petitioner are genuine for having been carried out only through cheques, prima facie vindicates that the entire exercise is based on suspicion. The entire thrust, therefore, is that issuance of notice is nothing but a fishing inquiry.
19. As discussed at length while adverting to the law, that sufficiency of reasons recorded by the Assessing Officer need not be gone into by this Court. Of course, the Assessing Officer when forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings as fresh facts revealed the nondisclosure full and true. Such facts were not previously disclosed or it can be said that if previously disclosed, they expose untruthfulness of facts revealed.
20. The Assessing Officer required jurisdiction to reopen under section 147 read with section 148 of the Act, where the information must be specific and reliable. As held by the Apex Court in the Page 55 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 case of Phul Chand Bajrang (supra), since the belief is that of the Income- tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is open to an assessée to establish that there exists no belief or that the belief is not at all a bona fide one or based on vague, irrelevant and nonspecific information. To that limited extent, the Court may look at the view taken by the Income-tax Officer and can examine whether any material is available on record from which the requisite belief could be formed by the Assessing Officer and whether that material has any rational connection or a live link with the formation of the requisite belief. It is also immaterial that at the time of making original assessment, the Assessing Officer could have found by further inquiry or investigation as to whether the transactions were genuine or not.
If on the basis of subsequent valid information, the Assessing Officer forms a reason to believe on satisfying twin conditions prescribed under section 147 of the Act that no full and true disclosure of facts was made by the assessee at the time of original assessment and, therefore, the income chargeable to tax had escaped assessment, his belief and the notice of reassessment based on such belief/ opinion needs no interference. In the Page 56 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 present case, since both the necessary conditions have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. The information furnished at the time of original assessment, when by subsequent information received from the DCIT, Kolkata, itself found to be controverted, the objection to the notice of reassessment under section 147 of the Act must fail. At the costs of in gemination, it needs to be mentioned that at the time of scrutiny assessment, a specific query was raised with regard to unsecured loans and advances received from the said company namely, Basant Marketing Pvt. Ltd. based at Kolkata. These being the transactions through the cheques and drafts, there would arise no question of the Assessing Officer not accepting such version of the assessee and not treating them as genuine loans and advances. Furnishing the details of names, addresses, PANs, etc. also would lose its relevance if subsequently furnished information, which has been made basis for issuance of notice impugned, concludes that Basant Marketing Pvt. Ltd. is merely a dummy company of one Shri Arun Dalmia, which provided the accommodation entries to various beneficiaries.
Page 57 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022
21. This Court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr. Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy. companies of Mr. Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also. From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well, this information has been provided to Director General of Income-tax, Kolkata, who in turn, communicated to the Chief Page 58 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Commissioner of Income-tax, Ahmedabad. Further revelation of investigation as could be noticed from the record examined (file) deserves no reflection in this petition. Insistence on the part of the petitioner to provide any further material forming the part of investigation carried out against Dalmias also needs to meet with negation, as the law requires supply of information on which Assessing Officer recorded her satisfaction, without necessitating supply of any specific documents. The proceedings initiated under section 147 of the Act would not be rendered void on non supply of such document for which confidentiality is claimed at this stage, following the decision of the Delhi High Court in case of Acorus Unitech Wireless (P.) Ltd. (supra). Assumption of jurisdiction on the part of the Assessing Officer is since based on fresh information, specific and reliable and otherwise sustainable under the law, challenge to reassessment proceedings warrant no interference." 8.4 It is quite clear from this decision that the reason to believe has to be the that of the Assessing Officer, who needs to apply his mind to the information Page 59 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 received by him, from any authorised source to form the opinion that there was a reasons to belief that the income of the assessee chargeable to tax has escaped the assessment. It is not for the Courts to then decide the sufficiency of the reasons at the stage of reopening. Since the Assessing Officer is distort statutorily the jurisdiction to reopen under Section 147 read with 148 of the Act where information needs to be categorical, specific and dependable. The Apex Court also has time and again emphasised that the sufficiency of the reasons for forming the belief is not the domain of the Court. However, it is open to establish that there exist no belief or the belief is not a bona fide and is vague, irrelevant, Page 60 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 nonspecific and based on the unsustainable information.
8.3 The material whether has a rational connection or live link with the formation of the requisite belief can be gone into by the Court. Upon the basis of any subsequent valid information, if the officer forms reason to believe that the twin conditions provided under Section 147 of the Act are satisfied. That no full and true disclosure of the fact have been made by the assessee at the time of original assessment and hence, the income chargeable to tax has escaped the assessment by forming his own belief based on his own reasons to belief. The Court need not interfere.
9. This being a well laid down position of law that the Court needs to inquire to a Page 61 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 limited extent is as to whether there exist a sufficient material on record for the Assessing Officer to form a requisite belief and whether there was a live link existing of the material and the income chargeable to tax had escaped the assessment.
10. Undoubtedly, there exists a material on record that after the original assessment was concluded, the information had been received from the Investigating Wing, Kalkatta, which carried on the survey and search operations, where it was established that the large number of penny stock companies share prices were artificially manipulated on the stock exchanges in order to book bogus claims of LTCG/Loss. The Page 62 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 statement had also been recorded of Shri Sanjay Vora under Section 131 of the Act, which does not contain the name of the assessee and it also does not relate to the broker of assessee, since the sale is not through M/s.Anand Rathi Shares and Stock Brokers Ltd., but through Arcadia Share and Brokers Pvt.Ltd. Thus, on obtaining this information, there shall need to be a reason for formation of belief that there is a rational connection having live link between the material coming to the income tax officer and his formation of belief that the income chargeable to tax has escaped the assessment of the particular year. Even when the Court is not required to go into the sufficiency or adequacy of the material, it is a must for the Page 63 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 Assessing Officer to establish the rational connection of direct nexus or live link between the material coming to the notice of the officer and formation of his belief. There does not appear to be any material connecting the present assessee, where information in relation to the third party has been used by the Assessing Officer. There is nothing to indicate as to how in absence of any explicit connection of the assessee with the information received from the another agency, the reassessment proceedings have been initiated. The statement recorded of Shri Sanjay Vora also does not name the assessee nor has there been any link of the broker through whom the assessee has sold the shares.
11. Of course, the company whose share has Page 64 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 been purchased by the assessee is alleged to be one of the penny stock companies. Therefore, the reasons recorded were drawn from survey and search operation in relation to the other assessees and therefore, the requirements of the statute does not appear to be satisfied. Even if, there is a needle of suspicion towards the assessee, the Assessing Officer shall need to act upon his own belief that the twin conditions required under the statute are satisfied before he initiates the proceedings of reassessment.
12. This Court cannot be oblivious of the requirement of satisfying these conditions before the reassessment proceedings are initiated, there appears to Page 65 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 be a borrowed satisfaction. It has chosen to merely considered the information/material received from other source without forming any independent opinion on the basis of the material on record that income has escaped the assessment. His suspicion of the assessee dealing with the shares and claiming of LTCG would not provide the sufficient grounds for reopening.
13. The exercise which is based on suspicion is not permissible for reopening and any notice for reassessment in such circumstances would need to be termed as a fishing inquiry only.
14. In case of Vilas Vrajlal Parekh HUF (supra) it was a case where the Principal Director of Income Tax (Inv) Kolkata, had Page 66 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 undertaken the exercise of accommodation entry of LTCG, and identified large number of beneficiaries who had availed huge amount of bogus entries of LTCG and identified about 64811 beneficiaries involving bogus LTCG amounting Rs.38,000 crore. The revenue has highlighted the modus operandi of the business of penny stocks and pointed out that the company involved in that case which was Tuni Textile Ltd. The company Tuni Textile Ltd., was used in providing bogus accommodation entries of LTCG by certain entities like broker etc., the assessee had purchased 60,000 shares and on 04.08.2010 and sold it on 26.03.2012. On the basis of information received from the concerned wing, the Assessing Officer made Page 67 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 independent inquiries and applied his mind to the information and upon duly satisfied that and the materials gathered during the inquiries, formed an opinion that the income has escaped assessment. This Court held that at that stage of issuance of notice, the court cannot investigate into adequacy or sufficiency of the reasons. When no scrutiny assessment made under section 143(1) of the Act, the requirement for reopening is only 'reason to believe'. The Assessing Officer had in that matter justified that the alleged transaction of penny stock claiming amount of long term capital gain has escaped assessment. 14.1 The Apex Court interpreted the word "reason to believe" in case of Central Prominces Mangnese Ore Company ltd. vs. Page 68 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 ITO, reported in (1991) 59 taxmann.com 17, it held that, the word "reason" in the phrase "reason to believe" in Section 147, would mean cause or justification to know that income had escaped the assessment he can be said to have reason to believe. This expression does not mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. 14.2 Way back in the year 1999, in case of Praful Chunilal Patel Vs. M.J.Makwana or His Successor Assistant Commissioner of Income Tax, reported in [1999 (236) ITR 832], this Court held that the Assessing Officer should not have finally ascertained the facts by legal evidence. While forming the reason to believe, it would only mean that he forms a belief from the examination Page 69 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 that he receives. If he discovers and satisfies himself that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such income has escaped assessment and reopening is necessary. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision.
15. Allegedly, the scrip being Global Securities Ltd. was one of the Penny Stock Companies utilized by M/s.Anand Rathi Shares and Stock Brokers Ltd. for providing bogus accommodation entries. This had been accepted in the statement recorded under Section 131 of the Act of Shri Sanjay Vora, the assessee had claimed the LTCG amounting Page 70 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 to Rs.20,76,924/- arising out of sale of shares of Global Securities Ltd. The Assessing Officer on getting this information has issued the notice by recording the reasons that this claim of LTCG on sale of shares of Global Securities Ltd. was the prearranged mechanism of claiming bogus LTCG. On getting this information, it was deduced that the Global Securities Ltd. has been involved in circular trading and sale and purchase of the scrip to convert unaccounted money of several beneficiaries into accounted one by following the said modus operandi.
16. The Assessing Officer to form the opinion there shall need to be some link with the material and as discussed above, Page 71 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022 C/TAXAP/296/2021 JUDGMENT DATED: 07/01/2022 the same is missing, the challenge needs to fail. Though no rigid format is a must to express application of mind or for formation of belief that income chargeable to tax has escaped assessment and yet, when reliance on the information is mechanical without reassessment for the verification, independent opinion needs to be held to be absent.
17. Resultantly, this appeal fails and dismissed accordingly.
(SONIA GOKANI, J) (NISHA M. THAKORE,J) M.M.MIRZA Page 72 of 72 Downloaded on : Sat Dec 24 08:28:55 IST 2022